BNKS & Associates

What is TDS? A Complete Guide to TDS Deduction and Compliance in India

Every time your employer deducts a slice of your salary before you even see it — that's TDS at work. Understanding it can save you from surprise tax bills and costly penalties.

What is TDS?

Tax Deducted at Source (TDS) is a mechanism under the Income Tax Act, 1961, where the payer deducts tax from certain payments at the time of making them and deposits it directly with the Government of India. Think of it as a "pay-as-you-earn" system — taxes are collected in real time rather than in one lump sum at the end of the year.

The person who deducts the tax is called the deductor, while the person whose tax is deducted is the deductee. TDS widens the tax net, ensures steady government revenue throughout the year, and reduces the risk of tax evasion.

TDS Rates at a Glance (FY 2024–25)

TDS Compliance Process — Step by Step

1. Obtain TAN — Apply via Form 49B before making any deduction.
2. Deduct tax — At the time of payment or credit, whichever is earlier.
3. Deposit to government — By the 7th of the next month (March deadline: 30 April).
4. File TDS return — Quarterly: Form 24Q (salary), 26Q (others), 27Q (NRI payments).
5. Issue Form 16 / 16A — TDS certificate issued to the deductee after filing returns.

Key TDS Deadlines

Penalties for Non-Compliance

• Late deduction / non-deduction: Interest at 1% per month from the date tax was deductible to the date of actual deduction (Section 201).
• Late deposit: Interest at 1.5% per month from the date of deduction to the date of deposit.
• Late filing of TDS return: ₹200 per day of delay under Section 234E, capped at the TDS amount.
• Incorrect filing: Penalty of ₹10,000 to ₹1,00,000 under Section 271H.