Threshold Limits for TDS Deduction under the Income Tax Act
Understanding the TDS threshold limit is essential for both individuals and businesses to ensure proper tax compliance and avoid unnecessary deductions. These limits determine when tax must be deducted at source for different types of payments such as salary, rent, or interest. Below is a detailed annual and monthly guide to help you understand the TDS exemption limit and when deductions apply.
What’s New in Threshold Limits – FY 2025-26
Every year, TDS threshold limits (the minimum payment level at which TDS kicks in) can be changed through the Union Budget and Finance Act. These limits usually apply section wise. rent, professional fees, contracts, interest, commission, e commerce, cash withdrawals and so on.
For FY 2025–26 you should always:
- Refer to the latest TDS rate and threshold chart issued after the Budget.
- Check whether limits for common sections (like 194A, 194C, 194H, 194I, 194J, 194N, 194Q, 194O, etc.) have been revised.
- Confirm if any special thresholds for senior citizens, co operative banks or specific payment categories have changed.
In practice, many years see no change in thresholds, but you cannot assume that. CAs and businesses should download the updated chart at the start of FY 2025–26 and lock it in their compliance calendar, so deductions are done at the right point and not too early or too late
What is a Threshold Limit in TDS?
A threshold limit is the minimum payment amount up to which no TDS (Tax Deducted at Source) is required. Once the payment exceeds this limit, TDS must be deducted at the applicable rate. These limits vary depending on the type of income and the relevant section of the Income Tax Act.
Annual and Monthly Threshold Limits Explained
TDS deduction can be based on annual or monthly thresholds, depending on the nature of the payment.
Annual Limits for Common Payments (Salary, Interest, Rent, etc.)
- Salary (Section 192): TDS applies if total income exceeds the basic exemption limit (₹2.5 lakh for individuals below 60).
- Interest on Deposits (Section 194A): Threshold is ₹40,000 per financial year (₹50,000 for senior citizens).
- Rent (Section 194I): Threshold is ₹2.4 lakh per year for land/building and ₹1.8 lakh for machinery or equipment.
Monthly Deduction Limits under TDS Provisions
For salaries and certain contractor payments, TDS is calculated monthly based on projected annual income, ensuring deductions are spread evenly across the year.
Complete Threshold Table for FY 2025-26
Each section of the Income Tax Act prescribes specific limits:
Salary (Section 192)
Threshold: Income exceeding the basic exemption limit (₹2.5 lakh, ₹3 lakh for senior citizens). TDS is deducted monthly based on estimated annual income and chosen tax regime.
Interest on Deposits (Section 194A)
Threshold: ₹40,000 (₹50,000 for senior citizens). Applies to interest from banks, post offices, and other financial institutions.
Professional/Technical Services (Section 194J)
Threshold: ₹30,000 per financial year per payee. Applies to fees for professional or technical services .
Contractor Payments (Section 194C)
Threshold: ₹30,000 per single payment or ₹1,00,000 aggregate annually. Deduction rate is 1% for individuals/HUF and 2% for others.
Rent Payments (Section 194I)
Threshold: ₹2.4 lakh per year for property rent . Deduction rate is 10% for land/building and 2% for machinery/equipment.
TDS Threshold Exemptions & Relaxations
Certain payments, like those to government bodies or notified institutions, are exempt. Small businesses or individuals may also qualify for exemption if payments fall below specified limits or if forms like 15G/15H are submitted.
Consequences of Exceeding Threshold Limits
Once payments exceed the threshold, failure to deduct TDS can lead to:
- Interest and penalties under Section 201.
- Disallowance of related expenses while calculating taxable income.
- Additional compliance issues, including notices from the Income Tax Department.
Practical Examples of Threshold Calculations
- Bank Interest: If a regular taxpayer earns ₹45,000 interest in a year, TDS is applicable on the full amount as it crosses the ₹40,000 limit.
- Contractor Payment: A contractor receiving ₹35,000 in one invoice will face TDS at 1% or 2% as the single payment exceeds ₹30,000.
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Conclusion
Knowing the TDS threshold limits is crucial to avoid penalties and ensure smooth tax compliance. Whether it’s salary, rent, or contractor payments, understanding both annual and monthly thresholds helps businesses and individuals plan payments and maintain accurate records.
I am a Chartered Accountant with more than five years of experience in the accounting field. My areas of expertise include GST, income tax, and audits. I am passionate about sharing knowledge through blogs and articles, as I believe that learning is a lifelong journey. My goal is to provide valuable insights and simplify financial matters for individuals and business owners alike.
Frequently Asked Questions
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What are the updated threshold limits for TDS in FY 2025-26?
TDS threshold limits for FY 2025–26 are notified through the latest Finance Act and CBDT updates. They differ section-wise for salary, interest, rent, professional fees, contracts, commission, e-commerce, etc. You should download the current TDS rate and threshold chart from official income tax resources rather than relying on figures from older years.
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Do threshold limits differ for senior citizens or banks/co-operative societies?
Yes, some TDS sections have higher thresholds for senior citizens (for example, certain interest payments) and special limits for banks or cooperative societies paying interest or other incomes. The exact combinations are section specific, so you must check the latest official TDS chart and underlying section conditions before applying any threshold.
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If my payment is below the threshold, do I still need to submit Form 15G/15H?
If total interest or other income for the year is clearly below the TDS threshold, TDS is usually not required, even without Form 15G/15H. These forms are mainly used when income crosses the threshold but the person’s total taxable income is below the basic exemption limit and they want to avoid TDS.
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Is TDS applicable if the payment amount exactly matches the threshold?
Normally, TDS becomes applicable when the payment exceeds the threshold for that section in the financial year. If the aggregate amount is exactly equal to the threshold, many sections do not require deduction. However, you must confirm the exact wording of the specific section, as some may be framed differently.
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Is the threshold checked per transaction or for the entire financial year?
It depends on the section. Some thresholds are per transaction (single payment-based), while many common sections apply the limit on the total payments to a payee during the financial year. For example, contract or professional fees are usually reviewed on an annual aggregate basis. Always read the specific section’s rule carefully.