Tax Deducted at Source (TDS) is one of the most important mechanisms in India’s tax administration system. For the financial year 2025-26 , understanding TDS rates, thresholds, and compliance requirements is essential for every taxpayer—whether you’re a salaried employee, a freelancer, a business owner, or an investor. This comprehensive guide covers everything you need to know about TDS deductions, applicable rates, threshold limits, and how to effectively manage your tax credits for FY 2025-26.
What is TDS and How It Works
TDS stands for Tax Deducted at Source, a system introduced by the Income Tax Department of India where the person making a payment is required to deduct a certain percentage of tax before remitting the balance to the recipient. This mechanism ensures a steady flow of tax revenue to the government throughout the year rather than waiting for a lump-sum payment during tax filing.
The TDS system applies to various types of payments including salaries, interest, rent, professional fees, contractor payments, dividends, and more. The deductor—be it an employer, bank, tenant, or client—is responsible for deducting the appropriate TDS and depositing it to the government using the Tax Deducted at Source (TDS) return forms.
As a taxpayer, you receive a TDS certificate (Form 16 for salary or Form 16A for other payments) showing the tax deducted by each deductor. You can claim this deducted amount as a credit against your total tax liability when filing your Income Tax Return (ITR). If your total income falls below the taxable limit, you can claim a refund of the TDS deducted.
The TDS rates for FY 2025-26 remain largely unchanged from the previous financial year, though it’s always wise to verify specific rates based on the Union Budget announcements made in February 2025.
TDS Rates on Salary Income for FY 2025-26
TDS on salary is calculated based on the income tax slabs applicable for FY 2025-26. The employer calculates the estimated annual income, applies the standard deduction of ₹50,000, and then determines the tax based on the applicable slab rates.
Income Tax Slabs for FY 2025-26 (Individual Taxpayers below 60 years)
For residents below 60 years of age, the tax slabs are as follows:
| Income Range | Tax Rate |
|---|---|
| Up to ₹3,00,000 | Nil |
| ₹3,00,001 to ₹7,00,000 | 5% |
| ₹7,00,001 to ₹10,00,000 | 10% |
| ₹10,00,001 to ₹12,00,000 | 15% |
| ₹12,00,001 to ₹15,00,000 | 20% |
| Above ₹15,00,000 | 30% |
For senior citizens (60-80 years), the basic exemption limit is ₹3,00,000, while for super senior citizens (above 80 years), it is ₹5,00,000.
How TDS is Calculated on Salary
The employer first estimates the total salary for the financial year, deducts the standard deduction of ₹50,000, and calculates tax on the remaining amount. The annual tax is then divided by 12 to arrive at the monthly TDS deduction.
Example: If your monthly salary is ₹75,000 (annual ₹9,00,000), after standard deduction your taxable income is ₹8,50,000. The tax would be: ₹15,000 (5% of ₹3,00,000) + ₹15,000 (10% of ₹1,50,000) = ₹30,000 annually or ₹2,500 per month as TDS.
Your employer will provide you with Form 16, which is a certificate showing the details of salary and tax deducted. This document is crucial for filing your ITR and claiming credit for taxes already paid.
TDS on Interest Income
When you earn interest from bank deposits, post office deposits, or corporate deposits, the payer is required to deduct TDS if the interest exceeds the specified threshold.
TDS Rates on Interest for FY 2025-26
| Type of Interest | TDS Rate | Threshold Limit |
|---|---|---|
| Bank Interest | 10% | Interest exceeds ₹10,000 per year |
| Post Office Interest | 10% | Interest exceeds ₹10,000 per year |
| Corporate Bond Interest | 10% | Interest exceeds ₹10,000 per year |
| Senior Citizen Deposits | 10% | Interest exceeds ₹50,000 per year (Section 80TTB) |
Important Note: For senior citizens, under Section 80TTB, interest income up to ₹50,000 from banks and post offices is exempt from TDS. However, banks may still deduct TDS if your total interest exceeds ₹50,000.
If your total taxable income (including interest) is below the basic exemption limit, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to the bank to request no TDS deduction.
TDS on Rent Payments
If you pay rent exceeding ₹2,40,000 per year (₹20,000 per month), the tenant is required to deduct TDS. This applies to both residential and commercial property rentals.
TDS Rates on Rent for FY 2025-26
| Category of Tenant | TDS Rate |
|---|---|
| Individual/Hindu Undivided Family (HUF) | 2% |
| Other deductors (companies, firms) | 5% |
Key Requirements:
- The tenant must deduct TDS when making rent payments exceeding ₹2,40,000 annually
- TDS should be deducted at the time of credit or payment, whichever is earlier
- The landlord can claim credit for TDS deducted on their ITR
- If the landlord does not have a PAN, TDS will be deducted at higher rates (20% or 30%)
Form for Lower TDS: If your estimated total income is below the taxable limit, you can apply to the Income Tax Department for a lower TDS certificate (Form 13) to reduce the deduction rate.
