TDS (Tax Deducted at Source) is a mechanism where the payer deducts tax at the time of payment and deposits it with the government on behalf of the payee. For every Mumbai business owner making payments for salaries, rent, professional fees, or contractor services, understanding TDS rates and calculations is critical to staying compliant and avoiding penalties.
This comprehensive guide covers all TDS sections applicable in FY 2025-26, current rates, and step-by-step calculation methods. Plus, use our free TDS Calculator to get instant results.
What Is TDS and Why Does It Matter?
Tax Deducted at Source (TDS) is the Indian government's way of collecting income tax at the point of income generation. Instead of waiting for the payee to file returns and pay tax, the payer deducts a percentage and remits it to the government.
Who needs to deduct TDS?
- Companies (private and public)
- Partnership firms
- Individuals and HUFs (if subject to audit in the previous year)
- Any person making specified payments above threshold limits
Why it matters for your business:
- Non-deduction penalty: Interest at 1% per month from the date of deductibility
- Late deposit penalty: Interest at 1.5% per month from deduction date to deposit date
- Non-filing penalty: Late filing fees of ₹200/day (up to the TDS amount)
- Disallowance: 30% of the expense is disallowed if TDS is not deducted (Section 40(a)(ia))
Calculate TDS interest instantly with our free [TDS Interest Calculator](/tools/tds-interest-calculator.html).
TDS Rate Chart FY 2025-26: All Major Sections
Here's the complete TDS rate chart for the most commonly used sections:
TDS on Salary — Section 192
| Income Slab (New Regime FY 2025-26) | TDS Rate |
|---|---|
| Up to ₹4,00,000 | Nil |
| ₹4,00,001 – ₹8,00,000 | 5% |
| ₹8,00,001 – ₹12,00,000 | 10% |
| ₹12,00,001 – ₹16,00,000 | 15% |
| ₹16,00,001 – ₹20,00,000 | 20% |
| ₹20,00,001 – ₹24,00,000 | 25% |
| Above ₹24,00,000 | 30% |
Note: Salary TDS is calculated based on estimated annual income and deductions. The employer applies average rates across the year.
Want to see your take-home salary? Use our [Take Home Salary Calculator](/tools/salary-calculator.html) to compare old vs new tax regime.
TDS on Non-Salary Payments
| Section | Nature of Payment | Threshold (₹) | TDS Rate | TDS Rate (No PAN) |
|---|---|---|---|---|
| 194A | Interest (other than securities) | 50,000 (Senior: 1,00,000) | 10% | 20% |
| 194B | Lottery/Crossword Winnings | 10,000 | 30% | 30% |
| 194C | Payment to Contractors | 30,000 (single) / 1,00,000 (aggregate) | 1% (Individual/HUF) / 2% (Others) | 20% |
| 194D | Insurance Commission | 15,000 | 5% | 20% |
| 194H | Commission/Brokerage | 15,000 | 5% | 20% |
| 194I(a) | Rent – Plant & Machinery | 2,40,000 | 2% | 20% |
| 194I(b) | Rent – Land, Building, Furniture | 2,40,000 | 10% | 20% |
| 194J(a) | Technical Services / Call Centre | 30,000 | 2% | 20% |
| 194J(b) | Professional Fees / Royalty | 30,000 | 10% | 20% |
| 194Q | Purchase of Goods | 50,00,000 | 0.1% | 5% |
| 194R | Perquisites/Benefits in Kind | 20,000 | 10% | 20% |
| 194S | Transfer of Virtual Digital Assets | 50,000 (specified) / 10,000 (others) | 1% | 20% |
Important: If the payee does not provide a PAN, TDS is deducted at 20% (or the applicable rate, whichever is higher) under Section 206AA.
How to Calculate TDS: Step-by-Step Guide
Let's walk through TDS calculation with practical examples relevant to Mumbai businesses.
Example 1: TDS on Rent (Section 194I)
Scenario: Your office in Andheri has monthly rent of ₹50,000.
