Tax Deducted at Source and Tax Collected at Source: formula sheet

Key formulas

Net payment after TDS

Net amount paid to deductee = Gross payment − TDS

The deductor deposits the TDS. The deductee's income is still the gross amount, not the net.

Amount payable to collector under TCS

Amount paid by buyer = Sale value + TCS

TCS is computed on the amount the Act specifies, usually the sale consideration received. Check the stated base in the question.

Final tax position

Balance tax payable (or refund) = Total tax liability − (TDS + TCS + advance tax + other prepaid tax)

A negative result is a refund. All three are advance payments of the same tax year's tax.

Core distinction

TDS: payer deducts from payment | TCS: seller collects from buyer

TDS is on the payer side of a payment. TCS is on the seller side of a sale.

Scheme of section 390

Tax deducted or collected at source and advance tax are paid during the tax year, on income of that tax year

The rates and conditions come from the Act's provisions and the Finance Act in force, not from section 390 itself.

Salary TDS per month (computational convention)

Monthly TDS = Estimated tax liability of the tax year ÷ 12

TDS on salary is under section 392 of the Income-tax Act, 2025, on estimated income of the tax year at the rates in force. Dividing by 12 is the usual way to spread it. Use the remaining months if the tax is spread over fewer months, and adjust later months for any excess or shortfall in earlier months.

Threshold rule

If amount or aggregate of amounts > threshold, TDS = rate × entire amount

Applies to section 393(1) generally. Exceptions: for purchase of goods, serial number 8(ii), tax is on the sum exceeding ₹50,00,000. For property transfer, serial number 3(i), tax is 1% of the higher of consideration and stamp duty value, where either is ₹50 lakh or more.

Commission or brokerage (not insurance)

2%; threshold ₹20,000; payer: specified person

Insurance commission, serial number 1(i), is at rates in force with threshold ₹20,000 and any person as payer.

Rent

Person other than specified person: 2%. Specified person: 2% for machinery, plant or equipment; 10% for land, building, furniture or fittings. Threshold ₹50,000 for a month or part of a month

Check the payer first. The threshold is per month or part of a month.

Contractors, serial number 6(i)

1% if contractor is individual or HUF; 2% otherwise. Threshold ₹30,000 for any sum; ₹1,00,000 for the aggregate

Payer is a designated person. Where the work falls under section 402(47)(e), tax is on the invoice value excluding material if shown separately, else on the whole invoice.

Contractors, commission, professional fees by individual or HUF, serial number 6(ii)

2%; threshold ₹50,00,000

For individuals or HUFs not covered by serial numbers 6(i), 6(iii) or 1(ii).

Professional fees, technical fees, director fees, royalty, serial number 6(iii)

2% for technical fees (not professional services), film royalty and call centre payee; 10% for other cases. Threshold ₹50,000; for director remuneration, nil

Payer is a specified person. Professional fees are therefore 10%.

Interest other than interest on securities

5(ii) bank or post office: rates in force, threshold ₹1,00,000 senior citizen, ₹50,000 others. 5(iii) specified person: rates in force, threshold ₹10,000

Interest on securities, 5(i): rates in force, threshold ₹10,000.

Other resident payments

Dividend by domestic company: 10%, nil threshold. Immovable property transfer, 3(i): 1%, threshold ₹50 lakh. Compulsory acquisition, 3(iii): 10%, threshold ₹5,00,000. Life insurance sum, 8(i): 2% on income element, threshold ₹1,00,000. Perquisite from business or profession, 8(iv): 10%, threshold ₹20,000. E-commerce, 8(v): 0.1%, nil. Virtual digital asset, 8(vi): 1%, nil. Partner payments by firm, 393(3) serial 7: 10%, threshold ₹20,000

For property under 3(i), tax is on the higher of consideration and stamp duty value, and applies where either is ₹50 lakh or more.

Who deducts and when

Deduct at the time of credit to the payee's account or at the time of payment, whichever is earlier

Applies to any person paying a sum chargeable to tax to a non-resident (not a company) or a foreign company. The general provision has no basic-exemption threshold; the test is chargeability. Specific provisions may have their own conditions or exceptions.

TDS amount

TDS = Taxable sum × (Rate in force + surcharge, if applicable) + Cess at 4% on tax and surcharge

Deduct at the rate in force plus surcharge (if applicable) and 4% health and education cess, unless the question or treaty states that the rate is inclusive. Use the rate given in the question.

DTAA benefit

Rate used = Lower of domestic rate and treaty rate (if payee is a resident of the treaty country and gives tax residency certificate and required details)

Check whether the treaty rate is stated as inclusive of surcharge and cess. If it says so, add nothing more.

Gross-up when payer bears tax

Gross sum = Net sum × 100 ÷ (100 − Effective TDS rate %)

Tax = Gross sum − Net sum. Use this only when the payer agrees to bear the tax.

Composite payment

TDS base = Only the portion that is income chargeable to tax in India

A reimbursement of pure cost, or a sum not taxable in India, is outside the base.

