Deduction, Collection and Recovery of Tax: formula sheet

Key formulas

Time of deduction (general rule)

Deduct at the EARLIER of: credit to the payee's account (or suspense account) OR actual payment

Applies to most payments to residents, but the specific rate-table entry can fix a different time, so check the entry. Salary is different: deduct when salary is paid. Always check whether the question says 'credited' or 'paid'.

Time of collection (TCS)

Collect at the time of receipt of the amount or debit to the buyer's account, as the rate table provides

Check the nature of the specific item. Read the wording of the transaction in the question.

Net payment to payee

Net payment = Gross amount − TDS

TDS is a deduction from the payment. TCS is an addition: Buyer pays price + TCS.

Deposit due date (general rule)

For TDS and TCS alike: by 7th of the month following the month in which tax was actually deducted or collected; for tax deducted or collected in March, by 30th April

The due date follows the month of actual deduction or collection, not the month in which the tax was first deductible. Where a government deductor pays the tax without a challan (by book adjustment), it deposits on the same day. Some specific TDS entries carry a 30-day deadline instead of the 7th-of-next-month rule. These are tax deducted on rent by specified individuals or HUFs, and on transfer of certain immovable property (and similar specified entries). For these, the tax is deposited within 30 days from the end of the month of deduction. The 30-day deadline is a feature of those specific entries only. TCS follows the 7th / 30 April rule. Confirm the deadline for the entry against the Rules for the year.

Interest on late deduction

1% per month or part of month × tax, from date it was deductible to date of deduction

Part of a month counts as a full month. This interest is not an allowable expense.

Interest on late deposit

1.5% per month or part of month × tax, from date of deduction to date of deposit

Part of a month counts as a full month. This interest is not an allowable expense.

Higher rate on no PAN

Where the payee has not furnished PAN, deduct at the highest of: (a) the rate specified in the relevant provision, (b) the rate in force, or (c) 20%

This is the general rule. A few specific entries have a different floor, and TCS has its own higher-rate rule. Any such lower floor (such as 5%) applies only to those specific entries, not generally, so check the rate table for the entry. Use the question's stated rate if provided. Do not apply this where the question confirms PAN is furnished.

Salary

TDS per month = estimated tax for the year (average rate) ÷ 12, adjusted for tax already deducted

Based on estimated total income after the deductions and regime the employee has opted for. Taxed at average rate, not slab rate.

Interest other than interest on securities

Rate 10%. Threshold: ₹50,000 a year (₹1,00,000 for senior citizens) for banks, co-operative banks and post office; ₹10,000 for other payers

For banks, the threshold applies per payee per bank. All branches that use core banking solutions are treated as one payer. Check the payer type before applying the limit.

Contractor payments

1% if payee is individual or HUF; 2% for others. Threshold: ₹30,000 single payment or ₹1,00,000 aggregate in the year

A single payment above ₹30,000 attracts TDS on its own. If each payment is ₹30,000 or less, TDS starts when the total for the year crosses ₹1,00,000. At that point deduct on the whole total, including earlier payments on which no TDS was made. Amounts already taxed are not taxed again. Transporter with PAN and declaration: nil.

Professional fees

Rate 10%. Threshold ₹50,000 a year

Applies to legal, medical, engineering, accountancy and similar professional services. This limit has been revised in recent years, so confirm it against the table for payments to residents in the Income-tax Act, 2025 as given in the ICAI material for tax year 2026-27. Apply the threshold to each category of payment separately, per payee. Director's fees (other than salary) have no threshold.

Fees for technical services

Rate 2%. Threshold ₹50,000 a year

This is the 2% category. Do not treat it as professional fees at 10%. Apply the threshold to this category separately, per payee.

Call centre fees

Rate 2%. Threshold ₹50,000 a year

A separate 2% category for call centre operations. It is not professional fees. Apply the threshold to this category separately, per payee.

Rent

Plant, machinery, equipment 2%; land, building, furniture, fittings 10%. Threshold ₹6,00,000 a year

Applies to a payer who is not an individual/HUF, or an individual/HUF subject to audit. Deduct on the whole rent once the limit is crossed.

