TDS is one of the most closely tracked compliance areas in India because it directly impacts government revenue and vendor tax credits. Even a small error in section selection, PAN capture, or deposit timing can trigger interest, late fees, and notices.
For businesses, TDS compliance is not just about deducting tax. It requires disciplined vendor onboarding, correct classification of payments, timely deposit, accurate quarterly returns, and proper issuance of certificates.
How TDS Works
TDS is tax deducted by the payer at the time of credit or payment, whichever is earlier, and deposited with the government. The deductee receives credit for the TDS in their tax records.
A complete TDS cycle includes:
- Identify whether TDS applies on a payment
- Deduct tax at the correct rate and section
- Deposit TDS within due date
- File quarterly TDS return with correct mapping
- Issue TDS certificate such as Form 16A
- Reconcile with TRACES and Form 26AS
Common TDS Sections for Businesses
The correct section depends on the nature of payment. Common sections include:
- Section 192 for salary
- Section 194C for contractor payments
- Section 194J for professional and technical fees
- Section 194I for rent
- Section 194H for commission and brokerage
- Section 194A for interest other than securities
- Section 194Q for purchase of goods above threshold
- Section 195 for payments to non residents
Practical tip: Maintain a payment to section mapping in your accounting system and vendor master.
Rate and Threshold Overview
TDS rates and thresholds vary by section and can change through budgets and notifications. For operational control, businesses should maintain:
- A TDS rate chart approved internally
- Threshold tracker by vendor and section
- Flags for special cases such as lower deduction certificates
- Rules for higher deduction where PAN is not available
Due Dates and Filing Requirements
Deposit due dates
TDS deducted must be deposited within the prescribed due date, generally in the following month. Certain month end deductions may have specific timelines.
Quarterly returns
Businesses must file quarterly TDS returns such as Form 26Q, 24Q, and 27Q depending on the payment type.
TDS certificates
After filing the return, issue certificates:
- Form 16 for salary
- Form 16A for non salary payments
Certificates are typically downloaded from TRACES.
High Risk Areas That Cause Defaults
- Wrong section selection such as 194J vs 194C
- Missing PAN leading to higher deduction under Section 206AA
- Applicability of Section 206AB for specified persons
- Not deducting on provisions and expense accruals
- Incorrect GST treatment in TDS base for services
- Not applying TDS on reimbursements where required
- Missing TDS on purchase of goods under Section 194Q
- Non resident payments without Section 195 analysis and documentation
Practical TDS Compliance Checklist
Vendor onboarding and master controls
1 Collect PAN and validate on income tax portal or through system validation 2 Capture vendor residency status and declaration 3 Map vendor to TDS section and default rate 4 Track lower or nil deduction certificates and validity 5 Identify specified persons for Section 206AB where applicable
Monthly processing
1 Review expense ledger for TDS applicable accounts 2 Check provisions and month end accrual entries for TDS requirement 3 Compute TDS and deduct at correct rate 4 Deposit TDS and maintain challan 281 details 5 Reconcile TDS payable ledger with challans
Quarterly return readiness
1 Reconcile challans with deductions and CIN details 2 Validate PAN and deductee details 3 Validate section codes and amounts 4 File the quarterly return and resolve any errors 5 Download Form 16A and issue to vendors
Ongoing governance
1 Maintain a TDS rate chart and update for changes 2 Track thresholds vendor wise 3 Maintain documentation for non resident payments including tax treaty analysis where relevant 4 Respond to notices with reconciled workings and evidence
How Perfect Accounting Can Help
Perfect Accounting and Shared Services supports end to end TDS compliance:
- TDS applicability review and section mapping
- Monthly TDS computation and deposit support
- Quarterly return filing and TRACES downloads
- Vendor master setup and compliance controls
- Support for Section 195 and withholding tax documentation
- Default resolution and notice response support