Taxation · Tax Deduction or Collection at Source and Advance Tax

TDS on Salary and Other Payments to Residents

Updated 4 October 2026 · Fact-checked

TDS means the payer deducts tax from a resident's income at the time of credit or payment and deposits it with the government. For salary, deduct tax on estimated annual income. For other payments, check the nature, threshold and rate, deduct, and use a higher rate if PAN is missing.

Understand TDS on Salary and Other Payments to Residents

Tax Deduction at Source (TDS) collects tax at the point where income arises. The person paying (the deductor) cuts tax from the payment and deposits it with the government. The person receiving (the deductee) gets credit for it when filing the return.

Salary is treated differently from other payments. On salary, the employer estimates your total salary income for the tax year, works out the tax on it, and deducts it in instalments, usually monthly. On other payments (interest, commission, rent, fees, contractor bills), tax is deducted at a fixed percentage of the payment, but only if the payment crosses a threshold.

The rules for payments to residents sit in the TDS provisions of the Income-tax Act, 2025, which you will find tabulated under section 393. Each row gives the nature of payment, who must deduct, the threshold and the rate. Your exam job is to match the facts to the right row.

Two more ideas matter. First, the time of deduction: for most payments it is the earlier of the date of credit to the payee's account (including a provision entry at year end) and the date of payment. Second, PAN: if the payee does not give a PAN, tax is deducted at the highest of (a) the rate specified in the provision, (b) the rate in force, and (c) 20%. This is the no-PAN provision of the 2025 Act. A separate provision for specified non-filers of returns applies a rate of twice the normal rate; do not mix it with the no-PAN rule.

The rates and thresholds below reflect the position for tax year 2026-27 as commonly tabulated. Check them against your latest ICAI study material before the exam, because the thresholds are the most commonly changed items.

Key rules to remember

TDS on salary (monthly): Monthly TDS = (Estimated tax on total income for the year − TDS already deducted) ÷ Remaining months; Tax includes health and education cess at 4%, and surcharge where applicable. Use the regime the employee has chosen; if none is declared, the default regime applies.
Interest other than interest on securities: 10%. Threshold per payee per year: ₹50,000 for interest from banks, co-operative banks and post office deposits (non-senior citizens); ₹1,00,000 for the same interest paid to senior citizens; ₹10,000 for interest paid by all other payers; The ₹50,000 and ₹1,00,000 limits apply only to interest from banks, co-operative banks and post office deposits. Any other payer uses ₹10,000. The threshold applies to interest paid by that deductor, and for banks it is across branches using core banking. Confirm the figures against your latest ICAI material.
Commission or brokerage: 2%. Threshold: ₹20,000 in a year; Excludes insurance commission, which has its own provision and rate.
Rent: 2% for plant, machinery or equipment; 10% for land, building or furniture. Threshold: ₹6,00,000 in a year; TDS starts in the month in which the rent paid or credited in the year crosses the threshold. At that point, deduct on the whole rent paid or credited so far in the year (a catch-up deduction), not only the excess. Later months are deducted as usual.
Professional and technical fees: 10% for professional fees; 2% for fees for technical services and call centre. Threshold: ₹50,000 in a year; Check the exact label in the question. Technical services at 2% is a frequent trap. An individual or HUF not liable to tax audit need not deduct under this regular provision; a separate provision covers only their large payments.
Payment to contractors: 1% if payee is an individual or HUF; 2% for others. Threshold: ₹30,000 for a single payment or ₹1,00,000 aggregate in the year; Deduct if the single payment exceeds ₹30,000. Once the aggregate crosses ₹1,00,000, deduct TDS on the payment that crosses it and on all later payments. Earlier payments need not be revisited. Covers sub-contractors and advertising contracts too, with the rate again decided by the payee type. Deductor-side exception: an individual or HUF who is not liable to tax audit need not deduct under this regular provision (a separate provision applies only to their large payments).
Dividend to resident shareholder: 10%. Threshold: ₹10,000 in a year; Applies to dividend paid by a company.
Payee without PAN: Rate = Highest of (rate specified in the provision, rate in force, 20%); Applies when PAN is not furnished or is invalid, under the no-PAN provision of the 2025 Act. The twice-the-rate rule is a separate provision for specified non-filers of returns.
Surcharge and cess on non-salary TDS to residents: Nil; For payments to residents other than salary, deduct only the stated rate, with no surcharge or cess. Cess, and surcharge where applicable, form part of salary TDS.

