TDS Compliance for FY 2025-26: Rates, Deadlines & Filing Essentials

TDS at a Glance

Tax Deducted at Source (TDS) is the mechanism under the Income Tax Act, 1961, by which tax is deducted at the point of payment — whether salary, professional fees, rent, interest, or contract payments. The deductor (payer) is responsible for deducting the correct amount, depositing it with the government within the prescribed timeline, and filing quarterly TDS returns.

Non-compliance attracts interest under Section 201(1A), penalties under Section 271C, and disallowance of the expenditure under Section 40(a)(ia). For FY 2025-26, there are several rate changes and new provisions that businesses must be aware of.

Key TDS Rate Changes for FY 2025-26

Section 194J (Professional/Technical Fees): 10% for professional services; 2% for technical services (unchanged)
Section 194C (Contractor Payments): 1% for individuals/HUF; 2% for others (unchanged)
Section 194I (Rent): 10% for land/building; 2% for plant & machinery (unchanged)
Section 194Q (Goods Purchase): 0.1% on purchases exceeding ₹50 lakh — continues in force
Section 194R (Perquisites/Benefits): 10% on benefits exceeding ₹20,000 — active
Section 194BA (Online Gaming Winnings): 30% on net winnings upon withdrawal — new for FY 2025-26
Section 206AA: Higher rate (20% or twice the applicable rate) if PAN not furnished — strictly enforced

Quarterly TDS Return Due Dates

Q1 (April–June 2025): 31 July 2025
Q2 (July–September 2025): 31 October 2025
Q3 (October–December 2025): 31 January 2026
Q4 (January–March 2026): 31 May 2026

TDS must be deposited by the 7th of the following month (except March — deposited by 30 April). Late deposit attracts interest at 1.5% per month from date of deduction to date of deposit.

Common TDS Defaults & Penalties

Short Deduction

Deducting at a lower rate than applicable — common when the payer fails to verify updated Section 206AB status (higher TDS for non-filers). Interest under 201(1A) applies on the shortfall at 1% per month from date payment was due to date of deduction.

Late Deposit

Interest at 1.5% per month from date of deduction to date of deposit. Even one day's delay triggers a full month's interest — deposit on time.

Late Filing of TDS Returns

Penalty of ₹200 per day under Section 234E until the return is filed, plus penalty up to ₹1 lakh under Section 271H. Note: 234E is levied automatically in CPC processing — it cannot be waived.

Incorrect PAN in TDS Returns

If PAN is incorrectly quoted, the TDS credit does not appear in the deductee's Form 26AS, leading to disputes and rectification demands.

Best Practices for TDS Compliance

Maintain a TDS compliance calendar with all payment and return due dates marked with 3-day advance reminders
Verify PAN and Section 206AB/206AB status on TRACES before each payment above threshold
Reconcile TDS ledger with vendor/salary payments monthly — do not leave it to quarter-end
Download Form 26AS / Annual Information Statement (AIS) quarterly to verify TDS credit matching
Issue TDS certificates (Form 16/16A) within prescribed timelines — 15 June for salary; 15 days from return filing for others

Our team handles end-to-end TDS compliance for businesses in Rajkot, Morbi, and Ahmedabad — from deduction tracking and deposit challan preparation to quarterly return filing and certificate issuance. Contact us to set up a TDS compliance framework for your business.