Liquor, tendu leaves, scrap

Sale of alcoholic liquor for human consumption, tendu leaves, scrap: 2% by the seller

No threshold. Collected on the whole sale amount.

Timber and forest produce

Timber (forest lease or otherwise), or other forest produce obtained under a forest lease: 2% by the seller

Forest produce has the meaning in a State Act or the Indian Forest Act, 1927.

Coal, lignite, iron ore

Sale of minerals, being coal or lignite or iron ore: 2% by the seller

Rate was 1% before 1 April 2026.

Motor vehicle and notified goods

Sale consideration exceeding ₹10,00,000: 1% by the seller

Applies to a motor vehicle or other goods notified by the Central Government. The Act's wording is 'sale consideration exceeding ten lakh rupees'.

Liberalised Remittance Scheme (LRS)

Remittance of amount or aggregate exceeding ₹10,00,000: education or medical treatment 2%; other purposes 20%

Collected by the authorised dealer. The rate is applied on the amount as the Act's table states it; follow the question's wording.

Overseas tour programme package

Sale of overseas tour programme package (including travel, hotel stay, boarding, lodging or similar expenses): 2% by the seller

The older split of 5% up to ₹10 lakh and 20% above is replaced from 1 April 2026.

Parking lot, toll plaza, mine, quarry

Use for business: 2% by the licensor or lessor

Mining and quarrying of mineral oil (including petroleum and natural gas) is excluded.

Declaration exemption

Rows 1 to 5: no TCS if resident buyer gives a declaration for manufacturing, processing, producing or power generation, not trading

Copy goes to the Commissioner-level authority by the 7th of the next month.

No TCS on LRS or tour package

LRS: no TCS on education loan from a financial institution, or on amounts where seller already collected TCS on tour package. LRS and tour package: no TCS if buyer deducted tax at source under another provision

These are sub-sections (4) and (5) of section 394.

Deposit date: ordinary case

Tax deducted in a month → deposit by 7th of the next month

For non-government deductors. Tax deducted in March is deposited by 30 April. Some specified payments have a 30th-of-next-month date. Check the rules for each.

Quarterly statement due dates

Q1 (Apr–Jun): 31 July | Q2 (Jul–Sep): 31 October | Q3 (Oct–Dec): 31 January | Q4 (Jan–Mar): 31 May

Same quarters apply to TDS and TCS statements. These are the dates ICMAI-style questions use. Confirm against the current rules.

Certificate time limit (non-salary TDS and TCS)

Due date = 15 days from the due date of the quarterly statement

Section 395(4)(a) says 'within such period as may be prescribed'. The 15-day period comes from the rules.

Salary certificate

Employer issues annual certificate by 15 June after the end of the tax year

Section 395(4)(b) covers employer certificates. The period is as prescribed.

Penalty for failure to furnish certificate or statement

₹500 per day of default, limited to the tax deductible or collectible

Section 465(2)(g) and (k). Section 465(3) caps the penalty at the amount of tax deductible or collectible for failures under section 395(4) certificates and section 397(3)(b) or (e) statements.

TAN format

4 letters + 5 digits + 1 letter (10 characters)

Quoted in challans, statements and certificates.

Lower or nil deduction certificate

Payee applies; Assessing Officer issues certificate; payer deducts at that rate or nothing till validity

Section 395(1). Sub-section (6) allows the application to be filed before the prescribed authority, who may issue or reject it after electronic verification. Section 395(5) lets the Assessing Officer cancel a certificate after giving a reasonable opportunity.

Lower or nil certificate (payee in India)

Certificate issued under section 395(1)(b) or (6) → deduct at certificate rate, or nil, till validity

The payer must follow the certificate. Without a certificate, the normal rate applies.

Non-resident sum (section 395(2))

Tax deducted = rate × only the proportion of the sum chargeable to tax, as determined by the Assessing Officer

Applies to the sum under section 393(2) (Table: Sl. No. 17).

TDS rate when PAN not furnished

Rate = highest of (specified rate; rate or rates in force; 5% or 20%)

Use 5% only for section 393(1) Sl. No. 8(ii) or 8(v). Use 20% in all other cases.

TCS rate when PAN not furnished

Rate = higher of (2 × specified rate; 5%), capped at 20%

Section 397(2)(b)(ii). Not applicable to a non-resident without a permanent establishment in India.

Rent cap on higher TDS

Higher TDS on rent under Sl. No. 2(i) ≤ rent payable for the last month of the tax year or of the tenancy

Section 397(2)(e).

Invalid declaration

No valid PAN in declaration under section 393(6) or 394(2) → declaration invalid → higher rate applies

Section 397(2)(f)(i) and (g).

Interest on late deduction or collection (section 398(3)(a)(i))

Tax × 1% × months (or part of a month) from the date tax was deductible or collectible to the date it is deducted or collected

Simple interest. Any part of a month counts as a full month.

