TDS and TCS in India for Businesses: Deduct, Deposit, File and Certify

TDS and TCS in India are the pay-as-you-go collection system for income tax. TDS (tax deducted at source) obliges a business to hold back tax when it pays certain amounts, and TCS (tax collected at source) obliges a seller to collect tax on certain sales. A business that misses the rules loses a tax deduction and pays interest, fees and sometimes penalties, which is why every Indian entity of a U.S. or Canadian group builds a TDS calendar.

How do TDS and TCS in India work under the 2025 Act?

The Income-tax Act, 2025 consolidated the old TDS sections (192 to 194T of the 1961 Act) into two: section 392 for salary and section 393 for other payments, set out in tables for residents, non-residents and any person. TCS sits in section 394, certificates in section 395, and the statement and TAN rules in section 397. The CBDT states there is no change in policy: rates and thresholds were retained, and circulars issued under the old Act continue where the intent is unchanged. For exact rates, read the relevant table item of section 393 together with the Finance Act for the year, or ask your Chartered Accountant (CA).

For payments from 1 April 2026, returns must quote the table item of section 393, not the old section. The CBDT's example is a contractor payment that must quote section 393(1) table item 6(i) rather than 194C. Quoting an old section can cause processing errors and force a correction statement.

Step by step: running a TDS cycle

1. Hold a TAN. Non-government entities apply for a Tax Deduction Account Number with the new Form 135. Existing TANs stay valid. Quote the TAN on challans, statements and certificates, or face a Rs 10,000 penalty.
2. Decide the rate. Check the payee's PAN, residency, nature of payment and any lower-deduction certificate (Form 128 on application under the 2025 Act).
3. Deduct when you pay or credit the sum, whichever is earlier. Do not wait for actual payment if the expense is booked first.
4. Deposit by the 7th of the following month. The exceptions are March (30 April for non-government deductors) and the challan-cum-statement cases (property purchases, specified rent, payments to contractors and professionals by individuals and HUFs, virtual digital assets), which are due 30 days after the end of the month and now use Form 141.
5. File the quarterly statement. Under the 2025 Act the salary statement is Form 138, the non-salary statement Form 140, the non-resident statement Form 144 and the TCS statement Form 143. The 1961 Act forms 24Q, 26Q, 27Q and 27EQ remain for periods up to 31 March 2026.
6. Issue certificates. Salary TDS certificates (Form 130) are due by 15 June after the year; non-salary certificates (Form 131) are due 15 days after the statement due date, for example 15 August 2026 for April to June 2026.
7. Reconcile on TRACES and file a correction statement if a challan or PAN is wrong. Corrections for older periods are allowed within two years from the end of the tax year in which the statement was originally due.

Documents and information you need

• TAN and the deductor's login on the e-Filing portal and TRACES
• Payee master data: legal name, PAN, residency status and address, with a tax residency certificate and Form 41 or Form 10F for treaty claims
• Contracts or invoices showing the nature of each payment, and any lower-deduction certificate
• Challan details (BSR code, date and serial number) for every deposit
• A ledger that ties credits and payments to the deduction date

Dates for 2026-27

Payments to non-residents

A payer remitting money to a non-resident files Form 145 (information) and, above the threshold, Form 146 (CA certificate) or obtains an assessing officer's certificate. The 2025 Act renumbered the old 15CA and 15CB; Form 145 applies a Rs 5 lakh yearly cut-off for its simpler part, Form 146 carries a UDIN, and a payer with an assessing officer's certificate skips Form 146. Read our Form 15CA and 15CB guide and the treaty and Form 10F guide before paying a U.S. or Canadian affiliate.

Consequences of getting it wrong

The department can pass an order treating the payer as an assessee in default within six years from the end of the tax year in which tax was deductible, or two years from a correction statement, whichever is later. If the payee has paid the tax directly and files a certificate, the payer escapes the default but still owes interest. For FY 2025-26 and earlier, the 1961 Act continues to govern these proceedings.

A worked example

A Pune company credits Rs 5,00,000 of professional fees on 10 November 2026 and does not deduct tax. It must deposit by 7 December 2026 if it deducts, report in the Form 140 statement due 31 January 2027, and issue Form 131 by 15 February 2027. If it never deducts, Rs 1,50,000 (30% of the fee) is disallowed in computing its business income, and interest runs at 1% a month from the date the tax was deductible.

Mistakes to avoid

• Quoting 194C-style sections for payments made after 31 March 2026
• Using calendar quarters wrongly: April to June is the first quarter
• Missing the March exception when planning cash for April
• Paying a foreign affiliate without Form 145 and a treaty check
• Ignoring TDS credits that do not match the payee's Form 26AS or AIS

How we can help

From Aurora, Illinois, we help U.S. and Canadian owners of Indian companies understand how Indian TDS interacts with U.S. foreign tax credits and withholding. We coordinate with your Indian CA, who files the TDS statements and certificates. See payroll and employer compliance and cross-border tax. Browse the full India: Tax and Compliance section.

Frequently asked questions

General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.