TDS (Tax Deducted at Source): Definition, Meaning & Guide for Indian Businesses

TDS is income tax that the payer deducts at the source of payment and deposits with the government on behalf of the recipient.

What is TDS (Tax Deducted at Source)?

Tax Deducted at Source (TDS) is a mechanism where the income tax department collects tax at the time of payment instead of waiting for the recipient to file their return. The payer (called the deductor) calculates the applicable TDS rate, deducts that amount from the payment, and deposits it with the government using Challan 281. The recipient (deductee) gets credit for this TDS when filing their ITR, against their tax liability. Common TDS sections include 192 (salary), 194C (contractor), 194J (professional fees), 194I (rent), 194H (commission). Different sections have different rates and thresholds. Late deposit attracts 1.5% interest per month.