Tax Deducted at Source (TDS) is an essential compliance mechanism under the Income Tax Act in India. MSMEs, startups, and small business owners must understand these rules to deduct and deposit taxes correctly. This guide simplifies TDS rates, thresholds, and return filing requirements.
What is TDS?
TDS is tax collected at the source of income. The person/entity making a payment (deductor) is required to deduct a specific percentage of tax before making the payment to the recipient (deductee) and deposit it with the government.
MSME TDS Applicability
TDS rules apply to individuals and HUFs carrying on business if their turnover exceeded ₹1 crore (for business) or ₹50 lakhs (for profession) in the preceding financial year. For partnership firms, LLPs, and companies, TDS applicability is mandatory regardless of turnover.
Key TDS Sections, Rates, and Thresholds (2025-26)
- Section 194C (Contractor Payments): 1% for individuals/HUFs, 2% for others. Threshold: ₹30,000 per transaction or ₹1,00,000 annually.
- Section 194J (Professional/Technical Fees): 2% for technical/royalties/call center fees, 10% for professional fees. Threshold: ₹30,000 annually.
- Section 194I (Rent on Property): 10% for land/building, 2% for plant/machinery. Threshold: ₹2,40,000 annually.
- Section 194A (Interest other than Securities): 10%. Threshold: ₹40,000 (₹50,000 for senior citizens).
TDS Return Filing and Payment Deadlines
- Monthly Deposit: TDS deducted during a month must be paid to the government by the 7th of the subsequent month (e.g., TDS deducted in April must be deposited by 7th May).
- Quarterly Returns (Form 26Q/24Q):
- Q1 (Apr-Jun): 31st July
- Q2 (Jul-Sep): 31st October
- Q3 (Oct-Dec): 31st January
- Q4 (Jan-Mar): 31st May
TDS Penalties & Interest
- Late Deduction: 1% per month interest from the date tax was deductible to the date of actual deduction.
- Late Payment: 1.5% per month interest from the date of deduction to the date of actual payment.
- Late Return Filing: Penalty of ₹200 per day under Section 234E until the return is filed.
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Disclaimer: TDS sections and compliance guidelines are subject to change by the Finance Act. Consult a Chartered Accountant for accurate assessment.
Last Updated: July 2026
Author: Preet Kansangra, Tax & Compliance Expert
Reviewed by: Fingrade.in Team
