In-Depth Guide to Tax Deducted at Source (TDS) for AY 2026-27

Tax Deducted at Source (TDS) is one of the most critical compliance areas under the Income Tax Act 1961. For Assessment Year 2026-27, the law prescribes detailed provisions on when TDS must be deducted, at what rate, who must deduct, threshold limits, and consequences of non-compliance. This guide reorganises those provisions in a practical, easy-to-use format for businesses, professionals, and individual assessees.

Important: All section references, Rule numbers, and statutory language (e.g., names of sections, Acts, and case references) are retained exactly as per law. The explanations and structure are entirely rephrased and reorganised.

1. Concept and Scope of TDS

1.1 What is TDS?

TDS is a mechanism for upfront tax collection at the point where income arises or is credited/paid. Instead of waiting for the recipient of income (assessee) to pay tax at year-end, the law obliges the payer to:

  1. Deduct tax at the prescribed rate when making certain specified payments, and
  2. Deposit this amount to the credit of the Central Government within stipulated timelines.

Under this system:

  • The payer acts as a “deductor”
  • The recipient of income is the “deductee” (assessee)
  • The deductor remits the net amount after TDS to the deductee and pays the deducted tax to the Government.

1.2 Types of Payments Covered

TDS does not apply to all payments; only specific categories notified in Chapter XVII-B of the Income Tax Act 1961 are covered. Illustratively, TDS provisions operate on payments such as:

  • Salary (Section 192)
  • Interest on securities and other interest (Section 193, Section 194A)
  • Dividend (Section 194)
  • Rent (Section 194-I, Section 194-IB)
  • Commission and brokerage (Section 194D, Section 194G, Section 194H)
  • Professional and technical fees (Section 194J)
  • Contract payments (Section 194C)
  • Remuneration to partners (Section 194T – effective from 01-04-2025)
  • Virtual Digital Assets (Section 194S)
  • E-commerce transactions (Section 194-O)
  • Purchase of goods (Section 194Q)
  • Winnings from games, lotteries, online games, and horse races (Section 194B, Section 194BA, Section 194BB)
  • Non-resident remittances and specified incomes (Section 195, Section 194LB, Section 194LC, etc.)

The deductor must examine each payment to determine if any TDS section applies, check the applicable rate and threshold, and deduct tax accordingly.

2. TDS Rates for AY 2026-27 (Overview)

The law prescribes section-wise TDS rates based on:

  • Nature of payment (salary, interest, rent, etc.)
  • Residential status of the payee (resident / non-resident)
  • Status of the payer (individual/HUF/company, etc.)
  • Whether the payee has furnished PAN
  • Whether enhanced rates apply under Section 206AA or Section 206AB
  • Whether payments are made to or from notified jurisdictions (Section 94A(5))

A few key points before referring to the notified rates:

  • If the deductee does not provide PAN, Section 206AA applies and TDS must be deducted at the higher of:
    • Rate in the relevant section, or
    • Rate or rates in force as per Finance Act, or
    • 20%
  • For payments to persons located in notified jurisdictional areas, Section 94A(5) prescribes deduction at 30% or the rate in the relevant section, whichever is higher.
  • In the case of non-residents and foreign companies, surcharge and health & education cess may increase the effective rate (as specified).

The original table provides exhaustive rate details for FY 2025-26 (AY 2026-27) covering:

  • Individuals / HUFs (residents and non-residents)
  • Partnership firms
  • Domestic companies
  • Non-domestic companies
  • Special vehicles such as business trusts, investment funds, securitisation trusts, etc.

Assessees should refer directly to the section-wise rate table already set out for practical TDS computation and planning.

3. Threshold Limits – When No TDS Is Required

TDS is not required in many situations where the payment during a financial year is below specified threshold limits. These limits vary by section and type of payment.

Below is a consolidated, reorganised summary of the key thresholds (conditions remain exactly as provided in law):

3.1 Salary and PF Withdrawals

  • Section 192 – Salary

    • No TDS if an employee’s net taxable income is below the basic exemption limit:
      • Rs. 2,50,000 (other than senior citizen)
      • Rs. 3,00,000 (Senior Citizens)
      • Rs. 5,00,000 (Super Senior Citizens)

  • Section 192A – Premature taxable withdrawal from recognised provident fund

    • No TDS if the taxable premature withdrawal is less than Rs. 50,000.

  • Section 193 – Interest on certain securities (company debentures etc.):

    • No TDS if interest paid on debentures by a widely-held company to a resident individual/HUF by account payee cheque does not exceed Rs. 5,000 in a financial year.

  • Section 193 – Interest on 8% Savings (Taxable) Bonds, 2003, 7.75% Savings (Taxable) Bonds, 2018, and Floating Rate Savings Bonds, 2020 (Taxable) to resident persons:

    • No TDS if such interest does not exceed Rs. 10,000 in a financial year.

  • Section 193 – Interest on 6.5% Gold Bonds, 1977, or 7% Gold Bonds, 1980 to resident individuals:

    • No TDS where the bonds are held by a person other than a non-resident individual and the nominal value of bonds does not exceed Rs. 10,000 at any point in the relevant period, subject to prescribed declaration.

  • Section 194 – Dividend paid by an Indian company to an individual by account payee cheque:

    • No TDS if total dividend in a year does not exceed Rs. 5,000.

  • Section 194A – Interest other than securities:

    1. Interest by a bank/co-operative bank/post office on time deposits:
      • Earlier limit Rs. 10,000; increased to Rs. 40,000 with effect from 01-04-2019.
      • For resident senior citizens, threshold is Rs. 50,000.
    2. Interest by other payers (non-banking, non-post office):
      • No TDS if interest in a year does not exceed Rs. 5,000.
    3. Interest on deposits under Senior Citizens Saving Scheme Rules, 2004 (notified):
      • Same threshold as for bank interest (Rs. 40,000 / Rs. 50,000 for senior citizens).

3.3 Lotteries, Games, and Betting

  • Section 194B – Winnings from lotteries, crossword puzzles, card games, gambling, betting, etc.:
    • No TDS if payment does not exceed Rs. 10,000.
  • Section 194BB – Winnings from horse races:
    • No TDS if winnings in a year do not exceed Rs. 10,000.

3.4 Contract, Commission and Brokerage

  • Section 194C – Payments to resident contractor/sub-contractor:

    • No TDS if:
      • A single payment does not exceed Rs. 30,000, and
      • Total of such payments in the year does not exceed Rs. 1,00,000.

  • Section 194D – Insurance commission (resident):

    • No TDS if total commission does not exceed Rs. 15,000 in a year.

  • Section 194G – Commission on sale of lottery tickets (resident):

    • No TDS if commission does not exceed Rs. 15,000 in a year.

  • Section 194H – Commission or brokerage (resident):

    • No TDS if aggregate amount does not exceed Rs. 15,000 in a year.
    • Additionally, no TDS on commission payable by BSNL/MTNL to their PCO franchisees.

3.5 Rent and Immovable Property

  • Section 194-I – Rent paid to resident (land/building/furniture/fittings/plant & machinery):
    • No TDS if aggregate rent in the year does not exceed Rs. 2,40,000 (enhanced from Rs. 1,80,000 w.e.f. 01-04-2019).