Tax Deducted at Source (TDS) for Business: Rules and Compliance

Tax Deducted at Source plays a central role in how tax collection works in India. The idea is simple. Tax is collected right when income is earned, not at the end of the year. Every business that makes certain payments must check the threshold, deduct the right tax, deposit it with the government, and complete TDS return filing within the prescribed timelines.

If this sounds routine, that is because it is. Yet the rules have enough detail to catch any business owner off guard. A small slip can lead to interest, late fees, or even penalties. So it helps to know exactly how TDS for business in India works.

This guide explains the key compliance rules and TDS sections businesses must follow, making it especially useful for business owners, accountants, and finance teams handling payments to vendors, employees, and service providers.

What is Tax Deducted at Source for Businesses

Tax Deducted at Source, or TDS, requires a business to deduct tax when making specified payments and deposit it with the Income Tax Department. This approach captures the tax deducted at source meaning clearly. Tax is collected at the time income is paid, which forms the foundation of tax deducted at source in India.

TDS for business applies when you make payments such as salary, rent, professional fees, commissions, interest, or contractor payments. If the payment crosses the prescribed limit, tax must be deducted before releasing the amount to the recipient.

In simple terms, the business acts as a tax collector on behalf of the government.

Once TDS is deducted:

• The deducted amount is deposited with the government
• The deduction is reported through TDS returns
• The payee gets credit for the tax in their Form 26AS

How TDS Works in Day-to-Day Business Payments

TDS compliance runs on a few basic checks. Getting these right keeps problems away.

• The payer and payee must have a valid PAN and TAN. Without it, the TDS rate increases sharply
• Rates differ across sections of the Income Tax Act, so the right one must be selected
• Payments to certain government bodies are exempt to avoid unnecessary paperwork
• Deductions already made can be viewed anytime through Form 26AS
• TDS for business becomes applicable only when the payment crosses the threshold set for that category

These points help you avoid excess deduction, wrong deduction, or missing deduction.

Note: Every business required to deduct TDS must obtain a Tax Deduction and Collection Account Number (TAN) before making deductions. Without a valid TAN, TDS returns cannot be filed.

For businesses, Form 26AS serves as a cross-check between TDS deducted, returns filed, and tax credits claimed. To understand its role in compliance and reconciliation, see our explainer on what is Form 26AS.

Important TDS Sections Every Business Should Know

Many businesses pay contractors, consultants, landlords, employees, and service firms in the normal course of work. Each type of payment falls under a different section of TDS law. Understanding the major sections allows you to:

• Create clean vendor agreements
• Set up proper invoice checks
• Forecast your TDS liability
• Offer clarity to vendors when they ask, “How much TDS applies here?”

Below are the sections you will encounter most often.

Section	Nature of Payment	TDS Rate	Threshold Limit	Applicability
192	Salary	As per the tax slab	Basic exemption limit	Based on employee income and declarations
194A	Interest (other than securities)	10%	₹40,000 (₹50,000 for senior citizens)	Banks, NBFCs, companies
194B	Lottery, crossword, game winnings	30%	Rs. 10,000	Includes game shows, prizes, and betting
193	Interest on securities	10%	Rs. 10,000 (debentures), Rs. 40,000 (others)	Applies to individuals and HUF
194	Dividend	10%	Rs. 10,000	Applies to dividends from companies
194C	Contractors and sub-contractors	1% (individual/HUF), 2% (others)	Rs. 30,000 per contract or Rs. 1,00,000 yearly	Applies to contract work
194EE	Withdrawal from NSS	20%	Rs. 2,500	Applies to National Savings Scheme
194H	Commission/Brokerage	5%	₹15,000 yearly	Agents, intermediaries
194I	Rent	2% (plant/machinery), 10% (land/building)	Rs. 50,000 per month	Rent paid to residents
194J	Professional or technical fees	10%	Rs. 50,000 yearly	2% for technical, 10% for professional
194Q	Purchase of goods	0.1%	Exceeds Rs. 50 lakh yearly	Buyer turnover > Rs. 10 crore in previous FY
194R	Business perquisites	10%	Rs. 20,000 yearly	Includes gifts, incentives, cash or kind

This table  of TDS sections gives your finance team a reference point for every type of outgoing payment. Keeping it visible in your accounts department saves hours of guesswork. 

Salary payments deserve special attention because they are usually the first TDS responsibility a business takes on. Unlike other payments, salary TDS is linked to employee income and declarations and requires ongoing adjustment throughout the year. To understand how employers are expected to calculate, deduct, and report this tax, you can read our detailed guide on TDS under Section 192.

Due Dates for TDS Payment and Returns

TDS compliance has two parts. First you deduct and deposit the tax. Then you file your quarterly TDS returns. Late deposits trigger interest. Late returns attract a daily fee. When both are on time, your books stay neat.

These quarterly return dates apply for FY 2026-27:

Quarter	Period	Due Date
Q1	1 Apr 2026 to 30 Jun 2026	31 Jul 2026
Q2	1 Jul 2026 to 30 Sep 2026	31 Oct 2026
Q3	1 Oct 2026 to 31 Dec 2026	31 Jan 2027
Q4	1 Jan 2027 to 31 Mar 2027	31 May 2027

After you file the returns, you must issue the correct certificates. These certificates act as proof for the person who received the payment. They also become part of your audit trail.

• Form 16 for salary
• Form 16A for non-salary income
• Form 16B for property-related TDS

The right certificate prevents disputes during ITR filing.

Once your return is filed, you can monitor your TDS refund status online, so you can claim it without any delay. This blog explains how to check it in a few simple steps: TDS Refund Status: How to Check & Claim Your Refund

Interest and Penalties for Non-Compliance

The Income Tax Act takes non-deduction and late payment seriously. The rules are clear.

• If TDS is deducted but not deposited, interest is charged at 1.5% per month from the date of deduction to the date of payment.
• If TDS should have been deducted but was not, interest is charged at 1% per month from the date it was due until the actual date of payment.
• Late filing of TDS returns attracts a fee of Rs. 200 per day under Section 234E. This fee continues until the return is filed, capped at the TDS amount.
• If the delay crosses one year from the due date, a penalty ranging from Rs. 10,000 to Rs. 1,00,000 may be imposed.

The message is simple. Deduct on time. Deposit on time. File on time.

Conclusion

Most businesses handle several payments each month. Tax Deducted at Source becomes part of the routine, but it still demands careful tracking. A missed due date or wrong rate can create trouble later. The rules change with each Finance Act, so it helps to stay updated and keep your records clean. Understanding the tax deducted at source meaning in day-to-day operations makes compliance easier and reduces the risk of errors. If you would like help setting up a smooth TDS system or staying on top of filing your TDS returns, our professional compliance team at LegalWiz can take the weight off your shoulders. We handle the filings, track deadlines, and keep your records in order, so you have more time to focus on running the business.