Tax Deducted at Source (TDS) is the cornerstone of India’s tax collection system. For FY 2026-27 (AY 2027-28), the Finance Act 2025 has introduced several material amendments effective 1 April 2025 – including a monthly threshold for rent under Section 194I, a brand-new Section 194T for partnership firms, and threshold revisions across half a dozen sections. This guide covers every commonly used Section 194 sub-section for resident payments and the Section 195 framework for non-resident remittances, so you can deduct correctly the first time.
What is TDS and why does it matter?
TDS is the mechanism under Chapter XVII-B of the Income Tax Act, 1961, by which a payer (deductor) withholds a portion of a payment to a payee (deductee) and deposits it with the Central Government on the deductee’s behalf. The deductee gets credit for the TDS while filing their return, and the deductor furnishes a TDS certificate (Form 16A for non-salary, Form 16 for salary) plus quarterly TDS statements (Form 26Q, 24Q, 27Q).
Failing to deduct correctly attracts interest at 1% per month for late deduction, 1.5% per month for late deposit, plus disallowance of the related expense under Section 40(a)(ia). Getting the rate, threshold and basis right is therefore not an academic exercise – it directly protects your business from penalty and disallowance.
TDS rate chart FY 2026-27 – Resident payments (Section 194 series)
| Section | Nature of Payment | Threshold | Basis | Rate |
|---|---|---|---|---|
| 194 | Dividend (other than Sec 115-O) | Rs. 10,000 | Annual | 10% |
| 194A | Interest, non-bank | Rs. 10,000 | Annual | 10% |
| 194A | Bank/PO interest, Senior Citizen | Rs. 1,00,000 | Annual | 10% |
| 194A | Bank/PO interest, Others | Rs. 50,000 | Annual | 10% |
| 194B | Lottery / gambling winnings | Rs. 10,000 | Per payment | 30% |
| 194BA | Online gaming winnings | Nil | – | 30% |
| 194C | Contractor (single payment) | Rs. 30,000 | Per payment | 1% / 2% |
| 194C | Contractor (annual aggregate) | Rs. 1,00,000 | Annual | 1% / 2% |
| 194D | Insurance commission | Rs. 20,000 | Annual | 2% |
| 194DA | Life insurance (taxable proceeds) | Rs. 1,00,000 | Annual | 2% |
| 194G | Lottery ticket commission | Rs. 20,000 | Annual | 2% |
| 194H | Commission or brokerage | Rs. 20,000 | Annual | 2% |
| 194I(a) | Rent on plant and machinery | Rs. 50,000 | Per month | 2% |
| 194I(b) | Rent on land / building / furniture | Rs. 50,000 | Per month | 10% |
| 194-IA | Sale of immovable property | Rs. 50,00,000 | Total consideration | 1% |
| 194-IB | Rent by Indv/HUF (no audit) | Rs. 50,000 | Per month | 2% |
| 194J | Professional fees | Rs. 50,000 | Annual | 10% |
| 194J | Technical services / royalty | Rs. 50,000 | Annual | 2% |
| 194K | Income from Mutual Fund units | Rs. 10,000 | Annual | 10% |
| 194LA | Compulsory acquisition compensation | Rs. 5,00,000 | Annual | 10% |
| 194M | Indv/HUF contractor or professional | Rs. 50,00,000 | Annual | 2% |
| 194N | Cash withdrawal (ITR filed last 3 yrs) | Rs. 1,00,00,000 | Annual | 2% |
| 194N | Cash withdrawal (no ITR) | Rs. 20,00,000+ | Annual | 2% / 5% |
| 194O | E-commerce operator | Rs. 5,00,000 | Annual | 0.1% |
| 194Q | Purchase of goods | Rs. 50,00,000 | Annual | 0.1% |
| 194R | Benefits or perquisites in kind | Rs. 20,000 | Annual | 10% |
| 194S | Crypto / Virtual Digital Assets | Rs. 10,000 / 50,000 | Annual | 1% |
| 194T | Partnership firm to partner | Rs. 20,000 | Annual | 10% |
| 206AA | If PAN is not provided | – | – | 20% or section rate, whichever higher |
For contractor payments under 194C, the rate is 1% if the deductee is an Individual or HUF and 2% if the deductee is a company, firm or other entity. Note that the monthly threshold under Section 194I is the most-overlooked change – a tenant paying Rs. 60,000 per month must deduct TDS on every month exceeding the Rs. 50,000 cap, irrespective of the annual aggregate.
Key Finance Act 2025 amendments you must absorb
The Finance Act 2025 made the most consequential set of TDS revisions in years, primarily aimed at reducing compliance friction for small businesses and aligning thresholds with current commercial reality. The most material changes are:
- Section 194I rent: The earlier annual aggregate threshold of Rs. 2,40,000 has been replaced by a monthly threshold of Rs. 50,000. So a residential tenant paying Rs. 45,000 per month (Rs. 5,40,000 annually) need not deduct, but Rs. 51,000 per month triggers deduction on every such month.
