Tax deducted at source is the obligation that catches small businesses by surprise, because it is triggered by what you pay, not what you earn. A business that has never received a notice about its own income can receive one for the tax it failed to deduct from a contractor's bill two years ago — with interest, and with the expense itself disallowed.
Who must deduct
Companies, LLPs and partnership firms always. An individual or HUF running a business must deduct once the business crossed the tax-audit turnover limit in the previous year — ₹1 crore of turnover for a business, ₹50 lakh of receipts for a profession, as reviewed on 16 September 2026. Below that, an individual is exempt from most of these deductions, with two exceptions that apply to everyone: rent above ₹50,000 a month, and the purchase of immovable property above ₹50 lakh.
The payments, the thresholds, the rates
Under section 393 of the 2025 Act (formerly sections 193 to 196D of the 1961 Act). Figures as reviewed on 16 September 2026; the calendar and the portal prevail.
| Payment | Deduct when | Rate |
|---|---|---|
| Contractors — job work, transport, labour, advertising (formerly 194C) | A single bill above ₹30,000, or ₹1,00,000 to one payee in the year | 1% to an individual or HUF; 2% to others |
| Professional and technical fees — CA, lawyer, architect, consultant, software services (formerly 194J) | Above ₹50,000 to one payee in the year | 10% for professional fees; 2% for technical services and for call centres |
| Rent — premises, land, furniture (formerly 194-I) | Above ₹6,00,000 to one landlord in the year | 10%; 2% for plant and machinery |
| Rent paid by an individual or HUF not covered above (formerly 194-IB) | Above ₹50,000 a month | 2%, through a challan-cum-statement, once a year or when the tenancy ends |
| Commission or brokerage (formerly 194H) | Above ₹20,000 in the year | 2% |
| Purchase of immovable property (formerly 194-IA) | Consideration of ₹50 lakh or more | 1%, through a challan-cum-statement within 30 days of the month-end |
| Purchase of goods from one supplier (formerly 194Q) — buyers with turnover above ₹10 crore | Above ₹50 lakh from one supplier in the year | 0.1% on the excess |
Where the payee has not given you a PAN, the rate rises to 20%. Where the payee has not filed returns for the previous year and TDS in that year exceeded ₹50,000, a higher rate applies too.
Deposit and report
- Deposit by the 7th of the following month (30 April for March deductions).
- Quarterly statement — Form 140 (formerly 26Q) for payments to residents — by 31 July, 31 October, 31 January and 31 May.
- Certificate to the payee — Form 131 (formerly 16A) — within 15 days of filing the statement. Without it, they cannot claim the credit and will come back to you.
All of this needs a TAN. A business without one cannot deposit or file.
What it costs to skip
Three things, in order of pain. Interest at 1% a month for not deducting and 1.5% a month for deducting and not depositing. A late-filing fee of ₹200 a day on the statement, capped at the tax involved. And the disallowance: 30% of any payment on which tax should have been deducted is added back to your income until the tax is deposited. On a ₹10 lakh contractor bill, that is ₹3 lakh of extra taxable income for a ₹20,000 deduction you did not make.
This note is general information, not advice on anyone's facts. Send an enquiry about a specific matter.