Tax Deducted at Source
TDS Manual
A practical Indian business manual for purchase, accounts, payroll and management teams—with special application to manufacturing companies and Thirumurugan Paints Private Limited.
1. Purpose and scope
TDS is income tax collected in advance by the payer. The payer deducts the prescribed amount from a specified payment, deposits it against the recipient’s PAN and reports it to the Income Tax Department.
A GST registration or GST invoice does not by itself decide TDS. The nature of payment, recipient, threshold and rate decide it.
It can apply to salary, contract work, rent, interest, commission, property, purchase of goods and other specified payments.
Correct PAN reporting allows the supplier, employee or consultant to claim the credit in the relevant tax year.
2. The five-question TDS decision rule
Do not deduct merely because an invoice contains GST. Apply these questions in order.
3. Business TDS rate and threshold chart
Rates below are the principal domestic business rates for Tax Year 2026–27. “Legacy” references are included because invoices, accounting software and teams commonly continue to use them.
| Payment | Current provision | Legacy ref. | Threshold | Normal rate | Operational note |
|---|---|---|---|---|---|
| Salary | Section 392 | 192 | Estimated taxable salary | Average rate based on applicable slabs | Deduct at payment; use employee declarations and chosen tax regime. |
| Contract / job work | 393(1), Table 6(i) | 194C | ₹30,000 single payment or ₹1,00,000 aggregate | 1% if contractor is Individual/HUF; 2% for others | Includes work and supply of labour under a contract. |
| Professional services | 393(1), Table 6(iii) | 194J | ₹50,000 aggregate per tax year | 10% | Legal, medical, accountancy, architecture, engineering and notified professions. |
| Technical services | 393(1), Table 6(iii) | 194J | ₹50,000 aggregate per tax year | 2% | Technical service that is not professional service; classification must follow the actual engagement. |
| Director fee / commission / non-salary remuneration | 393(1), Table 6(iii) | 194J | Nil | 10% | Salary paid under employer–employee relationship is handled under Section 392 instead. |
| Commission or brokerage | 393(1), Table 1(ii) | 194H | ₹20,000 aggregate | 2% | Applies to agency commission; trade discount is not automatically commission. |
| Rent—plant, machinery or equipment | 393(1), Table 2(ii) | 194-I(a) | ₹50,000 for a month or part | 2% | Regular business deductor. |
| Rent—land, factory, building, furniture or fittings | 393(1), Table 2(ii) | 194-I(b) | ₹50,000 for a month or part | 10% | Includes factory building and associated land. |
| Interest other than securities | 393(1), Table 5(ii)/(iii) | 194A | Generally ₹10,000 for a business payer; special bank limits differ | Generally 10% | Check statutory exemptions, bank payees and declarations. |
| Purchase of goods | 393(1), Table 8(ii) | 194Q | Only excess over ₹50 lakh per seller, and buyer’s preceding-year turnover must exceed ₹10 crore | 0.1% | Both conditions are compulsory. |
| Purchase of immovable property | 393(1), Table 3(i) | 194-IA | Consideration or stamp-duty value is ₹50 lakh or more | 1% of higher of consideration or stamp-duty value | Use special challan-cum-statement process. |
| Business benefit or perquisite | 393(1), Table 8(iv) | 194R | ₹20,000 aggregate value | 10% | Ensure tax is paid before releasing a wholly/partly in-kind benefit. |
| Partner remuneration, commission, bonus or interest | 393(3), Table 7 | 194T | ₹20,000 aggregate | 10% | Applicable to a firm; includes credit to partner’s capital account. |
| E-commerce participant payment | 393(1), Table 8(v) | 194-O | Special exemption may apply to qualifying Individual/HUF participant | 0.1% | Platform operator normally deducts on gross sale/service amount. |
| Virtual digital asset transfer | 393(1), Table 8(vi) | 194S | ₹50,000 for specified person; ₹10,000 for others | 1% | Special rules apply to in-kind consideration and exchanges. |
| Payment to non-resident | 393(2), Table 17 and related entries | 195 / other | No universal minimum threshold | Rates in force or beneficial DTAA rate | Obtain tax review before remittance; Forms 145/146 may apply. |
4. Transaction guide for a paint manufacturing company
| Typical transaction | Usual treatment | Why / action |
|---|---|---|
| Resins, pigments, solvents, additives, packing materials | Normally no TDS | Pure purchase of goods. Purchase TDS applies only when the buyer-turnover and seller-purchase thresholds are both satisfied. |
| Raw-material supplier’s GST invoice | GST does not decide TDS | Classify the underlying transaction. GST registration alone creates no TDS liability. |
| Third-party grinding, blending, filling, packing or fabrication | Contract TDS | Normally contract/job work: 1% for Individual/HUF contractor or 2% for other contractor, subject to threshold. |
| Technical coating consultancy / formulation consultancy | 2% or 10%—classify | Professional service is generally 10%; qualifying technical service not being professional service is 2%. Read the scope and credentials. |
| CA audit, legal advice, engineering or professional design | 10% | Professional services, subject to threshold; director non-salary payment has no threshold. |
| Independent laboratory testing / calibration | Usually technical/contract | Classification depends on whether the engagement is technical consultancy, standard facility testing or work contract. Document the decision. |
