Step-by-Step TDS Calculation with Payment Type Rates
Tax Deducted at Source (TDS) is one of the core mechanisms through which the Government of India ensures timely collection of income tax. Instead of waiting for the end of the financial year, TDS collects tax at the source of income itself—right when a payment such as salary, rent, or professional fee is made. Understanding how TDS rates are applied and how to calculate the exact amount is essential for employers, businesses, and individual taxpayers alike. This guide explains the current TDS rates for FY 2024-25, shows a step-by-step calculation process, and provides practical examples to help you stay compliant and avoid penalties.
TDS Rates for FY 2024-25
The Income Tax Act specifies different TDS rates for various payment types. Deductors must apply the correct rate once the payment exceeds the prescribed threshold limit.
| Payment Type | Section | Threshold | TDS Rate (Resident) | Key Notes |
|---|---|---|---|---|
| Salary | 192 | Basic exemption limit | As per slab | Old/New tax regime applies |
| Interest on Bank/FD | 194A | ₹40,000 (₹50,000 for senior citizens) | 10% | 20% if PAN not provided |
| Professional/Technical Fees | 194J | ₹30,000 | 10% | 2% for technical services (other than professionals) |
| Rent – Land/Building | 194I | ₹2,40,000 | 10% | 2% for plant/machinery |
| Commission/Brokerage | 194H | ₹15,000 | 5% | Applies to agents, brokers |
| Contract Payments | 194C | ₹30,000 (single) or ₹1,00,000 (annual) | 1% (individual/HUF) / 2% (others) | Includes works contracts |
Step-by-Step TDS Calculation Process
1. Identify the Nature of Payment
Determine if the payment is salary, rent, professional fees, interest, or commission. The applicable section of the Income Tax Act depends on this classification.
2. Check Threshold Limits
Confirm if the total payment during the financial year crosses the section-specific exemption limit. For example, TDS on bank FD interest applies only when interest exceeds ₹40,000 in a year (₹50,000 for senior citizens).
3. Apply the Correct TDS Rate
Use the rate from the latest Finance Act or relevant notifications. For instance, 10% for FD interest (u/s 194A) or 5% for brokerage (u/s 194H).
4. Calculate the TDS Amount
Use the formula:
TDS = Payment Amount × TDS Rate
If payment is subject to GST, remember to exclude the GST portion when applicable.
5. Deduct and Deposit
The deductor must deduct TDS at the time of credit or payment, whichever is earlier, and deposit it using Challan ITNS 281 within the due date (usually the 7th of the following month).
TDS Calculation Examples
Example 1 – Salary Income
An employee has an annual taxable salary of ₹8,00,000 under the old regime after deductions.
Using slab rates, the tax works out to ₹75,400 (including cess).
Monthly TDS = ₹75,400 ÷ 12 ≈ ₹6,283 deducted each month by the employer.
Example 2 – Fixed Deposit Interest
Interest earned in a year: ₹60,000.
Threshold: ₹40,000.
TDS = 10% × (₹60,000 – ₹40,000) = ₹6,000.
The bank deducts ₹6,000 before crediting interest.
Example 3 – Professional Fees
A consultant receives ₹1,00,000.
Threshold: ₹30,000.
TDS = 10% × ₹1,00,000 = ₹10,000.
The client pays ₹90,000 and deposits ₹10,000 with the government.
TDS Return Filing & Refunds
After deduction, filing accurate TDS returns is mandatory.
Due Dates for Filing
- Q1 (Apr–Jun): 31 July
- Q2 (Jul–Sep): 31 Oct
- Q3 (Oct–Dec): 31 Jan
- Q4 (Jan–Mar): 31 May
Claiming Excess TDS Refund
If more tax was deducted than your final liability, claim a refund when filing your Income Tax Return. The excess will be credited to your bank account after CPC processing.
Penalties for Delay
- Late fee (Sec 234E): ₹200 per day of delay.
- Penalty (Sec 271H): ₹10,000 to ₹1,00,000 for non-filing or incorrect filing.
- Interest Liability: 1% per month for delayed deduction and 1.5% per month for delayed deposit.
Practical Tips for Deductors
- Maintain a valid TAN (Tax Deduction Account Number).
- Reconcile TDS with Form 26AS to ensure correct credit to deductees.
- Issue TDS certificates (Form 16/16A) on time to avoid penalties and help recipients claim credit.
Conclusion
Accurate TDS calculation and timely deposit are crucial for both deductors and recipients. By identifying the payment type, applying the correct rate, and filing returns promptly, you can avoid penalties and ensure smooth credit of taxes. Businesses should also automate TDS processes using accounting software for efficiency and compliance.
I am a Chartered Accountant with 5 years of experience specializing in GST, income tax, and HSN code classification. I help businesses with GST compliance, tax planning, and financial advisory, ensuring they meet regulatory requirements while optimizing their tax strategies. I aim to simplify GST filings, income tax laws, and HSN code classifications, helping professionals and business owners stay informed and compliant.
Frequently Asked Questions
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Is TDS deducted every month from salary?
Yes. Employers estimate annual taxable income, compute total tax, and deduct TDS in equal monthly installments.
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What is the TDS rate for professionals?
For professional or technical services (u/s 194J), the TDS rate is 10%, with a ₹30,000 annual threshold.
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Can I get a refund if extra TDS is deducted?
Yes. File your ITR to claim the excess amount. Refunds are processed by the Income Tax Department after verification.
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How can I check if TDS is deposited?
View Form 26AS or the Annual Information Statement (AIS) on the Income Tax e-filing portal.
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What is the penalty for not deducting TDS?
Failure to deduct or deposit TDS attracts interest, late fees of ₹200/day, and penalties up to ₹1 lakh under Section 271H.