TDS on Professional and Consultancy Services
Payments made to professionals such as lawyers, chartered accountants, doctors, architects, and consultants are subject to TDS if the aggregate payments in a financial year exceed the threshold limit.
TDS Rates on Professional Services for FY 2025-26
| Category | TDS Rate | Threshold Limit |
|---|---|---|
| Professional Services | 10% | Aggregate payments exceed ₹30,000 per year |
| Technical Services | 10% | Aggregate payments exceed ₹30,000 per year |
| Royalty | 10% | Aggregate payments exceed ₹30,000 per year |
Important Points:
- The threshold of ₹30,000 applies per deductor per year
- If a single payer exceeds ₹30,000 in a year, TDS applies on the entire amount
- Consultancy services include fees for professional advice, technical services, and management consulting
Consequence of Non-Deduction: If the payer fails to deduct TDS, they may be liable for interest, penalty, and the entire tax amount along with consequences under the Income Tax Act.
TDS on Contract Payments
Payments to contractors (for works, services, or labor) are subject to TDS under Section 194C of the Income Tax Act.
TDS Rates on Contract Payments for FY 2025-26
| Category | TDS Rate | Threshold Limit |
|---|---|---|
| Individual/HUF (making single payment) | 1% | Single payment exceeds ₹30,000 |
| Individual/HUF (aggregate payments) | 1% | Aggregate payments exceed ₹1,00,000 in a year |
| Other deductors | 2% | Any payment exceeding ₹30,000 |
Key Points:
- “Contractor” includes any person who does any work under a contract
- TDS applies to payments for work, labor, materials, or services
- The deductor must obtain the contractor’s PAN and quote it in TDS returns
- If the contractor doesn’t provide PAN, TDS is deducted at higher rates
TDS on Dividends
When a domestic company declares dividends, it is required to deduct TDS before paying the dividend to shareholders.
TDS Rates on Dividends for FY 2025-26
| Category | TDS Rate | Threshold Limit |
|---|---|---|
| Resident Individual (below 60 years) | 10% | Dividend exceeds ₹5,000 per company |
| Resident Senior Citizen (60 years+) | 10% | Dividend exceeds ₹5,000 per company |
| Non-Resident Indians | 20% (or DTAA rate if lower) | No threshold |
Important Update: The government announced in Budget 2020 that dividend income would be taxed in the hands of shareholders at their applicable slab rates, with TDS being the mechanism for collecting tax at source. The 10% TDS rate applies unless the shareholder has opted for the old tax regime with lower rates.
Concessional TDS: If the shareholder’s estimated total income is below the taxable limit, they can submit Form 15G to the company to avoid TDS on dividends.
TDS on Winnings from Lottery and Games
Winnings from lottery, game shows, horse racing, and other gambling activities are subject to TDS at a higher rate.
TDS Rates on Winnings for FY 2025-26
| Category | TDS Rate |
|---|---|
| Lottery Winnings | 30% |
| Game Shows/Crossword Puzzles | 30% |
| Horse Racing | 30% |
| Card Games/Betting | 30% |
Key Points:
- TDS is deducted at flat 30% (plus applicable surcharge and cess) regardless of the winner’s income level
- No threshold limit exists—TDS applies on every payment
- The winner receives the net amount after TDS
- Winners can claim credit for TDS while filing their ITR
TDS on Online Gaming: Recent changes have brought online gaming winnings under TDS provisions. The TDS rate remains at 30% on net winnings from online games.
TDS Rates for Non-Residents
Non-resident Indians and foreign entities receiving payments from India are subject to TDS at rates specified in the Income Tax Act or the Double Taxation Avoidance Agreement (DTAA), whichever is more beneficial.
TDS Rates for Non-Residents for FY 2025-26
| Type of Payment | TDS Rate (Act) | TDS Rate (DTAA – Lower) |
|---|---|---|
| Interest | 20% | As per treaty (usually 10-15%) |
| Royalties | 10% | As per treaty |
| Technical Services | 10% | As per treaty |
| Dividend | 20% | As per treaty |
| Long-term Capital Gains | 20% | As per treaty |
| Short-term Capital Gains | 30% | As per treaty |
Key Points:
- Non-residents can claim relief under DTAA if the India-tax treaty provides a lower rate
- They must provide their Tax Identification Number (TIN) from their country of residence
- For claiming DTAA benefits, non-residents must submit Form 10F along with TRC (Tax Residency Certificate) and self-declaration
Threshold Limits Summary for FY 2025-26
Understanding threshold limits is crucial as TDS is not applicable below these limits:
| Payment Type | Threshold Limit |
|---|---|
| Salary | No threshold—TDS on all taxable salary |
| Interest (Bank/Post Office) | ₹10,000 per year |
| Rent | ₹2,40,000 per year |
| Professional/Technical Fees | ₹30,000 per deductor |
| Contractor Payment | ₹30,000 single or ₹1,00,000 aggregate |
| Dividend | ₹5,000 per company |
| Commission/Brokerage | ₹15,000 |
| Life Insurance Policy Maturity | ₹1,00,000 |
How to Claim TDS Credit
Claiming TDS credit is an essential part of tax filing. Here’s how to do it:
Step 1: Obtain TDS Certificates
– Salary: Form 16 from employer (contains details of TDS)
– Other payments: Form 16A from the deductor (bank, client, tenant)
Step 2: Verify TDS in Form 26AS
– Form 26AS is your tax credit statement available on the Income Tax e-filing portal
– It shows all TDS deductions reported by deductors against your PAN
– Verify that all TDS entries match your certificates
Step 3: Claim in ITR
– While filing your Income Tax Return, claim the TDS credit in the relevant section
– The TDS will be adjusted against your total tax liability
– If TDS exceeds your tax liability, you can claim a refund
Important: Always reconcile your Form 26AS with your TDS certificates. If there’s a discrepancy, contact the deductor to correct their TDS return.
