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Types of TDS

•6 min read•by Angel One
TDS refers to Tax Deducted at Source; it is an advance tax collection method wherein a portion of income is withheld by the payers. In 2026, TDS signifies simpler compliance with higher limits and lower rates.
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To navigate the Indian tax system effectively, it is vital to understand how the various types of Tax Deducted at Source (TDS) function under the 'pay-as-you-earn' model. A leap of the system in 2026 was marked by increasing limits and switching the whole process to the digital reporting method, where compliance was hassle-free for the deductors and the taxpayers.  

The government takes a fixed percentage of a individual’s income, for example, the salary, rent, or professional fees, even before it is generated, thus ensuring a steady flow of revenue for itself, and at the same time, lightening the tax burden on individuals at the end of the year, thereby forming a financial ecosystem that is both transparent and efficient. 

Key Takeaways

  • The new standards for rent (₹6L/year) and interest (₹1L for seniors) make it easier for people on low incomes to comply with TDS rules. 

  • The TDS rates in major sections 194H and 194-O have been significantly reduced to 2% and 0.1%, respectively. 

  • Not disclosing a PAN for TDS usually attracts a 20% penalty. 

  • All deductions will now be directly connected to AIS and Form 26AS for smooth filing. 

What is TDS (Tax Deducted at Source)? 

Tax Deducted at Source (TDS) is a system that the Income Tax Department uses to get taxes at the time income is produced. The idea of “pay as you earn” can help understand what TDS is, as the tax is taken from the income before the income goes to the taxpayer.  

TDS operates on the very principle that the entity making the payment is known as the deductor and is required by law to withhold taxes at the prescribed rates before the release of the payment. Such withholding applies to different kinds of income, such as salary, rental, interest, professional fees, and commissions, among other payments made under contract.  

The tax withheld is deposited with the government on behalf of the tax bearer, who is referred to as the deductee, along with the receipt. This credit shows up in Form 26AS and the Annual Information Statement (AIS) and can be set off against your final tax liability when you file your return.  

The 2026 rules have raised thresholds for tax-free limits, including ₹1,00,000 for the interest on senior citizens' savings accounts and ₹6,00,000 rent allowed before TDS. 

Also Read: What is Tax Deducted at Source? 

What are the Types of TDS?

Learning the different types of TDS as per the Income Tax Act is a way for individuals and companies to not only remain compliant but also get better control over their cash flows. The essence of all TDS provisions lies in their respective nature of payment, applicable rates, thresholds, and timing. 

  1. Section 192 – TDS on Salary 

Section 192 requires the employers to calculate the amount of tax to be deducted based on 'average slab rates' and not on a fixed percentage. This takes the form of a 'pay-as-you-earn' system, where the tax liability gets amortised over the financial year 

Key 2026 Updates: 

  • Standard deduction: hiked to ₹75,000 under the default New Tax Regime. 

  • TDS threshold: due to the larger Section 87A rebate, individuals with a net gross income of up to ₹12.75 lakh may not be subject to any TDS. 

  1. Section 194A – TDS on Interest  

Section 194A applies to TDS on interest income from non-securities sources, such as bank fixed and recurring deposits. Tax gets deducted at the time of credit or payment, whichever happens first.  

Key Facts & 2026 Updates: 

  • Revised Thresholds: Starting from 1st April 2025 (Financial Year 2025–26), TDS will be applicable only when the interest amount goes beyond ₹50,000 for general taxpayers and ₹1,00,000 for senior citizens only (banks/post offices). 

  • Rates: With PAN, 10%; Without PAN, 20%. 

  • Exemption: Form 15G/15H may be submitted if the total income is below the limit of taxation. 

  1. Section 194 – TDS on Dividend   

Section 194 implies that TDS is to be deducted on dividends paid to the resident shareholders by domestic companies. This provision requires the tax on investment earnings to be paid on time, as dividends are taxable income to shareholders. 

Key Facts & 2026 Updates: 

  • Threshold Relief: From April 1, 2025, the TDS will be imposed only if the total dividend distribution of that company exceeds ₹10,000 in a financial year. 

  • Rates: TDS at 10% will be deducted if the shareholder has provided a valid PAN; otherwise, the higher rate of 20% will apply. 

  • Mutual Funds (Section 194K): The TDS of 10% will be deducted from the dividends of mutual fund units over and above the ₹10,000 limit. 

  1. Section 194-I – TDS on Rent   

According to the regulation outlined in Section 194-I, tax is required to be deducted at source from the rental income from land, buildings, or machinery. The ruling helps landlords avoid paying taxes on their rental income, which is a large part of their income. 

Key Facts & 2026 Updates: 

  • Transition in threshold: The threshold for TDS has been substantially raised to ₹6,00,000 (or ₹50,000 per month) for the financial year 2025-26 and onwards, a significant increase from the previous limit of ₹2.4 lakh. 

  • Tax rates: They remain the same at 10% for land and buildings, and furniture, and 2% for plant and machinery. 