Rent by individual or HUF not subject to audit

2% of the rent for the whole period, where rent exceeds ₹50,000 a month

Applies only where the payer is an individual or HUF who is not subject to audit. The 2% is applied to the rent for the whole period and deducted once, in the last month of the year or of the tenancy, whichever is earlier. Confirm the rate and limit against the table for payments to residents in the Income-tax Act, 2025.

Commission and brokerage

Rate 2%. Threshold ₹20,000 a year

Both the rate and the limit have been revised in recent years, so confirm them against the table for payments to residents in the Income-tax Act, 2025 as given in the ICAI material for tax year 2026-27. Insurance commission and commission on lottery tickets are separate provisions with their own rate and threshold. Do not apply this row to them.

Dividend

Rate 10%. Threshold ₹10,000 a year

Applies to a company paying dividend to a resident shareholder. The limit has been revised upward in recent years (it was ₹5,000 earlier), so confirm it against the current table for payments to residents.

Payee without PAN

Rate = higher of (specified rate, rate in force, 20%)

The general rule when PAN is not furnished, subject to the specific exceptions in the law. Check the provision for the payment.

GST in the invoice

TDS base = amount excluding GST, if GST is shown separately

Applies to contract, fees and rent when GST is separately shown, as clarified by CBDT. If GST is included in a single figure, TDS applies on the total.

Basic TDS on non-resident payment

TDS = Income chargeable in India × Rate in force

Rate in force = Act rate (plus surcharge and 4% cess where applicable) or treaty rate, whichever is more beneficial to the payee.

Rate with cess (no surcharge)

Effective rate = Base rate × 1.04

Example: 20% becomes 20.8%. Surcharge applies only above the prescribed income limits and differs for companies and others.

Treaty choice

Rate applied = lower of (Act rate, Treaty rate)

Needs a tax residency certificate and the prescribed particulars from the payee. Without them, deduct at the Act rate.

Gross-up where payer bears the tax

Gross income = Net amount × 100 ÷ (100 − Effective rate)

Tax = Gross income − Net amount. Use the effective rate including cess. Check that any surcharge limit is not crossed on the grossed-up figure.

Composite payments

TDS only on the portion that is income chargeable in India

Example: on a capital asset sale, tax the gain element, not the full price.

Time of deduction

Earlier of credit to payee's account or payment

Credit to a suspense account also counts as credit.

Basic nature of TCS

TCS = Rate × Base (whole consideration or amount above threshold, as the item says)

Read the item: motor vehicle above ₹10 lakh is taxed on the whole value, LRS is taxed only on the excess over its threshold.

Motor vehicle TCS

If sale consideration > ₹10,00,000, TCS = 1% × total consideration

If consideration is ₹10,00,000 or less, there is no TCS. Applies to a seller receiving consideration for a motor vehicle of the specified type. Confirm the wording from the updated statute.

LRS remittance (non-education, non-medical), illustrative

TCS = 20% × (Cumulative remittances in the year − ₹10,00,000), only if positive

The 20% rate and ₹10,00,000 threshold are illustrative only. Take the actual figures from the question or the Finance Act, 2026 table. The threshold is tracked per remitter per financial year, so add earlier remittances. Different rates apply for education and medical purposes.

Higher rate where PAN is not furnished

Rate = higher of (2 × specified rate) and 5%

Triggered by failure to furnish PAN. Aadhaar is relevant only where the provision for the item allows it. Example: a 1% item becomes 5% (2% is lower than 5%). A 3% item becomes 6%. Confirm the applicable section and its wording in the Income-tax Act, 2025.

Amount payable by buyer

Buyer pays = Price + TCS

TCS is collected on top of the price. The buyer later claims it as credit.

TDS vs TCS

TDS: payer deducts from payment. TCS: seller/receiver collects from buyer.

Both are advance tax for the person whose income it is, who claims credit.

Who must obtain TAN

Every person required to deduct tax or collect tax at source must apply for and obtain TAN (rule 216)

Apply in the prescribed form. For certain specified payments, such as purchase of immovable property, the deductor quotes PAN instead of TAN. Confirm the list in your material.

Where TAN must be quoted

TAN on: challans, TDS/TCS statements, TDS/TCS certificates and other prescribed documents

Failure to apply for TAN or to quote it attracts a penalty. Confirm the amount in your material.

