TDS for Small Business: Common Sections, Rates and Due Dates (FY 2025-26)

Tax Deducted at Source (TDS) is the government’s way of collecting tax at the moment income is paid. If you run a business that pays rent, hires contractors, engages consultants or pays commission, you are probably a “deductor” — and the law holds you responsible for cutting the tax, depositing it, and reporting it.

Fail any step and the cost lands on you: the expense can be disallowed, interest at 1–1.5% per month applies, and penalties follow. The flip side: TDS compliance is routine once you know the sections and dates.

The sections small businesses meet most

When to deduct, deposit and report

• Deduct at the time of payment or credit, whichever comes first (invoice booked but unpaid also triggers TDS on credit).
• Deposit by the 7th of the following month (March deductions: 30 April for non-government deductors without audit; quarterly for others). Use Challan ITNS-281 — quoting the wrong section/tan is a common, costly error.
• TDS returns (Form 24Q salary, 26Q others): Q1 by 31 July, Q2 by 31 October, Q3 by 31 January, Q4 by 31 May.
• Certificates: Form 16 (salary) by 15 June; Form 16A within 15 days of each return’s due date.

What happens when TDS goes wrong

• Late deduction: interest 1% per month from the deductible date to actual deduction.
• Deducted but deposited late: interest 1.5% per month from deduction to deposit — note the higher rate.
• No deduction at all: the expense can be disallowed under Section 40(a)(ia) in your own tax return — a double hit, because you still owe the vendor’s payment.
• Late filing: ₹200/day fee (Section 234E) capped at the TDS amount, plus prosecution risk for wilful defaults over ₹1 lakh.

Vendors hammer deductors for TDS certificates because their credit depends on it. Unreported TDS poisons vendor relationships and reconciliation alike — treat the quarterly return date like a payroll deadline.

Quick setup for a new business

1. Get a TAN (Tax Deduction Account Number) — required before your first deduction.
2. Configure your accounting software with section-wise TDS masters (rates above).
3. Collect vendor PANs and verify them — 20% “higher rate” applies when PAN is missing (Section 206AA).
4. Run a monthly TDS calendar: deduction at payment, deposit by the 7th, quarter-end return by the listed dates.
5. File returns on TRACES/portal, then issue 16A certificates promptly — vendors will ask anyway.

Frequently Asked Questions