TDS / TCS Compliance

What is TDS and TCS compliance?

Tax deducted at source (TDS) requires a business making certain payments — salaries, contractor and professional fees, rent, interest, commission, and payments to non-residents — to deduct tax and deposit it with the government. Tax collected at source (TCS) requires certain sellers to collect tax from buyers on specified transactions.

Compliance means deducting at the right rate, depositing on time, filing quarterly returns, and issuing certificates. For payments from 1 April 2026, TDS and TCS are governed by the Income-tax Act, 2025, which consolidates the provisions under new section numbers.

The key terms

A few terms and dates run through TDS compliance:

TAN

The Tax Deduction and Collection Account Number, which every deductor needs before deducting tax.

Deposit deadline

TDS deducted in a month is generally deposited by the 7th of the next month, and tax deducted in March by 30 April.

Quarterly returns

Returns are filed each quarter — for salaries, other resident payments, non-resident payments, and TCS — generally by 31 July, 31 October, 31 January, and 31 May.

Certificates

Form 16 for salaries, issued annually, and Form 16A for other payments, issued quarterly, from TRACES.

No PAN

Where the payee doesn't furnish a PAN, tax is generally deducted at a higher rate.

Thresholds

Most TDS applies only once payments to a person cross a threshold for the year or a single payment.

Non-residents

Payments to non-residents need withholding tax unless the income isn't taxable in India, often requiring a treaty analysis.

Why it matters

TDS defaults are among the most common and costly tax issues for businesses:

Expense disallowance

If TDS isn't deducted or deposited, part or all of the expense can be disallowed, increasing taxable income.

Interest

Interest applies for failing to deduct, and at a higher rate for deducting but not depositing.

Late filing fees

Late quarterly returns attract a fee for each day of delay, and penalties can follow.

Payees lose credit

If returns are wrong or late, your vendors and employees don't see their tax credit, which damages relationships.

Deductor in default

The business itself can be treated as an assessee in default for the tax not deducted.

Prosecution risk

Deducting tax and not depositing it is treated seriously, and prosecution provisions exist.

Due diligence

TDS gaps are one of the most common findings in investor due diligence.

Who is this for?

If you've already received TDS default notices, see our TDS Reconciliation & Default Rectification service.

TDS and TCS returns at a glance

The quarterly returns under the 1961 Act, for payments up to March 2026:

What we'll need from you

TAN

Your TAN, or we'll apply for one.

Payment details

Monthly details of payments to vendors, landlords, professionals, and non-residents.

Payee PANs

PANs of everyone you deduct from, verified.

Payroll data

Salary details and employees' investment declarations.

Non-resident documents

Tax residency certificates and Form 10F for treaty claims.

Challans

Records of TDS deposited, if you're paying it yourself.

Monthly fees depend on the number of payees and transactions.

How we manage TDS

TDS compliance runs on a monthly and quarterly cycle:

1. 1

   Classify payments

   Each payment is classified by nature and checked against thresholds and rates.

2. 2

   Compute TDS

   Tax is computed, including higher rates where PAN is missing and treaty rates where applicable.

3. 3

   Deposit monthly

   Tax is deposited by the 7th of the following month, or 30 April for March.

4. 4

   File quarterly returns

   Returns are prepared, validated, and filed by their due dates.

5. 5

   Issue certificates

   Form 16A is issued quarterly and Form 16 annually.

6. 6

   Reconcile

   Filed returns are checked on TRACES for defaults, and corrected where needed.

Staying compliant

A few habits prevent most TDS problems:

Check before you pay

Decide TDS at the time of payment, not at year end.

Verify PANs

Wrong PANs mean payees don't get credit and defaults appear.

Watch thresholds

Track cumulative payments to each payee through the year.

Non-resident payments

Check withholding tax, and certification where needed, before remitting abroad.

Review TRACES

Check for defaults after every quarterly return.

Move to the new Act

For payments from April 2026, apply the Income-tax Act, 2025's TDS provisions and updated forms.

Benefits and responsibilities