TDS stands for Tax Deducted at Source. It is a mechanism under the Indian Income Tax Act where the person making a payment — salary, rent, commission, professional fees, or purchase of goods — deducts a fixed percentage of tax before paying the recipient, and deposits it directly with the government. The deductee then claims credit for this tax when filing their income tax return, using the details reflected in Form 26AS and their TDS certificate.

For pharma distributors, wholesalers, retailers, manufacturers, and sales teams, TDS isn't just a payroll topic — it touches almost every transaction: commission paid to stockists, rent for warehouses, contractor payments for logistics, professional fees to consultants, and even the purchase of goods above a threshold. Getting the right form, rate, and deadline matters, because errors lead to disallowed expenses and penalty notices.

This guide covers what actually are, how TDS on salary works, the FY 2025-26 rate chart, and the exact steps to pay and file TDS correctly.

Quick Answer: What Is a "TDS Form"?

There isn't one single "TDS form" — the term covers two different categories, and mixing them up is the most common source of confusion:

  • TDS Certificates (given to the deductee as proof tax was cut) — Form 16, Form 16A, Form 16B, Form 16C, Form 16D.
  • TDS Return Forms (filed by the deductor with the Income Tax Department every quarter) — Form 24Q, 26Q, 27Q, 27EQ, 26QB, 26QC, 26QD.

A salaried employee typically only ever sees Form 16. A business that deducts TDS from vendors, contractors, or landlords deals with the return forms and issues Form 16A/16B/16C to those parties.

Important Update: New Forms Under the Income-tax Act, 2025

The Income-tax Act, 2025 came into effect from 1 April 2026 and renumbered several TDS provisions and forms. If you're filing returns or paying TDS for transactions dated before 1 April 2026 (which includes all of FY 2025-26), continue using the familiar forms and section numbers described below — they still apply. For transactions from 1 April 2026 onward, the department has introduced replacement forms (for example, Form 24Q is succeeded by Form 138, Form 26Q by Form 140, and Form 27Q by Form 144), with rates and thresholds largely carried forward. Always check which financial year the payment relates to before deciding which form and challan version to use.

Types of TDS Forms Explained

1. TDS Certificates (Proof of Deduction)

  • Form 16 — Issued annually by an employer to an employee, summarizing salary paid and TDS deducted under Section 192. Has two parts: Part A (TAN/PAN details, tax deposited) and Part B (detailed salary breakup, deductions claimed).
  • Form 16A — Issued for TDS deducted on non-salary payments such as professional fees, commission, contractor payments, or interest. A distributor deducting TDS on brokerage paid to a sub-dealer would issue Form 16A.
  • Form 16B — Issued by the buyer of a property to the seller, for TDS deducted on sale of immovable property (Section 194-IA).
  • Form 16C — Issued by a tenant to a landlord for TDS deducted on rent above the specified threshold (Section 194-IB), typically where the tenant is an individual/HUF not otherwise liable to tax audit.
  • Form 16D — Issued for TDS deducted under Section 194M on payments like contractual work or professional fees by individuals/HUFs not covered under regular TDS provisions.

2. TDS Return Forms (Filed by the Deductor)

  • Form 24Q — Filed quarterly by every employer deducting TDS on salary under Section 192. Contains challan details each quarter, with a detailed salary annexure filed in Q4.
  • Form 26Q — Filed quarterly for TDS deducted on all domestic non-salary payments — rent, professional fees, commission, contractor payments, interest other than securities — under Sections 193, 194, 194C, 194H, 194J, and related provisions.
  • Form 27Q — Filed quarterly for TDS deducted on payments made to non-residents and foreign companies (interest, royalty, fees for technical services, etc.).
  • Form 27EQ — Filed quarterly for Tax Collected at Source (TCS), relevant to sellers of goods like scrap, timber, or specified minerals, and to e-commerce operators.
  • Form 26QB — A combined challan-cum-statement for TDS on sale of immovable property above ₹50 lakh, filed within 30 days of the end of the month of deduction. No TAN is required — only PAN.
  • Form 26QC — Combined challan-cum-statement for TDS on rent paid by an individual/HUF exceeding ₹50,000 per month (Section 194-IB).
  • Form 26QD — Used for TDS on payments to resident contractors and professionals by individuals/HUFs not liable for tax audit (Section 194M).
  • Form 27A — A control-chart cover sheet required only when TDS/TCS returns are submitted physically rather than online.

