📊 TDS Rate Chart – FY 2025-26 (AY 2026-27)

 


Tax Deducted at Source (TDS) continues to be one of the most critical compliance responsibilities for businesses, employers, professionals, and even individuals engaged in specified financial transactions. As we step into Financial Year 2025-26 (Assessment Year 2026-27), understanding the applicable TDS rates, thresholds, and compliance timelines is essential to avoid penalties, interest, and legal complications.

This comprehensive guide explains key TDS rates, important sections, compliance rules, and practical steps to stay fully compliant.

📌 What is TDS?

TDS is a mechanism introduced under the Income-tax Act to ensure tax collection at the point of income generation. Instead of collecting tax at the end of the year, the Government requires deductors to withhold a specified percentage at the time of payment and deposit it with the Income Tax Department.

The system:

  • Prevents tax evasion

  • Ensures steady revenue inflow to the Government

  • Spreads tax liability across the financial year

The TDS framework is administered by the Income Tax Department.

🔎 Key TDS Rates for FY 2025-26

Let’s examine the major TDS categories relevant for most taxpayers and businesses.

🔹 1. Salaries – As Per Slab Rates

TDS on salary is deducted under Section 192 based on applicable income tax slab rates. Employers must:

  • Estimate annual taxable income

  • Consider deductions and exemptions

  • Adjust TDS monthly

Since salary TDS is slab-based, rates vary depending on whether the employee opts for the old regime or the new tax regime.

Proper salary structuring and accurate declaration of investments are crucial to avoid short deduction issues.

🔹 2. Contractor Payments – 1% / 2%

Payments to contractors attract TDS under Section 194C:

  • 1% for payments to individuals/HUF

  • 2% for others

Threshold limits generally apply (₹30,000 per contract or ₹1,00,000 annually). Businesses making payments for works contracts, advertising, transport, or service contracts must deduct TDS accordingly.

🔹 3. Commission / Brokerage – 2%

Under Section 194H, commission and brokerage payments exceeding prescribed limits attract TDS at 2%.

This commonly applies to:

  • Sales commissions

  • Referral fees

  • Agent commissions

  • Brokerage transactions

Failure to deduct TDS may result in disallowance of expense under income tax provisions.

🔹 4. Rent – 2% / 10%

TDS on rent depends on the nature of the asset:

  • 2% for plant & machinery

  • 10% for land, building, or furniture

The threshold typically applies where rent exceeds ₹50,000 per month (in specified cases). Businesses and individuals paying high-value rent must comply carefully.

🔹 5. Purchase of Property – 1%

Under Section 194-IA, buyers must deduct 1% TDS on purchase of immovable property (other than agricultural land) if the transaction value exceeds ₹50 lakh.

Important compliance points:

  • TDS must be deducted at the time of payment

  • Form 26QB must be filed

  • TDS certificate (Form 16B) must be issued

Non-compliance can delay property registration and attract penalties.

🔹 6. Cash Withdrawals – 2%

TDS applies on large cash withdrawals under Section 194N:

  • 2% beyond specified withdrawal thresholds

  • Different thresholds apply depending on filing status and type of entity

The provision discourages large cash transactions and promotes digital payments.

🔹 7. Lottery & Online Game Winnings – 30%

Lottery winnings and online gaming income attract TDS at a flat rate of 30%.

No basic exemption benefit applies to such winnings. The tax is deducted at source before payout.

With the rise of digital gaming platforms, compliance under this category has gained increased importance.

🔹 8. Insurance Commission – 2% / 10%

Insurance commission payments attract TDS depending on recipient classification and applicable provisions.

Insurance companies and intermediaries must ensure accurate deduction and reporting.

🔹 9. E-Commerce Payments – 0.1%

Under Section 194-O, e-commerce operators must deduct TDS at 0.1% on payments made to participants (subject to threshold limits).

This provision significantly impacts:

  • Online sellers

  • Marketplace platforms

  • Aggregator-based businesses

Small sellers must track annual turnover to determine applicability.

🔹 10. Benefits / Perquisites – 10%

Section 194R requires deduction of TDS at 10% on benefits or perquisites provided in the course of business or profession.

This includes:

  • Free goods

  • Incentive trips

  • Business promotional benefits

Companies must carefully evaluate promotional schemes to ensure compliance.

⚠️ Important TDS Rules to Remember

✔️ No PAN – 20% TDS

If the deductee fails to provide PAN, TDS must be deducted at 20% or higher applicable rate.

This rule is strict and commonly leads to disputes. Always ensure PAN collection before making payments.

✔️ Deposit by 7th of Next Month

TDS deducted must generally be deposited by the 7th of the following month.

Delay in deposit attracts:

  • Interest under Section 201

  • Late fee

  • Penalty proceedings

Timely payment is non-negotiable.

✔️ File Quarterly TDS Returns

Quarterly TDS returns must be filed within prescribed due dates.

Failure to file on time attracts:

  • Late filing fees under Section 234E

  • Penalty notices

  • Difficulty in generating TDS certificates

Accurate filing ensures proper credit reflection in Form 26AS and AIS of the deductee.

📉 Consequences of Non-Compliance

Ignoring TDS obligations can result in:

  • Interest for late deduction or late deposit

  • Penalty equal to amount not deducted

  • Disallowance of expense

  • Prosecution in severe cases

TDS compliance is not optional — it is a statutory duty.

🧾 Best Practices for Businesses

To ensure smooth compliance:

✅ Maintain Updated Vendor Records

Collect PAN, address, and bank details.

✅ Track Threshold Limits

Monitor cumulative payments annually.

✅ Use Accounting Software with TDS Modules

Automated systems reduce human errors.

✅ Reconcile with Form 26AS

Verify proper credit reflection.

✅ Conduct Periodic Internal TDS Audits

Early detection prevents notices.

🏢 Why TDS Compliance Is Critical for Growing Businesses

As businesses expand, vendor payments increase and compliance complexity grows. Even small miscalculations can escalate into substantial tax liabilities.

Strong TDS systems reflect:

  • Financial discipline

  • Regulatory responsibility

  • Professional governance

Proper compliance also improves credibility with stakeholders and investors.

🏁 Conclusion

The TDS Rate Chart for FY 2025-26 (AY 2026-27) highlights the importance of staying informed about applicable rates, thresholds, and procedural rules.

From salaries and contractor payments to property transactions and digital income streams, TDS obligations span across sectors and income categories.

Timely deduction, accurate deposit, and quarterly return filing are essential to avoid penalties and ensure smooth business operations.

Stay compliant. Avoid penalties. Plan smartly.

📞 Contact us today: +91 7305701454
📧 Email: auditsiva2@gmail.com
🌐 Website: www.taxlaservices.com

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