TDS stands for Tax Deducted at Source. Whoever pays salary, rent, contract charges or professional fees deducts income tax from the payment. They deposit that tax with the government and report it every quarter in a TDS return. The person who receives the payment gets credit for the tax in their own income tax return.
From 1 April 2026, TDS works under the Income-tax Act, 2025. Salary TDS now falls under section 392 and other TDS under section 393. The quarterly returns are Form 138 (salary) and Form 140 (other payments to residents), replacing Forms 24Q and 26Q. This guide covers the law as of 24 September 2026. (On a doctor’s prescription, “TDS” means “three times a day”, and on a water purifier it means total dissolved solids. Neither is covered here.)
What is the meaning of TDS in income tax?
TDS collects tax at the moment income is paid, instead of waiting for the earner to pay it at the end of the year. The payer, called the deductor, withholds a set percentage. The person paid, the deductee, receives the balance.
Take a simple case. A company pays a chartered accountant a professional fee of ₹60,000. The fee crosses the ₹50,000 threshold, so the company deducts 10% (₹6,000), pays the accountant ₹54,000 and deposits the ₹6,000 with the government. The accountant later claims the ₹6,000 as tax already paid.
Three identifiers keep this traceable:
- TAN (Tax Deduction and Collection Account Number): every deductor needs one and quotes it on challans, returns and certificates, under section 397(1) of the new Act. Individuals who deduct only on high rent, property purchase or large contract and professional payments (the challan-cum-statement cases) do not need a TAN.
- PAN of the deductee: without a valid PAN from the payee, tax is deducted at the higher of the normal rate or 20% under section 397(2). Two specified payments use 5% instead.
- The tax statement: TDS reported by the deductor shows up in the deductee’s Annual Information Statement. For tax year 2026-27, that statement is Form 168.
What changed on 1 April 2026: old vs new sections and forms
The Income-tax Act, 2025 renumbered TDS law but, according to the Income Tax Department, did not change TDS rates or thresholds. The department’s TDS FAQs describe section 393 as “a simplified tabular presentation”, not a change in tax policy.
Which Act applies depends on the earlier of payment or credit. If that event happened on or before 31 March 2026, the 1961 Act applies, even if the tax is deposited later. If it happened on or after 1 April 2026, the 2025 Act applies. So returns and corrections for periods up to March 2026 still use the old forms.
Section mapping (verified 24 September 2026)
| Provision | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| TDS on salary | Section 192 | Section 392 |
| TDS on other payments (rent, contracts, fees, commission, interest and so on) | Sections 193 to 194T | Section 393 (three tables) |
| TCS (tax collected at source) | Section 206C | Section 394 |
| Higher rate where no PAN | Section 206AA | Section 397(2) |
| Deductor treated as “assessee in default” | Section 201(1) | Section 398(1) |
| Interest for late deduction or deposit | Section 201(1A) | Section 398(3)(a) |
| Late filing fee for TDS returns | Section 234E | Section 427 |
| Penalty for late or incorrect TDS return | Section 271H | Section 461 |
| Penalty for failure to deduct | Section 271C | Section 448 |
| 30% expense disallowance if TDS not deducted or deposited | Section 40(a)(ia) | Section 35(b) |
| Due dates for depositing TDS | Rule 30 | Rule 218 |
| Quarterly TDS return and its due dates | Section 200(3), Rule 31A | Section 397(3)(b), Rule 219 |
Form mapping
| Purpose | Old form (periods up to March 2026) | New form (from April 2026) |
|---|---|---|
| Quarterly TDS return: salary | 24Q | 138 |
| Quarterly TDS return: other payments to residents | 26Q | 140 |
| Quarterly TDS return: payments to non-residents | 27Q | 144 |
| Quarterly TCS return | 27EQ | 143 |
| Challan-cum-statement (property purchase, rent by individuals, contract or professional fees by individuals, virtual digital assets) | 26QB, 26QC, 26QD, 26QE | 141 (one common form) |
| TDS certificate: salary | Form 16 | Form 130 |
| TDS certificate: other payments | Form 16A | Form 131 |
| Declaration for no TDS (for example, on interest) | 15G, 15H | 121 |
| Annual Information Statement | AIS (and Form 26AS) | Form 168 |
One practical trap: the department warns that quoting an old section, such as 194C instead of section 393(1) [Table: Sl. No. 6(i)], for a payment made after 1 April 2026 can cause processing errors and force a correction statement.
TDS rates for tax year 2026-27 in brief
Under the Income-tax Act, 2025, TDS on salary is under section 392 at the employee’s slab rate, and other payments to residents follow the section 393(1) table. The common ones are 1% (individual or HUF) or 2% (others) on contractor payments, 10% on professional fees, 10% on rent of land or buildings, 2% on rent of plant or machinery and 2% on commission or brokerage, each above its own threshold. The rates and thresholds are the same as under the 1961 Act. For every rate and threshold with its old and new section in one table, and a free PDF, see our TDS rate chart for FY 2026-27.
