Decoding TDS: Essentials for FY 2025-26
This section provides a foundational understanding of Tax Deducted at Source (TDS). Explore the core concepts, objectives, and the roles of deductors and deductees in India's direct tax framework. Understanding these basics is crucial before diving into specific provisions and recent amendments.
Understanding TDS: Core Concepts
Tax Deducted at Source (TDS) is a mechanism to collect tax at the point of income generation. The deductor (payer) subtracts tax before paying the deductee (recipient), acting as an advance tax collection for the government.
Objectives of TDS:
- Ensure regular tax revenue flow.
- Broaden the tax base.
- Track incomes and reduce tax evasion.
Key Responsibilities:
- Deductor: Obtain TAN, deduct tax accurately, deposit with government, file TDS returns, issue TDS certificates.
- Deductee: Provide PAN (to avoid higher TDS rates), claim TDS credit in ITR (visible in Form 26AS).
The TDS system creates an information trail, enabling cross-verification by tax authorities and enhancing transparency.
Key Amendments & Highlights (Finance Act 2025)
The Finance Act, 2025, effective April 1, 2025, introduces significant modifications to TDS provisions for FY 2025-26 (AY 2026-27). This section outlines these crucial updates, including revised thresholds, new sections, and procedural simplifications, helping you stay compliant with the latest regulations.
Overview of Amendments
Key changes include enhanced threshold limits for several sections (e.g., 193, 194A, 194H, 194-I, 194J, 194K), reducing compliance for smaller transactions. A significant introduction is Section 194T for TDS on payments by firms to partners. Sections 206AB and 206CCA (higher TDS for non-filers) are omitted, simplifying deductor responsibilities. Some rates were revised from Oct 2024 (e.g., 194H).
Table 1: Key TDS Amendments by Finance Act, 2025 (Effective for FY 2025-26)
| TDS Section | Nature of Change | Provision Before 1 Apr 2025 (Illustrative) | Provision From 1 Apr 2025 (Illustrative) |
|---|---|---|---|
| 193 | Threshold Enhanced | NIL / Lower specific limits | Rs. 10,000 (Interest on securities) |
| 194 | Threshold Enhanced | Rs. 5,000 (Dividend) | Rs. 10,000 (Dividend) |
| 194A | Thresholds Enhanced | Bank Interest (Others): Rs. 40,000; Other Cases: Rs. 5,000 | Bank Interest (Others): Rs. 50,000; Senior Citizen: Rs. 1,00,000; Other Cases: Rs. 10,000 |
| 194H | Threshold Enhanced & Rate Change | Threshold: Rs. 15,000; Rate: 5% | Threshold: Rs. 20,000; Rate: 2% (from Oct 2024) |
| 194-I | Threshold Basis Changed & Enhanced | Rs. 2,40,000 p.a. | Rs. 50,000 per month |
| 194J | Threshold Enhanced | Rs. 30,000 per category | Rs. 50,000 per category |
| 194K | Threshold Enhanced | Rs. 5,000 (MF dividend) | Rs. 10,000 (MF dividend) |
| 194T | New Section Introduced | Not Applicable | Rate: 10%; Threshold: Rs. 20,000 p.a. (Payments to partners) |
| 206AB/CCA | Sections Omitted | Higher TDS/TCS for non-filers | Provisions removed |
Visualizing Threshold Changes
General TDS Compliance
Adhering to TDS provisions is critical. This section details the duties of a deductor, essential timelines for TDS deposit and return filing, and the potential consequences of non-compliance. Familiarize yourself with these general requirements to ensure smooth tax operations.
Deductor Duties and Timelines
- Obtain TAN: Mandatory for all TDS-related documents.
- Deduct Tax: At applicable rates, at time of credit or payment (whichever is earlier).
- Timely Deposit: Generally by 7th of next month (30th April for March deductions). Use Challan ITNS 281.
- File TDS Returns: Quarterly (Form 24Q for salary, 26Q for non-salary resident, 27Q for non-salary non-resident). Due dates: Jul 31, Oct 31, Jan 31, May 31.
- Issue TDS Certificates: Form 16 (salary), Form 16A (non-salary), etc.
Table 2: TDS Compliance Calendar: Key Due Dates for FY 2025-26
| Quarter | Period | TDS Deposit Due (Non-Govt) | TDS Return Filing Due |
|---|---|---|---|
| 1 | Apr-Jun 2025 | 7th July 2025 | 31st July 2025 |
| 2 | Jul-Sep 2025 | 7th Oct 2025 | 31st Oct 2025 |
| 3 | Oct-Dec 2025 | 7th Jan 2026 | 31st Jan 2026 |
| 4 | Jan-Mar 2026 | 7th Apr 2026 (Jan-Feb), 30th Apr 2026 (Mar) | 31st May 2026 |
Consequences of Non-Compliance
Failure to comply can lead to interest, penalties, disallowance of expenditure, and even prosecution. Key provisions include:
Table 3: Summary of Key Penal Provisions
| Nature of Default | Section | Interest/Penalty |
|---|---|---|
| Late deduction | 201(1A) | 1% per month |
| Late payment after deduction | 201(1A) | 1.5% per month |
| Failure to deduct/pay | 271C | Penalty equal to tax |
| Late filing of TDS return | 234E | Rs. 200 per day (max TDS amount) |
| Failure to file/Incorrect info | 271H | Penalty Rs. 10,000 to Rs. 1,00,000 |
| Expense disallowance | 40(a)(ia) | 30% of expenditure disallowed |
| Failure to pay TDS to govt. | 276B | Imprisonment (3 months-7 years) + fine |
Section-wise Deep Dive
Explore individual TDS provisions in detail. Click on a section card below to view its overview, applicability, TDS rates, thresholds, specific conditions, common scenarios, and exemptions for FY 2025-26. This interactive guide helps you pinpoint the exact information you need for each TDS section.
Select a TDS section from the grid above to see details here.