Calculation:
- Annual rent = ₹50,000 × 12 = ₹6,00,000
- Threshold for Section 194I(b) = ₹2,40,000
- Since ₹6,00,000 > ₹2,40,000, TDS applies
- TDS Rate = 10%
- Monthly TDS = ₹50,000 × 10% = ₹5,000
- Net payment to landlord = ₹50,000 − ₹5,000 = ₹45,000
- Payment amount = ₹75,000
- Threshold for Section 194J = ₹30,000
- Since ₹75,000 > ₹30,000, TDS applies
- TDS Rate = 10%
- TDS amount = ₹75,000 × 10% = ₹7,500
- Net payment to CA = ₹75,000 − ₹7,500 = ₹67,500
- Payment amount = ₹2,50,000
- Single payment threshold = ₹30,000 ✅ (exceeds)
- Contractor is an individual → TDS Rate = 1%
- TDS amount = ₹2,50,000 × 1% = ₹2,500
- Net payment = ₹2,50,000 − ₹2,500 = ₹2,47,500
- Enable TDS: Gateway → F11 (Features) → Enable Tax Deducted at Source
- Create TDS Ledgers: Set up ledgers for each TDS section you use (194C, 194I, 194J, etc.)
- Configure Deductee Types: Individual, Company, Firm — rates vary by type
- Record Transactions: When recording payments, Tally auto-calculates TDS based on the configured rate
- Generate Challans: Use Tally's TDS challan (ITNS 281) generation for deposit
- File Returns: Export data for TDS return filing (Form 24Q for salary, 26Q for non-salary)
- Businesses with high turnover but low margins
- Individuals with significant deductions under Chapter VI-A
- Entities with brought-forward losses
Example 2: TDS on Professional Fees (Section 194J)
Scenario: You pay ₹75,000 to a CA firm for audit services.
Calculation:
Example 3: TDS on Contractor Payment (Section 194C)
Scenario: You hire a contractor for office renovation at ₹2,50,000.
Calculation:
Skip the math — use our free [TDS Calculator](/tools/tds-calculator.html) to calculate TDS instantly for any section.
TDS Due Dates and Deposit Schedule
Timely TDS deposit is crucial. Here are the key dates:
| Month of Deduction | Due Date for Deposit |
|---|---|
| April to February | 7th of the following month |
| March | 30th April |
TDS Return Filing Due Dates
| Quarter | Period | Due Date |
|---|---|---|
| Q1 | April – June | 31st July |
| Q2 | July – September | 31st October |
| Q3 | October – December | 31st January |
| Q4 | January – March | 31st May |
Late filing attracts a fee of ₹200 per day under Section 234E, up to the total TDS amount.
TDS Calculation in Tally Prime
If you use Tally Prime for your accounting, TDS calculation and compliance become significantly easier:
Setting Up TDS in Tally Prime
As a Tally 5-Star Certified Partner, Mark IT Solutions can set up TDS configuration in your Tally Prime tailored to your business needs. Contact us for assistance.
TDS Exemptions and Lower Deduction
Form 15G/15H
Individuals with income below the taxable limit can submit Form 15G (below 60 years) or Form 15H (senior citizens) to avoid TDS on interest income.
Lower/Nil Deduction Certificate (Section 197)
If TDS at the standard rate would be excessive compared to your actual tax liability, you can apply to the Assessing Officer for a lower or nil deduction certificate. This is common for:
No TDS Below Threshold
TDS is not applicable if the payment amount is below the threshold limit specified for each section. Always check the threshold before deducting.
Common TDS Mistakes Mumbai Businesses Make
1. Not Deducting TDS on Rent
Many businesses, especially small traders, forget to deduct TDS on commercial rent exceeding ₹2,40,000/year. This leads to 30% disallowance of rent expense.
2. Wrong Section Application
Applying Section 194C (contractor) rate instead of 194J (professional fees) or vice versa. The rates differ significantly — 1-2% vs 10%.
3. Missing the Aggregate Threshold
For Section 194C, even if individual payments are below ₹30,000, TDS applies if the aggregate exceeds ₹1,00,000 in a financial year.
4. Late Deposit of TDS
Deducting TDS but depositing it late attracts interest at 1.5% per month. Use our TDS Interest Calculator to check your liability.
5. Not Issuing TDS Certificates
Failing to issue Form 16/16A to deductees within the prescribed time attracts a penalty of ₹100 per day per certificate.
