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Home/Founder's Guide/Chapter 21
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TDS — Tax Deducted at Source

When your business must deduct tax from payments, deposit it, file quarterly statements and issue certificates.

Chapter 21 of 35Part 3 · Running the business6 min read
Please note. General information to help you understand the rules. It is not legal, tax or financial advice for your particular case, and laws and portal procedures change; we confirm the current position before acting on your matter.

Overview

Under income-tax law, a business that pays salary, rent, professional or technical fees, contractor charges, commission and other specified payments must often deduct tax at source and deposit it with the government. From 1 April 2026 the Income-tax Act, 2025 replaced the Income-tax Act, 1961. Section and form numbers changed, so check the current numbering on the Income Tax portal before relying on older guides.

Who this is for

  • Employers
  • Businesses paying rent, contractors, professionals or non-residents
  • Finance teams setting up payables

Step by step

  1. Get TANTAN is required before the first deduction.
  2. Identify payments that need TDSMap each vendor and payment type to the applicable provision and rate in the current law.
  3. Deduct at the right timeDeduct at the earlier of credit in the books or payment, unless the provision says otherwise.
  4. Deposit by the due datePay using the challan on the Income Tax portal.
  5. File quarterly statements and issue certificatesSeparate statements apply for salary, other resident payments and payments to non-residents. Issue TDS certificates to payees within the time allowed.

Documents you will need

  • TAN
  • Vendor PANs
  • Contracts or invoices showing the nature of payment
  • Challan details
  • Lower-deduction certificates where a payee has one

The process

Deposits and statements are matched in the TDS reconciliation system. Mismatches lead to default notices, so correct errors through correction statements.

Authorities involved

  • Income Tax Department (TDS): Administers deduction, deposit and quarterly statements.

Common mistakes

  • Not collecting vendor PANs, which leads to higher deduction rates.
  • Depositing late and paying interest.
  • Filing statements that do not match challans.

Checklist

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Frequently asked questions

What if a vendor has a lower-deduction certificate?

Deduct at the rate and up to the amount stated in the certificate, and quote it in your statement.

Official sources

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