Threshold Limits for TDS Deduction Under the Income Tax Act

How Common TDS Thresholds Work in Practice

A threshold chart gives the limit and rate, but real compliance depends on how the payment is recorded, who receives it, whether the limit is checked per transaction or annually, and whether the payee is resident or non-resident. The examples below explain how these rules work in day-to-day business situations.

Salary TDS - Section 192

Salary TDS is different from most other TDS sections because there is no fixed deduction rate . The employer estimates the employee’s full-year taxable salary, considers the selected tax regime, standard deduction, eligible declarations, exemptions, rebate availability and taxable perquisites, and then deducts tax through monthly payroll.

A common mistake is calculating TDS only on the monthly salary amount. Salary TDS should be based on the employee’s estimated annual tax liability, not just one month’s payout.

Interest TDS - Section 194A

For bank and FD interest, the key point is that the bank checks the annual interest against the applicable limit. Once the limit is crossed, TDS applies on the full eligible interest amount, not only on the excess portion.

For example, if a senior citizen earns ₹95,000 FD interest from a bank during the year, TDS is not deducted because it is below the applicable limit. If the interest is ₹1,05,000, TDS applies on the full ₹1,05,000, subject to PAN and valid declaration rules .

Contractor Payments - Section 194C

Contractor payments need extra care because both single-payment and yearly aggregate limits matter. Even if the first few bills are small, TDS may become applicable later when the total payments to the same contractor cross the annual limit. For example, if a business pays one contractor ₹28,000 in May, ₹35,000 in August and ₹45,000 in January, the August payment triggers TDS because it crosses the single-payment limit. By January, the total has also crossed the annual aggregate limit, so the business should ensure TDS is correctly deducted on the applicable cumulative amount.

Professional and Technical Fees - Section 194J

The main issue under Section 194J is classification. Businesses often treat all service bills as contractor payments, but professional services such as CA, legal, medical, architecture, engineering and management consultancy work generally fall under Section 194J. The practical test is the nature of the service. If the vendor is providing professional expertise or technical advice, do not classify the payment only by invoice wording.

Rent TDS - Sections 194I and 194IB

Rent TDS depends on the payer's type. Businesses and other regular deductors usually check Section 194I, while certain individuals and HUFs who are not covered under regular TDS obligations may fall under Section 194IB.

Property Purchase - Section 194IA

For property purchases from a resident seller, the buyer is responsible for deducting and depositing TDS . The seller does not deposit this TDS on the buyer's behalf. For example, if a buyer purchases a property for ₹75 lakh from a resident seller, the buyer deducts ₹75,000 as TDS and pays the balance to the seller.

If the seller is non-resident, do not use the resident property rule casually. Non-resident property transactions need a separate review under Section 195.

E-commerce Payments - Section 194O

Section 194O matters mainly for marketplace transactions. The platform operator deducts TDS from payments made to resident sellers, and the seller should reconcile that TDS with platform statements, Form 26AS , and AIS. For sellers, the practical risk is usually not the deduction itself, but the mismatch among marketplace reports, books of account, and tax credit records.

Purchase of Goods - Section 194Q

Section 194Q applies only to specified buyers and only after purchases from the same seller cross the prescribed yearly limit. The key point is that TDS applies only to the amount exceeding the limit , not to the full purchase value. For example, if a covered buyer purchases goods worth ₹70 lakh from one seller during the year, TDS applies only on ₹20 lakh.

Virtual Digital Assets - Section 194S

The limit is also commonly misunderstood. Do not assume the higher limit applies to every taxpayer. The applicable limit depends on whether the payer is a specified person.

Partner Remuneration - Section 194T

This is an important new compliance area for firms and LLPs. Partner-wise payments should be tracked together instead of checking salary, interest, commission, or bonus separately.

For example, if a partner receives ₹1,20,000 as salary and ₹30,000 as interest on capital during the year, the firm should treat the total partner payment as ₹1,50,000 for TDS purposes.

TDS Payment, Return Filing, and Certificate Rules

For most TDS deductions, tax deducted from April to February must be deposited by the 7th of the following month. TDS deducted in March is generally deposited by 30 April. For challan-cum-statement cases such as property purchase, rent by certain individuals/HUFs, payments under Section 194M, and VDA transactions under Section 194S, the due date is generally 30 days from the end of the month in which TDS is deducted. 

Quarterly TDS Return Due Dates

After the quarterly TDS statement is filed and processed, the TDS certificate is generated for the deductee. From Tax Year 2026-27, non-salary TDS certificates are issued in Form 131. For quarterly non-salary TDS statements such as Form 140 and Form 144, Form 131 must be issued within 15 days from the due date of filing the relevant quarterly statement.

Practical TDS Compliance Checklist

• Map every regular payment type to the correct TDS section before the financial year starts. This is especially important for contractor payments, professional fees, rent, commission, partner remuneration, and the purchase of goods.
• Update threshold limits in your accounting or ERP system from FY 2025-26. Old limits for rent, professional fees, commission, mutual fund income, and compulsory acquisition compensation can lead to wrong deductions.
• Collect PAN from vendors before processing payment. Missing PAN can trigger a higher deduction under Section 206AA.
• Check whether Form 15G/15H or Form 121 is applicable based on the year. 
• For payments from 1 April 2026, use the new Income-tax Act, 2025, references and forms. Do not mechanically reuse old Act section codes in new Act filings.
• Review aggregate limits monthly, not only at year-end. This helps avoid missed TDS under sections like 194C, 194H, 194J, 194R, and 194T.
• For non-resident payments, do not rely only on a threshold chart. Check chargeability, DTAA, Form 15CA/15CB requirements, and lower deduction certificates where applicable.
• Reconcile TDS deductions with challans, returns, Form 26AS/AIS, and vendor ledgers before filing quarterly returns.

For businesses managing vendor payments, TDS entries, GST invoices, and financial reports together, BUSY accounting software can help keep accounting, billing, inventory, and compliance workflows connected in one system.

Conclusion

TDS threshold limits are not just reference numbers. They decide whether tax must be deducted, when it must be deducted, and how the transaction should be reported. For FY 2025-26, businesses must pay special attention to the revised limits on rent, interest, professional fees, commissions, mutual fund income, and compensation for compulsory acquisition.

From 1 April 2026, the bigger shift is structural. The Income-tax Act, 2025, changes how TDS sections and forms are referenced, even though many practical deduction rules remain similar. The safest approach is to check the payment type, payee status, threshold, rate, PAN availability and applicable form before releasing payment.