When TDS must be deposited
Most deductors must deposit TDS by the 7th of the month after the month of deduction. Tax deducted in March gets extra time, until 30 April. These timelines sit in Rule 218 of the Income-tax Rules, 2026, which the department says keeps the old Rule 30 dates unchanged.
- Non-government deductors: by the 7th of the next month; for March, by 30 April.
- Government offices: the same day if paid without a challan; within seven days of month-end if paid with a challan.
- Challan-cum-statement cases (Form 141): within 30 days from the end of the month of deduction.
- Quarterly deposit: allowed in special cases for TDS on salary, commission and certain interest, only with the Assessing Officer’s approval (by 7 July, 7 October, 7 January and 30 April).
For example, TDS deducted in September 2026 must be deposited by 7 October 2026.
TDS return due dates and certificates
A TDS return is a quarterly statement listing every deductee, the amount paid, the tax deducted and the challan used to deposit it. Under Rule 219(4) of the Income-tax Rules, 2026, Forms 138, 140, 143 and 144 all share the dates in this table (Rule 219, checked 22 October 2026). They are shown for tax year 2026-27; the same calendar dates apply every year.
| Quarter | Period (tax year 2026-27) | TDS return due | Form 131 certificate due |
|---|---|---|---|
| Q1 | April to June 2026 | 31 July 2026 | 15 August 2026 |
| Q2 | July to September 2026 | 31 October 2026 | 15 November 2026 |
| Q3 | October to December 2026 | 31 January 2027 | 15 February 2027 |
| Q4 | January to March 2027 | 31 May 2027 | 15 June 2027 |
Under Rule 215, Form 131 (non-salary certificate) is due within 15 days of the return due date. Form 130, the salary certificate that replaces Form 16, is due by 15 June after the end of the tax year. In tax year 2026-27, the Q2 statement (July to September) is due by 31 October 2026 and the Q3 statement by 31 January 2027.
What if you miss the TDS return due date?
A late return can still be filed, but the cost starts the day after the due date. The law fixes the order. Pay any interest and the late filing fee first, then file the return (sections 398(3)(b) and 427(2)(b)). File as soon as the challans and the details of each deductee (the person whose payment had tax deducted) are ready, because the fee grows for every day the return is pending. The late fee and interest section below works out the amounts.
How to file a TDS return, step by step
TDS returns are prepared offline and uploaded on the e-filing portal. The steps below follow the department’s Form 140 user manual; Form 138 works the same way.
- Download the latest Return Preparation Utility (RPU) from the Protean (formerly NSDL) website, under Downloads, e-TDS/e-TCS, Quarterly return.
- Enter deductor details, challan details and deductee-wise entries in the RPU.
- Validate the file to generate the FVU file, and compress it into a .zip file.
- Log in to incometax.gov.in with your TAN.
- Go to e-File, Income Tax Forms, File Income Tax Forms, and choose “Deduction and Collection at source” under “Forms as per Income Tax Act 2025”.
- Select the form (138 or 140), the tax year, the quarter and the upload type (regular or correction).
- Upload the .zip file and e-verify.
- Track the status under View Filed Forms. Accepted statements move to TRACES for processing; rejected ones show a reason.
The department lists common rejection reasons: the wrong tax year, an outdated FVU version, a correction file uploaded as a regular one, or a TAN in the file that does not match the login.
Late fee, interest and penalties
Missing a TDS deadline costs money in three separate ways, and they can apply together. The references below are to the 2025 Act; defaults for periods up to 31 March 2026 fall under the old Act equivalents in the mapping table.
| Default | Consequence | Section (2025 Act) |
|---|---|---|
| Tax not deducted on time | Interest at 1% per month or part of a month, from the date deductible to the date deducted | 398(3)(a)(i) |
| Tax deducted but deposited late | Interest at 1.5% per month or part of a month, from the date of deduction to the date of payment | 398(3)(a)(ii) |
| TDS return filed late | Fee of ₹200 per day, capped at the tax deductible; must be paid before filing | 427 |
| TDS return late or incorrect | Penalty of ₹10,000 to ₹1,00,000 | 461 |
| Failure to deduct | Penalty equal to the tax not deducted | 448 |
| TDS not deducted or deposited on a payment to a resident | 30% of the expense disallowed in business income | 35(b) |
The late fee grows fast. A Form 140 filed 30 days after its due date attracts ₹6,000 (₹200 × 30), unless the TDS in that return is lower. The section 461 penalty for late filing does not apply if the tax, fee and interest are paid and the return is filed within one month of the due date. That relief does not cover an incorrect return.