TDS Return Filing Requirements
Every person responsible for deducting TDS must file TDS returns quarterly:
| Quarter | Period | Due Date |
|---|---|---|
| Q1 | April-June | 31st July |
| Q2 | July-September | 31st October |
| Q3 | October-December | 31st January |
| Q4 | January-March | 31st May |
TDS Return Forms:
- Form 24Q: For salary payments (used by employers)
- Form 26Q: For non-salary payments by individuals/HUF
- Form 27Q: For non-salary payments to non-residents
- Form 27EQ: For TCS (Tax Collected at Source)
Deductors must also issue TDS certificates to recipients—Form 16 for salary and Form 16A for other payments within the stipulated timeframe.
Common Mistakes to Avoid
Mistake 1: Not Updating PAN Details
Always ensure your PAN is updated with all deductors. Without a valid PAN, TDS is deducted at higher rates (20% or 30%).
Mistake 2: Not Filing Form 15G/15H
If your total income is below the taxable limit, submit Form 15G (or 15H for senior citizens) to prevent unnecessary TDS deduction.
Mistake 3: Not Checking Form 26AS Regularly
Regularly review your Form 26AS to ensure all deductors have correctly reported TDS. Discrepancies can cause refund delays.
Mistake 4: Missing TDS on Interest from Multiple Banks
Remember that the threshold of ₹10,000 applies to each bank separately. If you have deposits in multiple banks, each bank may deduct TDS separately once the limit is crossed.
Mistake 5: Not Claiming TDS in ITR
Many taxpayers forget to claim TDS credit in their ITR, resulting in higher tax liability or lower refunds.
Frequently Asked Questions
What is the TDS threshold limit for interest income in FY 2025-26?
The TDS threshold limit for interest income from banks and post offices is ₹10,000 per year. For senior citizens, under Section 80TTB, the threshold is ₹50,000, and they can submit Form 15H to avoid TDS deduction if their total income is below the taxable limit.
How can I reduce TDS on my salary?
You can reduce TDS on your salary by declaring all your tax-saving investments and expenses to your employer at the beginning of the financial year. Submit proof of investments under Section 80C (up to ₹1,50,000), Section 80D (health insurance), Section 80E (education loan interest), and other deductions to help your employer calculate the correct TDS.
Can I claim refund of excess TDS deducted?
Yes, you can claim a refund of excess TDS by filing your Income Tax Return (ITR). The TDS credit shown in your Form 26AS will be auto-populated in your ITR. If your total TDS exceeds your actual tax liability, you will receive a refund directly in your bank account.
What is the difference between TDS and TCS?
TDS (Tax Deducted at Source) is deducted by the payer before making payment to the recipient, while TCS (Tax Collected at Source) is collected by the seller at the time of sale. TCS applies to certain items like alcohol, timber, scrap, and luxury items, whereas TDS applies to various types of payments like salary, rent, interest, and professional fees.
Is TDS applicable on rent paid to NRI landlords?
Yes, if you pay rent to a Non-Resident Indian (NRI) landlord, you are required to deduct TDS at 30% (or the DTAA rate, whichever is lower) under Section 195 of the Income Tax Act. You must obtain a lower TDS certificate from the NRI or apply to the Income Tax Department for TDS at a reduced rate.
How do I correct TDS deducted by mistake?
If TDS has been deducted incorrectly (e.g., under a wrong PAN), you should contact the deductor (your employer, bank, or client) to file a correction TDS return. The deductor can revise their TDS return using Form 24Q/26Q, and the corrected TDS will reflect in your Form 26AS.
Conclusion
Understanding the TDS rate chart for FY 2025-26 is essential for effective tax planning and compliance. Whether you’re a salaried employee, a freelancer, a business owner, or an investor, knowing the applicable TDS rates and threshold limits helps you manage your tax credits efficiently and avoid unnecessary deductions.
Key takeaways include: monitor your Form 26AS regularly, submit necessary forms like 15G/15H to prevent excess TDS, claim your TDS credits accurately while filing ITR, and ensure your PAN is updated with all deductors. By staying informed and proactive, you can optimize your tax position and ensure smooth compliance with India’s TDS system throughout the financial year 2025-26.