| Factory building or warehouse rent | 10% | Deduct when monthly rent threshold is crossed. |
| Machinery, generator, forklift or equipment hire | 2% | Rent for plant/machinery/equipment, subject to monthly threshold. |
| Repair, maintenance, civil work, painting labour | Contract TDS | Normally a work contract; assess single and aggregate threshold. |
| Freight paid directly to transporter | Contract / transporter exemption | Obtain PAN and qualifying goods-carriage declaration before allowing no-deduction treatment. |
| Sales commission, referral fee, agency commission | 2% | Commission/brokerage when ₹20,000 aggregate threshold is crossed. |
| Salary to factory/office employees | Payroll calculation | Deduct based on estimated annual taxable salary, declarations and applicable regime. |
| Stipend to genuine trainee | Examine facts | Name alone is not decisive. Consider employment relationship, scholarship exemption, contract and actual duties. |
| Software subscription, licence or cloud service | Tax review required | Can involve service, royalty, e-commerce or non-resident rules. Review contract and vendor residency before payment. |
5. GST component and TDS base
GST and TDS are separate laws. The treatment depends on whether GST is separately shown and when deduction occurs.
Where GST on services is separately indicated in the invoice, deduct TDS on the value excluding that GST component.
At invoice-credit stage, separately indicated GST can be excluded. If payment/advance occurs before invoice, deduction may be on the whole payment, with permitted adjustment later.
Separately state goods/material and service/job-work values. If not separated in certain work contracts, TDS may apply to the whole invoice value.
Example
Professional fee ₹1,00,000 + GST ₹18,000, with GST separately shown. At 10%, TDS is ₹10,000 on ₹1,00,000. Amount payable to consultant is ₹1,08,000: invoice total ₹1,18,000 less TDS ₹10,000.
6. When to deduct
Deduct at the earlier of credit to the payee’s account or actual payment by any mode. Credit to a suspense/provision account can also trigger TDS if the payee and liability are identifiable.
Deduct at the time of payment based on estimated taxable salary for the whole tax year. Spread deduction sensibly over payroll months.
Rent by certain Individuals/HUFs, property transfers, benefits in kind and other specified cases have special timing and statement rules.
7. Transport, freight and job work
Transporter exemption control
A qualifying resident transporter engaged in plying, hiring or leasing goods carriages may receive payment without deduction when the statutory conditions are satisfied. Obtain and retain:
Job work with material
For specified manufacturing/job-work arrangements, where the invoice separately identifies material value, TDS is generally computed on the work value excluding that material. If the material value is not separately stated, deduction may apply to the whole invoice value. Keep the purchase order and invoice structure consistent.
8. Salary, consultants and directors
| Relationship | TDS approach | Key evidence |
|---|---|---|
| Employee | Salary TDS under Section 392 at average slab rate | Appointment order, payroll, attendance, leave, employer control, benefits and employee declarations. |
| Independent consultant | Professional or technical-service TDS, normally 10% or 2% as properly classified | Consultancy agreement, deliverables, independence, invoice and no employee benefits. |
| Managing/whole-time director drawing salary | Salary TDS where genuine employer–employee relationship exists | Board resolution, employment terms, payroll and Companies Act records. |
| Director sitting fee, commission or non-salary remuneration | 10% with no threshold | Board/shareholder approval, payment nature and director ledger. |
9. Payments to non-residents
Do not apply domestic resident rates automatically. Before remitting software fees, consultancy fees, royalty, interest, technical fees or any other potentially taxable sum to a non-resident:
- Confirm tax residency and obtain Tax Residency Certificate and prescribed information where relevant.
- Determine whether the sum is chargeable to tax in India under the Act.
- Compare the Act rate with the applicable DTAA rate and conditions.
- Check permanent establishment, beneficial ownership and make-available/royalty clauses as relevant.
- Complete remittance reporting—current Forms 145/146 (legacy Forms 15CA/15CB)—where applicable.
- Use current Form 144 for the quarterly non-resident TDS statement.
10. Internal TDS standard operating procedure
Invoice booking checklist
Suggested responsibility matrix
| Activity | Primary owner | Reviewer |
|---|---|---|
| Vendor documents and PO classification | Purchase / HR / Admin | Accounts |
| TDS code, threshold and calculation | Accounts executive | Finance manager / CA |
| Monthly deposit | Accounts | Authorised signatory |
| Quarterly statement and correction | Accounts / TDS return preparer | Finance manager / CA |
| Certificates and vendor reconciliation | Accounts | Finance manager |
| Exception approval | Finance manager | Management / tax advisor |
11. Deposit and return calendar
Deposit of TDS—non-government deductor
Quarterly statements—Tax Year 2026–27
TDS certificates
Current Form 130 (legacy Form 16) for salary is generally due by 15 June following the tax year. Current Form 131 (legacy Form 16A) for regular non-salary deductions is generally issued within 15 days from the due date of the corresponding quarterly statement.
