A small-business guide to deducting and depositing TDS

TDS makes every business an unpaid tax collector: when you pay rent, professional fees, contractors or commission beyond set limits, you must deduct tax before paying, deposit it with the government, and file quarterly returns telling the department whose tax you hold. Small businesses rarely plan for this — they discover it in their first disallowance.

The payments that trigger TDS for a typical small business

Several of these thresholds were raised from 1 April 2025 — 194J from ₹30,000 to ₹50,000, 194H from ₹15,000 to ₹20,000, and rent to ₹50,000 per month — so charts older than that overstate your obligations. Two rules sit above the table: if the payee gives no PAN, deduct at 20%; and individuals or HUFs need to deduct only if their own turnover crossed the tax-audit limits in the previous year.

The new Act: same rules, new section numbers

From tax year 2026-27 the Income-tax Act, 2025 consolidates the familiar alphabet soup: salary TDS (old Section 192) sits in Section 392, and virtually all non-salary TDS — contractors, rent, professional fees, commission, interest, e-commerce — is gathered into Section 393 with payment-wise "nature codes". Rates and thresholds carry over unchanged; only the citations move. The old section numbers above remain how practitioners and portals commonly refer to each payment type, so we retain them alongside the new framework.

The calendar: deduct, deposit, file, issue

Deduct when you credit or pay, whichever is earlier — booking the expense without deducting is already a default. Deposit by the 7th of the following month (30 April for March deductions). File quarterly returns — 26Q for domestic non-salary payments, 24Q for salaries — by the month-end following each quarter. Issue Form 16A certificates to payees each quarter so the credit reaches their 26AS. Miss a step and the next one compounds it.

What defaults actually cost

Interest at 1% per month for failing to deduct and 1.5% per month for deducting but depositing late, counted from the date of deduction. A late-filing fee of ₹200 per day under Section 234E until the return is filed, capped at the TDS amount. And the sting: under Section 40(a)(ia), 30% of the expense itself is disallowed in your tax computation for the year if TDS was deductible but not deducted — turning a missed 10% deduction on a ₹1 lakh fee into ₹30,000 of extra taxable income. Prosecution provisions exist for holding deducted tax beyond due dates; they are used against egregious cases, but they exist.

Running it without pain

The working system is small: a vendor master that flags which suppliers attract TDS and holds their PANs; a monthly pre-payment run that computes deductions before invoices are paid; the 7th-of-month deposit as an unmissable calendar event (it is item eleven on our monthly founder's report); and a quarterly reconciliation of your TDS returns to the ledger. Set up once at incorporation — alongside the rest of the first-year compliance calendar — it runs in an hour a month.

Frequently asked questions

When does a small business have to start deducting TDS?

Companies and LLPs from day one of crossing any payment threshold. Individuals and proprietors only if their own turnover exceeded the tax-audit limits in the preceding year — but salary TDS applies to any employer.

What happens if I pay a vendor without deducting TDS?

You owe the TDS with 1% per month interest, and 30% of that expense is disallowed in your income-tax computation for the year — usually far costlier than the deduction itself.

What is the due date for depositing TDS?

The 7th of the month following deduction, with one exception: tax deducted in March may be deposited by 30 April. Quarterly returns are due by the end of the month after each quarter.

What if my vendor refuses to give a PAN?

Deduct at the penal rate of 20% and report the payment PAN-less in the return. Practically, make a valid PAN a condition of onboarding any vendor you will pay above the thresholds.