How interest on late TDS payment is calculated
The table above gives the two rates. What trips people up is the starting point. Interest on a late deposit runs from the date the tax was deducted, not from the 7th of the next month when it fell due, and every part of a month counts as a whole month (section 398(3)(a), checked 22 October 2026). Two worked examples on TDS of ₹4,000:
| Situation | Period counted | Interest |
|---|---|---|
| Tax deducted on 5 June 2026 but deposited on 20 August 2026 (it was due by 7 July 2026) | 5 June to 20 August: two full months and part of a third, so 3 months | 1.5% × 3 × ₹4,000 = ₹180 |
| Payment credited to the payee on 2 June 2026, but tax deducted only on 25 June 2026 | 2 June to 25 June: part of one month, so 1 month | 1% × 1 × ₹4,000 = ₹40 |
In the second case, if the ₹4,000 is then deposited by 7 July 2026, no further interest arises. There is one relief for a missed deduction: if the payee has already filed a return showing the income and paid tax on it, the deductor is not treated as in default, but interest at 1% still runs up to the date of the payee’s return (section 398(2) and 398(3)(c)). The deductor needs an accountant’s certificate to claim this.
Late fee for a TDS return: a worked example
The section 427 fee applies to each statement filed late, so a deductor who files both Form 138 and Form 140 late pays it on each. In a different case, say a Q2 Form 140, covering July to September 2026 and due by 31 October 2026, goes in on 15 December 2026. That is 45 days late (30 in November and 15 in December), so the fee is ₹200 × 45 = ₹9,000. If the TDS in that statement is only ₹5,000, the fee stops at ₹5,000, because it cannot exceed the tax deductible. And because the return was filed more than a month after the due date, the section 461 relief no longer applies: the Assessing Officer (the income-tax officer handling the case) may levy a penalty of ₹10,000 to ₹1,00,000.
Where TDS skills are used at work
TDS is routine work for accountants, not a once-a-year task. Every month someone has to calculate deductions, deposit challans by the 7th, and every quarter reconcile and file returns. The 2026 renumbering means employers now look for staff who can work with both the old and new references during the transition.
That is why TDS questions come up in almost every accounts interview; our accounting interview questions and answers include a TDS section. Salary TDS is also a monthly task in the payroll executive role. It is also a core duty in the computer accountant role. On the government side, TDS charges are among the postings described in our guides on becoming an income tax inspector and becoming an income tax officer.
For hands-on practice with challans, returns and certificates, IPA’s Diploma in Taxation covers TDS alongside return filing, as part of a wider tax programme. The deductee’s side of the process, claiming TDS credit, is explained in our income tax return filing guide.
How we teach this at IPA
TDS is one module of IPA’s Diploma in Taxation Law, taught alongside income computation, advance tax and ITR filing. Tally and payroll students meet it earlier: TDS sits in the Tally course’s GST and taxation module and in the payroll course’s income tax and TDS module.
Frequently asked questions
What is the full form of TDS in income tax?
TDS means Tax Deducted at Source. The payer deducts income tax while making a payment, deposits it with the government and reports it in a quarterly TDS return. The payee claims the deducted amount as tax already paid in their income tax return.
Is Form 26Q still used after April 2026?
Only for older periods. Form 26Q (and 24Q) still apply to payments or credits made up to 31 March 2026, including the Q4 return of 2025-26 and any corrections for earlier quarters. For payments from 1 April 2026, use Form 140 (non-salary) or Form 138 (salary).
What is the due date for the TDS return for July to September 2026?
31 October 2026, under Rule 219 of the Income-tax Rules, 2026. The matching Form 131 certificates are due within 15 days after that, by 15 November 2026. Late filing attracts a fee of ₹200 per day under section 427.
What is the interest on late payment of TDS?
1.5% a month, or part of a month, on the tax, from the date it was deducted to the date it is deposited. If the tax was not deducted on time, interest is 1% a month from the date it should have been deducted to the date it is actually deducted. Both sit in section 398(3)(a) of the Income-tax Act, 2025, and must be paid before the TDS return is filed.
How does the deductee get credit for TDS?
The deductor’s return feeds the deductee’s tax statement. TDS for 2025-26 appears in the AIS for assessment year 2026-27; TDS from April 2026 appears in Form 168 for tax year 2026-27. The deductee then claims the credit in the income tax return for that year.
Did TDS rates change under the Income-tax Act, 2025?
No. The Income Tax Department states that TDS rates and monetary thresholds were retained as they were under the 1961 Act. Only the section numbers, form numbers and rule numbers changed. Check future Finance Acts, which can amend rates in any year.
Does an individual paying rent need a TAN?
Not for the challan-cum-statement cases. Under section 397(1)(c), an individual or HUF does not need a TAN when deducting TDS on rent above ₹50,000 a month, on buying property, or on large contract or professional payments. These cases use Form 141.