TDS is one of the most closely monitored compliance areas in India because it directly impacts government collections and deductee tax credits. Even when tax is deducted correctly, delays in deposit, incorrect section codes, PAN errors, or return mismatches can lead to interest, late fees, and credit denial for vendors and employees.
A strong TDS process is a combination of correct transaction classification, accurate rate application, timely deposit, and clean quarterly returns with certificates issued on time.
How TDS Works in Practice
A typical TDS cycle includes:
- Identify whether a payment is subject to TDS and under which section
- Deduct tax at the time of credit or payment as applicable
- Deposit TDS within due dates using challan 281
- File quarterly TDS returns with correct deductee and challan mapping
- Issue TDS certificates and resolve mismatches through corrections
Key Areas Where TDS Errors Happen
Common failure points:
- Wrong section selection such as 194C vs 194J
- Wrong rate selection and surcharge or cess handling
- PAN not available leading to higher deduction under 206AA
- Higher deduction under 206AB not applied for specified persons
- Incorrect nature of payment for non resident payments under 195
- Challan mapping errors in quarterly returns
- Late deposit and late filing
Practical Classification Guide for Common Payments
Contractors and work contracts Section 194C
Typical payments:
- Job work and fabrication
- Transport and logistics contracts
- Maintenance contracts
Key control: Verify whether the contract is a work contract or a professional service.
Professional and technical fees Section 194J
Typical payments:
- Consultants and retainers
- Legal and CA fees
- Software support and technical services
Key control: Maintain engagement letters and scope of work to support classification.
Rent Section 194I
Typical payments:
- Office rent and warehouse rent
- Plant and machinery rent
Key control: Track threshold and landlord PAN and GST details.
Commission and brokerage Section 194H
Typical payments:
- Sales commission
- Referral fees
Key control: Ensure the arrangement is not a discount or trade scheme.
Purchases of goods Section 194Q
Typical payments:
- Purchases from resident sellers beyond threshold
Key control: Evaluate overlap with TCS under 206C and document the position.
Benefits and perquisites Section 194R
Typical payments:
- Dealer incentives in kind
- Free samples and gifts
Key control: Maintain schemes and valuation working.
Salary TDS Section 192
Key controls:
- Declaration collection and proof verification
- Perquisite valuation and payroll configuration
- Year end true up and Form 16 reconciliation
Non resident payments Section 195
Key controls:
- Determine chargeability under the Act and DTAA
- Obtain TRC and Form 10F where required
- Evaluate withholding rate and gross up
- Maintain CA certificate and Form 15CB and 15CA where applicable
Deposit Due Dates and Quarterly Returns
Deposit
TDS is generally deposited monthly. Maintain a compliance calendar and maker checker approvals.
Quarterly returns
Common quarterly return forms:
- Form 24Q for salary
- Form 26Q for resident non salary
- Form 27Q for non resident
- Form 27EQ for TCS where applicable
TDS Certificates and Credit Flow
- Form 16 for salary
- Form 16A for non salary
Practical tip: Vendors often escalate when Form 16A is delayed because it blocks their tax credit in Form 26AS and AIS.
Interest Late Fee and Penalty Exposure
Key exposures include:
- Interest under Section 201 1A for late deduction or late deposit
- Late fee under Section 234E for delayed quarterly returns
- Penalty under Section 271H for incorrect or late returns in certain cases
Practical Monthly TDS Checklist
1 Review all payment runs and identify TDS applicable transactions 2 Validate vendor PAN and apply 206AA and 206AB where applicable 3 Confirm section and rate mapping for each payment category 4 Deduct TDS and post entries with correct section codes 5 Deposit TDS within due dates and download challan details 6 Maintain challan register and map to transactions 7 Prepare quarterly return working and validate challan deductee mapping 8 File return and download acknowledgements and conso file 9 Issue Form 16A and resolve mismatches through corrections
How Perfect Accounting Can Help
Perfect Accounting and Shared Services supports TDS compliance end to end:
- TDS applicability and section mapping review
- Monthly deduction and deposit support with challan controls
- Quarterly return preparation filing and correction statements
- Form 16 and Form 16A issuance support
- Notice handling and default resolution