TDS on Salary (Section 192): How It Works

TDS on salary is different from every other TDS provision because it isn't a flat percentage — it's calculated on the average rate of income tax applicable to the employee's estimated annual income.

Here's the step-by-step logic an employer follows:

  1. Estimate the employee's total salary income for the financial year.
  2. Add other income the employee has declared (rental income, interest, etc.), if any.
  3. Reduce eligible deductions and exemptions (only under the old tax regime — the new regime allows very limited deductions, mainly the standard deduction and employer's NPS contribution).
  4. Apply the slab rates of whichever tax regime the employee has opted for.
  5. Add applicable surcharge (10% for income between ₹50 lakh–₹1 crore; 15% for ₹1 crore–₹2 crore; 25% above ₹2 crore) and 4% Health & Education Cess.
  6. Divide the resulting annual tax liability by 12 (or the remaining months of employment) to arrive at the monthly TDS deduction.

Key points for sales teams and field staff on variable pay: Since incentives, commissions, and bonuses form part of "salary" for TDS purposes, a spike in incentive payout in a particular month can temporarily increase that month's TDS, even though the employer recalculates and adjusts the estimate for the rest of the year.

If an employee's total income (after deductions, under the old regime) falls below the basic exemption limit, no TDS is deducted on salary at all. Employees can also submit investment declarations and proofs to their employer to ensure accurate deduction under the old regime.

TDS Rate Chart: FY 2025-26 (AY 2026-27)

Rates below apply to payments to residents unless stated otherwise. A higher rate applies if the deductee's PAN is not available or is invalid (generally 20%, or twice the specified rate, whichever is higher), and Section 206AB mandates a higher rate for deductees who haven't filed income tax returns for the preceding two years where TDS exceeded ₹50,000 in each year.

Salary and employee benefits

  • Salary (Section 192): As per average income tax slab rate applicable to the employee's chosen regime.
  • Premature EPF withdrawal (Section 192A): 10% if withdrawal is ₹50,000 or more and service is under 5 years; nil with valid Form 15G/15H.

Payments relevant to distributors, wholesalers, and manufacturers

  • Commission or brokerage (Section 194H): 5% where annual payment exceeds ₹15,000 — commonly applies to commission paid to stockists, agents, or sub-dealers.
  • Contractor/sub-contractor payments (Section 194C): 1% for payments to individuals/HUF, 2% for payments to companies/firms, where a single payment exceeds ₹30,000 or aggregate annual payments exceed ₹1,00,000. Applies to transport contractors, packaging vendors, and third-party logistics providers. Transporters owning 10 or fewer goods carriages at any time during the year can furnish a declaration for nil deduction.
  • Purchase of goods (Section 194Q): 0.1% on the value of goods purchased above ₹50 lakh in a year from a single seller, applicable where the buyer's turnover exceeded ₹10 crore in the preceding year — directly relevant to wholesalers and manufacturers buying in bulk.
  • Rent (Section 194-I): 10% on rent of land, building, or furniture, where annual rent exceeds ₹6,00,000 — relevant for warehouses, godowns, and retail outlet leases. (2% for rent of plant and machinery.)
  • Professional or technical fees (Section 194J): 10% for professional services; 2% for technical services and certain call-centre/royalty payments, where annual payment exceeds ₹30,000. Covers consultants, CAs, and technical advisors engaged by the business.
  • Interest other than on securities (Section 194A): 10% where annual interest exceeds ₹50,000 for individuals (₹1,00,000 for senior citizens) — relevant for interest paid on unsecured loans or deposits from directors/partners.

Other common categories

  • Dividends (Section 194): 10% where dividend from a single company exceeds ₹5,000 in a year.
  • Sale of immovable property (Section 194-IA): 1% where consideration exceeds ₹50 lakh.
  • Winnings from lottery, game shows, or online gaming: 30%, generally with no minimum threshold for online gaming.
  • Cash withdrawal (Section 194N): 2% on cash withdrawals exceeding ₹1 crore in a year from a bank/post office (lower threshold and higher rate apply for non-ITR filers).

If total income for the year stays below the basic exemption limit, individuals (other than senior citizens) can submit Form 15G, and senior citizens can submit Form 15H, to prevent TDS deduction on interest, dividends, and similar payments.