Due date for depositing tax (non-government deductor)

General rule: 7th of the next month; for tax deducted in March, 30 April. Exception: for specified payments, within 30 days from the end of the month of deduction

The exception covers TDS on purchase of immovable property, rent paid by specified individuals and HUFs, and similar specified payments listed in your material. For these, the deductor deposits using a challan-cum-statement and files no quarterly statement. Government offices that deposit through book entry follow a different timeline.

Due dates of quarterly TDS statements

Apr-Jun: 31 July | Jul-Sep: 31 October | Oct-Dec: 31 January | Jan-Mar: 31 May

A separate statement is filed for each type, such as salary and non-salary payments. These dates do not apply to the specified payments that use a challan-cum-statement.

TDS certificate for salary

Issue by 15 June after the end of the tax year

Issued by the employer to each employee.

TDS certificate for non-salary payments

Issue within 15 days from the due date of the quarterly statement

Example: for the Jul-Sep quarter, the statement is due 31 October, so the certificate is due 15 November.

Interest for late deduction or deposit

Interest = tax amount × rate per month × months (part of a month counts as a full month)

Late deduction: 1% per month, running from the date the tax was deductible to the date it was actually deducted. Late deposit: 1.5% per month, running from the date of deduction to the date of deposit. Confirm the 2025 Act wording in your material.

Late fee for delayed statement

₹200 per day of delay, capped at the tax amount in that statement

Count days from the day after the due date to the day of filing. The fee must be paid before the statement is filed. This follows the pattern taught from the earlier law; confirm the provision and rate under the 2025 Act in your material.

Liability threshold

Advance tax payable if (tax on estimated total income − TDS − TCS) ≥ ₹10,000

Use tax including surcharge and cess. Reliefs and credits that the law allows are also reduced.

Instalments (non-presumptive assessees)

By 15 June: 15% | By 15 September: 45% | By 15 December: 75% | By 15 March: 100% (all cumulative)

Percentages are of the net advance tax liability and are cumulative, not separate slabs.

Presumptive taxation

100% of advance tax in one instalment on or before 15 March

Applies to eligible business under section 44AD and eligible professions under section 44ADA. Amounts paid up to 31 March are still treated as advance tax for the year.

Exempt class

Resident individual aged 60 or more, with no business or profession income: no advance tax

Non-resident senior citizens do not get this relief. Business income from any source takes it away.

Interest for deferment of instalments

1% per month × 3 months on shortfall for the June, September and December instalments; 1% × 1 month on shortfall for the March instalment

Base is tax on returned income less TDS and TCS. Measure the shortfall against the required cumulative amount.

Relief on first two instalments

No interest if cumulative payment by 15 June ≥ 12% and by 15 September ≥ 36%

This applies only to the June and September instalments. The December and March targets stay at 75% and 100%.

Interest for default in payment of advance tax

1% per month or part of a month × (assessed tax, as reduced by TDS, TCS and relief − advance tax paid), if advance tax paid < 90% of assessed tax

Applies when advance tax paid is below 90% of assessed tax. It runs from 1 April of the tax year to the date of determination of income. The assessed tax is first reduced by TDS, TCS and relief, and the advance tax paid is then deducted.

Unforeseen income

No deferment interest on shortfall caused by capital gains, casual income or similar uncertain receipts if tax is paid in the remaining instalments of the same tax year

If the income arises after the last instalment, pay the full tax by 31 March.

Interest on default in paying demand

Interest = Unpaid demand × 1% × number of months or part months

Simple interest. Runs from the day after the 30-day period in the notice ends, until payment. Part of a month counts as a full month.

Time to pay demand

Payment due within 30 days of service of the notice of demand

Failure makes the person an assessee in default. Stay or instalments can be granted by the authority on application.

Interest on refund of TDS, TCS or advance tax

Interest = Refund × 0.5% × number of months or part months

Period runs from 1 April following the tax year to the date the refund is granted. If the return is filed late, the period starts from the date of filing.

Interest on other refunds (e.g. self-assessment tax)

Interest = Refund × 0.5% × months or part months from date of payment of the tax to date of grant of the refund

Applies to tax paid other than TDS, TCS and advance tax. The 10% threshold is a condition of the TDS, TCS and advance tax provision, not of this one.