12. Current forms from 1 April 2026
| Purpose | Current form | Legacy form | Frequency |
|---|---|---|---|
| Salary TDS statement | Form 138 | 24Q | Quarterly |
| Resident non-salary TDS statement | Form 140 | 26Q | Quarterly |
| Non-resident non-salary TDS statement | Form 144 | 27Q | Quarterly |
| Property, special rent/contract/professional and specified VDA challan-cum-statement | Form 141 | 26QB/26QC/26QD/26QE | Within prescribed 30-day timeline |
| Salary TDS certificate | Form 130 | Form 16 | Annual |
| Regular non-salary TDS certificate | Form 131 | Form 16A | Quarterly |
| Special-transaction TDS certificates | Form 132 | Forms 16B/16C/16D/16E | Transaction-based |
| Information for non-resident remittance | Forms 145/146 | 15CA/15CB | As applicable |
13. Quick TDS calculator
Use after the transaction has been correctly classified. Enter the amount on which TDS is legally applicable—normally excluding separately shown GST where permitted.
- Invoice total
- ₹1,18,000
- TDS base used
- ₹1,00,000
- Net payable
- ₹1,08,000
14. Defaults, consequences and correction
Interest is generally 1% per month or part of a month from the date tax was deductible to the actual date of deduction.
Interest is generally 1.5% per month or part of a month from deduction to actual government payment.
Late-filing fee and possible penalty can apply. Interest and tax must be paid before a valid correction/regularisation.
| Problem | Immediate action |
|---|---|
| First instalments paid without TDS | Determine original deduction dates; deduct shortfall from later payable amount only if contractually and practically possible; deposit tax plus interest; correct books and statement. Do not treat late recovery as changing the original default dates. |
| Wrong PAN | Obtain validated PAN, file correction statement and verify credit appears for the deductee. |
| Wrong provision/rate | Compute short deduction and interest, deposit differential tax, then correct the statement. |
| Duplicate/excess deduction | Adjust only where legally permitted or follow refund/correction process; do not privately net unrelated deductees. |
| Supplier says “do not deduct” | Require a legally valid exemption, declaration or lower/nil certificate. A letter or GST registration alone is insufficient. |
15. Monthly and annual control system
Monthly
Quarterly
Every April
Reset cumulative threshold trackers; confirm preceding-year turnover for purchase-of-goods TDS; renew transporter declarations; refresh lower/nil certificates; review vendor residency and update rates/forms for the new tax year.
16. Frequently asked questions
Does every GST invoice require TDS?
No. GST registration and a GST invoice do not by themselves create TDS. Classify the underlying payment and apply the relevant threshold.
Should a raw-material supplier’s GST invoice suffer TDS?
Normally no for a pure purchase of goods, unless the purchase-of-goods provision applies. That requires preceding-year buyer turnover above ₹10 crore and purchases from that seller exceeding ₹50 lakh in the current tax year.
If Thirumurugan Paints has turnover of about ₹5 crore, is purchase TDS applicable?
No, provided the audited business turnover in the immediately preceding tax year did not exceed ₹10 crore. Reconfirm the number annually.
Can TDS be deducted only when the invoice is received?
Usually it is triggered at credit or payment, whichever is earlier. An advance payment can therefore trigger deduction before the final invoice.
Is GST included while calculating TDS?
Where GST is separately indicated, regular TDS is generally computed on the value excluding GST. Purchase-of-goods advances and other special cases require the specific rule.
Is technical consultancy always 2%?
No. Qualifying technical services not being professional services may be 2%, while professional services are generally 10%. The agreement, nature of expertise and actual deliverables matter.
What if the supplier has not furnished PAN?
Do not use the normal rate without review. Missing or invalid PAN can trigger a higher statutory rate. Obtain and validate PAN before payment wherever possible.
Can missed TDS from two instalments be recovered from the third?
Recovery from a later amount may be possible, but it does not erase the earlier default. Interest is computed with reference to the original dates on which deduction should have occurred.
17. Official references
Use the current official text for final transaction-level interpretation.
- Income-tax Act, 2025, as amended by Finance Act, 2026
- Income-tax Rules, 2026
- CBDT transition FAQs for the Income-tax Act, 2025
- Navigator—Income-tax Forms under the 2026 Rules
- CBDT Circular 13/2021—purchase of goods and GST clarification
- Income Tax Department—TDS guidance
- Income Tax Department tax calendar