How to Pay TDS Online (Step by Step)

TDS deducted must be deposited with the government using Challan ITNS 281 through the Income Tax e-filing portal (incometax.gov.in). For transactions relating to Tax Year 2026-27 onward, the department has introduced Challan ITNS 281N; payments relating to FY 2025-26 continue to use ITNS 281.

  1. Log in to the Income Tax e-filing portal using your TAN credentials, and go to e-Pay Tax.
  2. Select Challan No./ITNS 281 and choose the correct Tax Applicable category — Company Deductees (0020) or Non-Company Deductees (0021).
  3. Enter your TAN, confirm the details auto-populated by the portal, and select the correct Assessment Year (for TDS deducted in FY 2025-26, select AY 2026-27).
  4. Choose the applicable Nature of Payment code matching the section under which TDS was deducted (e.g., 192 for salary, 194C for contractor payments, 194H for commission).
  5. Enter the TDS amount, along with surcharge and cess if applicable, and interest or late fee if the payment is delayed.
  6. Complete payment via net banking, debit card, or by generating a challan for payment at an authorized bank branch.
  7. Download and save the challan counterfoil — it carries the CIN (Challan Identification Number) and BSR code, both required later while filing the TDS return.

TDS payment due dates:

  • TDS deducted in any month (April to February): due by the 7th of the following month.
  • TDS deducted in March: due by 30th April.
  • Government offices deducting TDS without a challan: due on the same day as deduction.

TDS Return Filing Due Dates

TDS returns (Form 24Q, 26Q, 27Q, 27EQ) are filed quarterly:

  • Quarter 1 (April–June): due 31 July
  • Quarter 2 (July–September): due 31 October
  • Quarter 3 (October–December): due 31 January
  • Quarter 4 (January–March): due 31 May

Form 26QB (property) must be filed within 30 days from the end of the month of deduction, and the buyer must issue Form 16B to the seller within 15 days of the due date for filing Form 26QB.

Penalties for Late TDS Payment or Filing

  • Late deposit of TDS: Interest at 1.5% per month (or part of a month) from the date of deduction to the date of deposit.
  • Late deduction of TDS: Interest at 1% per month from the date it was deductible to the date it was actually deducted.
  • Late filing of TDS return: Fee of ₹200 per day under Section 234E, capped at the TDS amount.
  • Failure to file TDS return: Penalty ranging from ₹10,000 to ₹1,00,000 under Section 271H, in addition to the late filing fee.
  • Non-deduction or non-deposit of TDS can also lead to disallowance of the related expense while computing business income under Section 40(a)(ia).

For businesses handling multiple vendor categories — transporters, commission agents, professional consultants, and landlords — even a small delay across many transactions compounds quickly, so building TDS deposit and return deadlines into your monthly accounting close is the most practical way to stay compliant.

Frequently Asked Questions

What is the full form of TDS?

TDS stands for Tax Deducted at Source — tax that is deducted by the payer at the time of making specified payments and deposited directly with the government.

What is TDS full form in salary context? I

n the context of salary, TDS refers to the tax an employer deducts each month from an employee's salary under Section 192, based on the employee's estimated annual tax liability, and deposits with the government on the employee's behalf.

Which TDS form should a business use for vendor payments?

Use Form 26Q to file the quarterly TDS return for domestic vendor payments such as commission, contractor charges, professional fees, and rent, and issue Form 16A to each vendor as proof of deduction.

Is TDS applicable on purchase of goods by a wholesaler or distributor?

Yes. Under Section 194Q, a buyer whose turnover exceeded ₹10 crore in the preceding financial year must deduct 0.1% TDS on purchases of goods from a resident seller exceeding ₹50 lakh in a year. Note that if the seller has already collected TCS under Section 206C(1H) on the same transaction, TDS under 194Q is not additionally required.

Can TDS be claimed back if more tax was deducted than actually payable?

Yes. Any excess TDS deducted can be claimed as a refund while filing your income tax return, once it's verified against Form 26AS/AIS.

What happens if TDS is deducted but not deposited by the deductor?

The deductor becomes liable for interest, penalty, and possible prosecution under the Income Tax Act. The deductee can still claim credit only to the extent the amount is reflected in Form 26AS, so delayed deposit by the deductor can temporarily affect the deductee's ability to claim credit.

Do I need a TAN to pay TDS?

Yes, for regular TDS deductions (salary, contractor payments, commission, etc.) a TAN is mandatory. Exceptions exist for one-off transactions like TDS on property purchase (Form 26QB) or rent by an individual (Form 26QC), where PAN is sufficient.