Interest on late payment (section 398(3)(a)(ii))

Tax × 1.5% × months (or part of a month) from the date of deduction or collection to the date of actual payment

Simple interest. Interest must be paid before furnishing the statement.

Where payee has filed return and paid tax (section 398(3)(c))

1% interest runs only from the date tax was deductible or collectible to the date the payee furnishes the return of income

Applies when the person is not deemed an assessee in default under section 398(2), which needs the accountant's certificate.

Time limit for default order (section 398(5))

Later of: 6 years from the end of the tax year in which tax was deductible or collectible, or 2 years from the end of the tax year in which a correction statement is delivered

Section 286(1) and 286(3) apply to the limit.

Penalty for non-deduction or non-payment (section 448)

Penalty = tax not deducted or not paid

The Assessing Officer 'may' impose it. Applies to failures under Chapter XIX-B and the specified notes in section 393.

Penalty for statement default (section 461)

₹10,000 minimum to ₹1,00,000 maximum

For late delivery or incorrect information. No penalty for delay if tax with fee and interest is paid and the statement is filed within one month of the due time.

Prosecution for TCS not paid (section 477(1))

Tax above ₹50 lakh: imprisonment up to 2 years, or fine, or both. Tax above ₹10 lakh up to ₹50 lakh: imprisonment up to 6 months, or fine, or both. Any other case: fine

Simple imprisonment. No prosecution if tax is paid on or before the time for filing the statement under section 397(3)(b) (section 477(2)).

Quick revision

• TDS is deducted by the payer; TCS is collected by the seller from the buyer.
• Check payee status, nature of payment, threshold and rate in that order.
• Rates and thresholds apply only as the Income-tax Act, 2025 states them; verify from the current text.
• Higher rate can apply where the payee does not furnish PAN or is a specified non-filer, as the Act provides.
• Non-resident payments often need rate checks under the Act and any applicable tax treaty.
• A lower or nil deduction needs the authority's certificate; do not assume it.
• TAN is required for deducting or collecting tax and must be quoted in returns and challans.
• TDS and TCS must be deposited within the prescribed due dates, which differ by case.
• Quarterly statements and certificates are part of the compliance cycle.
• Default can bring interest, penalty and possible disallowance of the expense.
• Write the rule, the facts applied and the conclusion in every written answer.
• Attempt every MCQ; there is no negative marking.

Common mistakes

• Treating TDS or TCS as a separate tax on the deductor or collector Fix: Write that the tax belongs to the deductee or buyer. The deductor or collector only acts as an agent and deposits it.
• Reversing TDS and TCS Fix: Remember: TDS cuts from a payment you make. TCS adds to a price you charge.
• Deducting tax only on the amount above the threshold. Fix: Write 'entire amount' once the threshold is crossed. The exception is purchase of goods under serial number 8(ii), where tax is on the sum exceeding ₹50 lakh. For property under 3(i), the base is the higher of consideration and stamp duty value.
• Applying 10% to all rent. Fix: For a specified person, 10% applies to land, building, furniture and fittings, and 2% to machinery, plant and equipment. For a person other than a specified person, the rate is 2%.
• Applying a threshold limit before deducting tax, as is done for many resident payments. Fix: Remember the general non-resident provision has no basic-exemption threshold. The test is whether the sum is chargeable to tax in India. Apply a specific condition or exception only if the question gives it.
• Deducting tax on the whole composite payment, including a pure reimbursement or a non-taxable portion. Fix: Split the payment first. Deduct tax only on the portion that is income chargeable to tax in India.
• Using old rates such as 1% on scrap or 5% on tendu leaves, or 5% on overseas tours. Fix: Use the section 394 table in the Income-tax Act, 2025. Scrap, tendu leaves, liquor, coal, lignite and iron ore and tour packages are all 2%.
• Applying the ₹10 lakh threshold to every row. Fix: Only rows 6 and 7 have the ₹10,00,000 threshold. Scrap, liquor and the other rows have no threshold.
• Giving 31 March or 7 April as the deposit date for tax deducted in March. Fix: Remember the March exception: 30 April for non-government deductors. Write it on your date ladder.
• Using 31 March as the Q4 statement date. Fix: Quarter end is not the due date. Q4 is due 31 May. The other three are 31 July, 31 October and 31 January.

Exam tips

• In theory answers, open with the meaning and objective of the scheme, then cite section 390 of the Income-tax Act, 2025. Step marks go to a clear structure.
• Always use the words deductor, deductee, collector and tax year. Never use assessment year.
• In numerical questions, show gross, tax, net and the final set-off in separate lines. Examiners award marks line by line.
• For MCQs, check first whether money is paid out (TDS) or a sale is made (TCS). Rule out advance tax if the taxpayer pays on his own.
• Use only the rate given in the question. If the question gives none, state your assumption in one line.
• Tabulate the rates and thresholds as one revision sheet by serial number. Most MCQs test a single rate or threshold.
• In written answers, always write the serial number, rate, threshold and the test result, then the computation. Each step carries marks.
• Read the payer carefully. Whether the payer is a specified person changes the rent rate.