  • 194-IB co-existence: The TDS rate on the monthly rent of ₹50,000 for non-tax audit persons/HUFs was reduced to 2% effective 2024. 

  1. Section 194J – TDS on Professional Fees  

Section 194J refers to TDS on direct tax deduction at source (TDS) for payments made to professionals and technical services like medical, legal, consulting, and other specialised services.  

Key Facts & 2026 Updates: 

  • New Limit (FY 2025–26): The size of the limit has increased from the previous limit to ₹50,000 per service category annually.  

  • Dual Rates: 2% for the technical services provided, call centre fees, and the royalty on sale of films; 10% for the professional services, other royalties, and non-compete fees. 

  1. Section 194H – TDS on Commission and Brokerage  

Section 194H is a provision that deals with TDS on commission or brokerage paid to residents and thus covers intermediaries in real estate, sales, and financial distribution.  

Key Facts & 2026 Updates: 

  • New Threshold (FY 2025–26): From the start of the financial year 2025-26, TDS will be applicable only if the commission amount is more than ₹20,000 in total for the year. 

  • Reduced Rate: The basic rate is 2% with PAN, and in the absence of PAN, it is 20%. 

  1. Section 194C – TDS on Contractor Payments   

Section 194C imposes TDS on payments to be made in relation to work contracts like building, advertising, catering, and transportation, which are the most common ones, and thus, formalises the payments made to contractors and workers. 

Key Facts & 2026 Updates: 

  • No Change in Threshold (FY 2025–26): TDS will be applicable in case the single payment is more than ₹30,000, or the total sum of payments made is more than ₹1,00,000 in that particular financial year. 

  • Different Ratemakers: 1% for individuals or HUFs and 2% for companies, firms, and other entities. 

  • Transport Exclusion: TDS is not applicable for transporters having a maximum of ten vehicles, provided that the PAN and declaration are submitted. 

  1. Section 194-IA – TDS on Sale of Property  

Section 194-IA imposes a TDS liability on the buyer of real estate (non-agricultural land), thus making the TDS deducting buyer's persona in these transactions. It is ensured that the buying and selling of properties at higher prices comply with the joining of the government through TDS payments. 

Key Facts & 2026 Updates: 

  • Threshold: TDS is applicable if either the sale consideration or the stamp duty value is ₹50 lakh or more.  

  • Rate: 1% if PAN is given; in case the seller does not provide PAN, 20% will be deducted. 

  • Higher Value Rule: TDS will be taken from the greater of either the sale price or the stamp duty value. 

  1. Section 194D – TDS on Insurance Commission  

Section 194D is concerned with the Tax Deducted at Source (TDS) on the insurance commissions or the TDS on the rewards not exceeding the limits as laid down. 

Key Facts & 2026 Updates: 

  • Revised Threshold (FY 2025–26): The TDS will be liable only when the total annual commissions exceed ₹20,000. 

  • New Rate (2026): TDS is charged at 2% for individuals or HUFs. 

  • Forms 15G/15H: Agents can submit these forms if their total income falls within the taxable limit to avoid TDS. 

  • Maturity Difference: The amount received at the end of the policy is covered under section 194DA and not 194D. 

  1. Section 194B – TDS on Winnings (Lottery, Prizes, etc.)  

Section 194B deals with TDS on windfall income, such as lotteries and other similar prizes, where the full amount is taxed for TDS, and no deductions are allowed.  

Key Facts & 2026 Updates: 

  • Threshold Update (FY 2025–26): The ₹10,000 limit is applicable per transaction, allowing annual winnings to be broken down into multiple transactions. 

  • Rate: TDS is levied at a flat rate of 30%; the effective tax rate comes to 31.2%, inclusive of 4% Health and Education Cess. 

  • Online Gaming: A tax of 30% is imposed on winnings under Section 194BA without any minimum threshold. 

  1. Section 195 – TDS on Payments to Non-Residents 

Section 195 governs TDS on payments, other than salary, made to non-residents or foreign companies to ensure income taxable in India is taxed before remittance. 

Key Facts & 2026 Updates: 

  • Zero Threshold: TDS applies to any taxable payment, irrespective of amount. 

  • Tax Rates: Normally, the tax rates go between 10% and 20% depending on the type of income being, e.g., interest, royalty, or capital gains, etc. 

  • DTAA Advantage: If a Tax Residency Certificate and Form 10F are submitted, the lower rates may be applied. 

  1. Section 194-O – TDS on E-commerce Transactions  

According to Section 194-O, e-commerce operators have to deduct TDS on the payments made to the resident sellers, which in turn will help the government to track digital transactions and also to include the online businesses in the tax net. 

Key Facts & 2026 Updates: 

  • Major Rate Cut: The TDS rate will be reduced to 0.1% starting from October 1, 2024. 

  • Threshold: The rule is valid only when the annual sales are more than ₹5 lakh for individual or HUF resident sellers. 

  1. Section 194Q – TDS on Purchase of Goods  

Section 194Q requires TDS on purchases of goods made by high-turnover buyers from local sellers, which in turn allows tracing of big domestic trade transactions. 