10% threshold for refund interest

No refund interest if refund < 10% of tax determined on regular assessment

Applies only to the refund of TDS, TCS and advance tax. Check this before computing.

Recovery procedure sequence

Recovery certificate → attachment → proclamation → sale (not before 30 days from proclamation for immovable property; 15 days for movable property)

TRO modes: immovable and movable property, arrest and detention, receiver. The Assessing Officer's own direct modes are adjustment against refund and garnishee.

Quick revision

• Always identify the payer, payee, nature of payment, threshold and rate before answering.
• Thresholds usually work per payee, per year or per payment. Check which one applies to the question.
• A person who fails to deduct or deposit tax can be treated as an assessee in default.
• Failure to deduct or deposit can lead to disallowance of the related expense, interest and penalty.
• Credit for tax deducted is allowed to the person from whose income it was deducted, or the person in whose hands the income is assessable (for example, under the clubbing provisions). Credit is given only to the extent the tax is actually paid to the Government.
• For non-resident payments, check the payee's residential status, nature of income and treaty benefit.
• TCS is collected by the specified seller or other specified person from the buyer, licensee or lessee, at the time the Act specifies, such as debit or receipt. Know who collects and from whom.
• A TAN is needed for deduction or collection, and it must be quoted in statements and certificates.
• Advance tax is paid in instalments. Shortfall or deferment attracts interest.
• Always deduct TDS and advance tax already paid before stating tax payable or refund.
• Refund claims need the right return and procedure. Interest on delayed refund follows the Act's rules.
• Use the 2025 Act terms: tax year, not assessment year.

Common mistakes

• Deducting tax only when payment is made, even though the amount was credited earlier. Fix: For non-salary payments, use the earlier of credit or payment. Credit to a suspense or provision account also counts.
• Mixing up TDS and TCS: adding TDS to the price or deducting TCS from it. Fix: TDS reduces the payment. TCS increases the amount the buyer pays. The payer deducts; the seller collects.
• Deducting TDS only on the excess over the threshold. Fix: For rent, contract, fees, commission and interest, once the limit is crossed deduct on the whole amount. Write this line in the answer.
• Using the wrong contractor rate. Fix: Ask who the payee is first. Individual or HUF gets 1%; every other payee gets 2%.
• Applying the treaty rate even though no tax residency certificate or particulars are given. Fix: Treat treaty relief as conditional. Use it only when the facts say the payee has furnished the required documents. Otherwise deduct at the Act rate and say so.
• Deducting tax on the entire remittance when only part is income. Fix: First split the payment into taxable income and the rest, such as cost reimbursement or the cost element in a capital transfer, and apply the rate only on the taxable part.
• Charging TCS on only the excess over ₹10 lakh for a motor vehicle. Fix: For a motor vehicle above ₹10 lakh, apply the rate to the whole consideration. Check the base for each item separately.
• Ignoring earlier remittances in the same financial year for LRS. Fix: Add all remittances of the remitter in the year before applying the threshold, and tax only the part that crosses it.
• Confusing TAN with PAN or saying the deductor quotes PAN on the challan for all payments. Fix: PAN identifies the deductee. TAN identifies the deductor or collector. PAN is quoted by the deductor only for specific payments where the rule excuses TAN.
• Using 7th of next month for tax deducted in March. Fix: For March deductions, the deposit date is 30 April. Always check the month of deduction first.

Exam tips

• Write a one-line provision statement first: 'Section 390 requires the specified person to deduct tax at source on this payment'. Then facts, then conclusion. This is the form examiners reward.
• In MCQs, check dates first. Most wrong answers come from using payment date instead of credit date.
• Always count 'month or part of month'. Write the number of months explicitly in your working.
• Do not quote rates or thresholds from memory if the question gives them. Use the figures stated in the question, and state your assumptions when they are not given.
• Link TDS to its consequences: interest, penalty, disallowance of expense and assessee-in-default. Many questions ask for these in the second part.
• Memorise the chart in this order: nature, payee, threshold, rate. Revise it from the ICAI material for tax year 2026-27, because the chart is the base of every question.
• In scenario MCQs, read the payee status and the invoice breakup first. Most wrong answers come from missing them.
• In written answers, state the threshold test as a separate line before the computation. Marks are given for the test as well as the number.