- Section 194J professional and technical fees: Threshold raised from Rs. 30,000 to Rs. 50,000 (annual).
- Section 194D insurance commission and 194H commission/brokerage: Rates halved from 5% to 2% (effective October 2024) and threshold raised to Rs. 20,000.
- Section 194A: Senior citizen bank/PO interest threshold raised to Rs. 1,00,000; others to Rs. 50,000; non-bank interest to Rs. 10,000.
- Section 194T – new: 10% TDS on payments by a partnership firm to its partners (interest, salary, commission, etc.) above Rs. 20,000 in aggregate per year. This is the first time partner remuneration has been brought into the TDS net.
Section 195 – TDS on payments to non-residents
Payments to a non-resident are governed by Section 195 – structurally different from Section 194. Three things change at once: there is no minimum threshold; the rate depends on income type (not section); and you must add surcharge plus 4% Health and Education Cess on top of the base rate.
| Income Type | Base Rate | Notes |
|---|---|---|
| Interest on FC loan | 20% | + surcharge + 4% cess |
| Interest (other) | 30% | Often reducible via DTAA |
| Royalty / FTS | 10% / 20% | 10% concessional; 20% otherwise |
| LTCG (listed STT-paid) | 12.5% | FY 2024-25 onwards |
| LTCG (other) | 12.5% | Indexation removed |
| STCG (listed STT-paid) | 20% | Was 15% pre-Finance Act 2024 |
| Dividend | 20% | Post-April 2020 taxable in NR hands |
| Rent on Indian property | 30% | + surcharge + cess |
| Purchase of property from NRI | 20% / 30% | LT 20%; ST 30% |
If India has a Double Taxation Avoidance Agreement (DTAA) with the deductee’s country, a concessional treaty rate may apply – but only if the NR furnishes a valid Tax Residency Certificate (TRC) from their country and Form 10F. Without these, the full Section 195 rate applies.
Threshold basis – per-payment vs per-month vs annual
One nuance often missed: the threshold check is not always on the annual aggregate. Three different bases apply:
- Per-payment basis (e.g. 194C single payment, 194B winnings): each individual payment is checked. A Rs. 25,000 single contractor payment is below the Rs. 30,000 threshold even if 10 such payments are made in the year – though the annual aggregate ceiling under 194C (Rs. 1,00,000) is then a separate trigger.
- Per-month basis (Section 194I, 194-IB): each month’s payment is independently tested against the monthly cap. Useful where rent is received monthly.
- Annual aggregate basis (most other sections): all payments to the same payee in the financial year are summed; once the annual cap is breached, every payment thereafter (and the cumulative balance from the start of the year, in some sections) attracts TDS.
What if the deductee has no PAN? (Section 206AA)
If the deductee fails to furnish PAN, Section 206AA mandates deduction at the higher of: (a) the rate prescribed in the relevant section, (b) the rate(s) in force, or (c) 20%. So a Rs. 60,000 professional fee where the consultant has no PAN attracts 20% TDS (Rs. 12,000) instead of the usual 10%. A separate Section 206AB applies higher rates if the deductee is a non-filer of returns.
Due dates and TDS deposit
TDS deducted in any month must be deposited with the government by the 7th of the following month. The single exception is March – TDS deducted in March can be deposited up to 30 April. Quarterly TDS returns (Form 26Q for residents) are due by the last day of the month following the quarter end: 31 July, 31 October, 31 January, and 31 May (for Q4).
Calculate TDS in seconds with our free tool
Pick the section, enter the amount, and our calculator applies the correct FY 2026-27 rate, threshold and basis automatically – including the new monthly rule for Section 194I.
Open TDS CalculatorFrequently Asked Questions
Is TDS applicable on GST component of an invoice?
No. As clarified by CBDT Circular 23/2017, TDS under Chapter XVII-B is to be deducted on the amount net of GST, provided the GST is shown separately on the invoice.
What is the difference between TDS and TCS?
TDS is deducted by the buyer or payer when making a payment. TCS (Tax Collected at Source) is collected by the seller at the time of sale – common examples include sale of motor vehicles above Rs. 10 lakh and certain mineral products.
Can a deductee claim a refund of excess TDS?
Yes. If TDS deducted is higher than the deductee’s actual tax liability for the year, the excess is refundable on filing the income tax return.
Does the new Section 194T apply to all partnership firm payments?
Yes – interest, salary, commission, bonus, or any remuneration paid by a firm to a partner is now within the TDS net at 10% if the aggregate exceeds Rs. 20,000 in a financial year. This is effective FY 2025-26 onwards.