Key Facts & 2026 Updates: 

  • Applicability: The regulation is enforced only upon buyers with a turnover of more than ₹10 crore in the prior financial year. 

  • Threshold: TDS is activated when the annual purchases from a particular seller exceed ₹50 lakh. 

  • Rate: 0.1% on the sum above ₹50 lakh; 5% if PAN is not disclosed. 

  1. Section 194R – TDS on Business Perquisites   

Section 194R is the provision regarding TDS on non-cash payments like gifts, and, thus, it lessens the obligation to report such non-cash payments as taxable income.  

Key Facts & 2026 Updates: 

  • Threshold: TDS will apply only if the yearly value of non-cash payments goes beyond ₹20,000. 

  • Rate: There is a uniform tax of 10% on TDS. 

  • Compliance: From the fiscal year 2025-26 onwards, tax will be first paid on the tax obligations before non-monetary benefits in kind are released. 

  1. Section 192A – TDS on PF Withdrawals  

192A governs TDS on early Employees’ Provident Fund (EPF) withdrawals, which have been made before completing five years of continuous service, thus making sure that the tax is levied on such accounts. 

Key Facts & 2026 Updates: 

  • Revised Threshold: TDS is applicable only when the amount withdrawn is more than ₹50,000.  

  • Rates: If PAN is submitted, tax is charged at 10%; if PAN is not provided, tax is deducted at the highest marginal rate as per Section 206AA, approximately 34.608% 

TDS Section List 

The TDS section list below contains the major sections of TDS under the Income Tax Act, along with their corresponding payment nature, the TDS rates that apply, and the limits. 

Section 

Nature of Payment 

TDS Rate 

Threshold Limit 

192 

Salary 

Slab rates 

N/A 

194A 

Interest (non-securities) 

10% 

₹50k (banks/general), ₹1L (seniors) 

194 

Dividend 

10% 

₹10,000 

194I 

Rent 

10%/2% 

₹6L annual 

194J 

Professional/Technical Fees 

10%/2% 

₹50,000 

194H 

Commission/Brokerage 

2% 

₹20,000 

194C 

Contractor Payments 

1%/2% 

₹30k single/₹1L annual 

194IA 

Property Sale 

1% 

₹50L 

194D 

Insurance Commission 

2% (ind/HUF)/10% 

₹20,000 

194B 

Winnings 

30% 

₹10,000 

194O 

E-commerce 

0.1% 

₹5L 

194Q 

Goods Purchase 

0.1% 

₹50L 

194R 

Perquisites 

10% 

₹20,000 

192A 

PF Withdrawals 

10% 

₹50,000 

Conclusion 

TDS stands for Tax Deducted at Source; it is a preventive "pay-as-you-earn" system that facilitates the collection of taxes by the government gradually and lessens the burden on the taxpayers at once. By cutting a tiny percentage at the time of payment, whether it be salary, rent, or interest, the system guarantees a clear and constant flow of revenue.  

Also Read: Cash Flow Statements and How to Read them 

FAQs

No, the payee is not responsible for the actions of the payer. However, that does not relieve the payee from applicable income tax on his taxable income.
One who deducts TDS before making payment to another person has to follow the following steps and rules: – Obtain a Tax Deduction Account Number from the tax department and quote the same in all documents – Deduct TDS at applicable rates – Pay the TDS deducted by the due date to the government – File the periodic TDS statements by due date – Issue TDS certificate or Form 16 to the payee by due date
You can ask the payer to furnish a TDS certificate or check Form 26AS from your e-filing account at https://incometaxindiaefiling.gov.in or use the “View Your Tax Credit” at www.incometaxindia.gov.in
If you don’t furnish your PAN number, the payer may deduct tax at the rate of 20% or other rates in force which is higher than the applicable rate.
Yes, you can still claim TDS if you have not received a TDS certificate from the payer. You can refer to Form 26AS to ascertain the amount of tax deducted from the payment received by you.

TDS rate on salary is not constant. It is deducted according to the applicable income tax slabs after considering the exemptions, deductions, and rebates the employee has claimed.  

TDS is deducted on salaries, interest, rent, professional fees, royalties, commission, dividends, transfer of property, and e-commerce payments. The deduction rate on salary depends on income tax slabs, but on the other incomes the rate is fixed, which are detailed in various sections of the Income Tax Act. 

This rate typically applies to specific payments like technical services (Section 194J), rent of plant and machinery (Section 194I), and contractor payments to companies (Section 194C). 

This rate typically applies to specific payments like technical services (Section 194J), rent of plant and machinery (Section 194I), and contractor payments to companies (Section 194C).

In simple terms, there are two main types of taxes: Direct Taxes and Indirect Taxes. Direct taxes, like Income Tax, are paid by you directly to the government based on your earnings. Indirect taxes, like GST, are collected by businesses and then passed on to the government. 

The three most common deductions are Section 80C (investments like PPF or LIC), Section 80D (health insurance premiums), and Section 80G (donations to charity). These help reduce your total taxable income before the final tax is calculated. 

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