How to solve TDS on Salary and Other Payments to Residents questions

Use this order for any TDS question on salary or resident payments.

1Identify the deductor and the payee. Check that the payee is a resident and note whether the payee is an individual, HUF, company or firm.
2Classify the payment: salary, interest, commission, rent, professional fees, technical fees or contract. The label decides the rate.
3Check the threshold. Note whether it applies per payment, per year or both (contractor).
4Decide when tax must be deducted: credit or payment, whichever is earlier.
5Fix the base amount. Exclude GST if shown separately on the invoice; include it otherwise.
6Apply the rate. If PAN is missing, apply the higher rate.
7For salary, estimate total income, compute tax with cess, subtract tax already deducted, and divide by the months left.
8Present a clean table: payment, threshold met or not, rate, TDS. State reasons for no deduction.

Quickest way: Row-match then threshold check

When to use it: Use this for MCQs and for multi-payment written questions where time is short.

Write the five main rates on the top of your paper: contractor 1% or 2%, commission 2%, rent 2% or 10%, professional 10%, technical 2%.
For each payment, cross out those below the threshold first. They need no further work.
In MCQs, eliminate options that deduct TDS on payments below the threshold or use the wrong payee type.
Check the payee type for contractors and the asset type for rent. These two decide the rate in most questions.
In written answers, use a table with columns: payment, section or nature, threshold, TDS. Even if a number is wrong, the format earns step marks.
State the PAN condition in one line when PAN is not mentioned in the question.

Common mistakes in TDS on Salary and Other Payments to Residents

Deducting TDS on only the excess over the threshold.
Students confuse TDS thresholds with tax exemption limits.
Fix: Once the threshold is crossed, deduct on the whole amount credited or paid in that year (for rent, for example). For contractors with an aggregate trigger, deduct on the payment that crosses the limit and on later payments.
Using 10% for all fees.
Students remember professional fees at 10% and forget technical services at 2%.
Fix: Read the nature of the service. Professional services get 10%; technical services and call centres get 2%.
Applying 2% to every contractor.
Students ignore the payee type.
Fix: Use 1% when the payee is an individual or HUF, and 2% for others.
Adding surcharge and cess to TDS on rent or fees paid to residents.
Students carry over the habit from salary computations or from non-resident TDS.
Fix: For payments to residents other than salary, deduct only the stated rate, with no surcharge or cess. Cess, and surcharge where applicable, apply to salary TDS.
Checking only the single payment limit for contractors.
Students forget the aggregate limit.
Fix: Test both: ₹30,000 single and ₹1,00,000 aggregate in the year. Either one triggers deduction. When the aggregate is crossed, deduct from the payment that crosses it onwards.
Treating GST as part of the base without checking the invoice.
Students take the invoice total as the payment.
Fix: If GST is shown separately in the invoice, deduct on the amount excluding GST. If it is not separate, deduct on the whole amount.

Worked examples

Example 1

An employer estimates that an employee's tax liability for the tax year, including cess, is ₹1,56,000. The employer deducted ₹40,000 as TDS in April to July. Compute the monthly TDS for the remaining months.

Show the solution

Total estimated tax including cess = ₹1,56,000.
TDS already deducted for April to July = ₹40,000.
Balance tax to be deducted = ₹1,56,000 − ₹40,000 = ₹1,16,000.
Remaining months from August to March = 8.
Monthly TDS = ₹1,16,000 ÷ 8 = ₹14,500.

Answer: The employer should deduct ₹14,500 each month from August to March.

Example 2

During the tax year, Alpha Ltd makes these payments to residents who all have PAN: (a) ₹45,000 in a single bill to Mr Rao, an individual contractor, with no other payments to him; (b) ₹80,000 professional fees to Beta & Co., a firm of consultants; (c) rent of ₹55,000 per month for 12 months to Mr Shah for an office building; (d) commission of ₹18,000 to an agent. Compute total TDS. Ignore GST.

Show the solution

Contractor: single payment ₹45,000 is above ₹30,000, so TDS applies. Payee is an individual, so the rate is 1%. TDS = ₹450.
Professional fees: ₹80,000 is above ₹50,000. Rate is 10%. TDS = ₹8,000.
Rent: annual rent = ₹55,000 × 12 = ₹6,60,000, above ₹6,00,000. Building, so the rate is 10%. Cumulative rent after 10 months is ₹5,50,000, which is below the threshold, so no TDS yet. After 11 months it is ₹6,05,000, so the threshold is crossed in the 11th month.
In the 11th month, deduct 10% on the whole rent paid so far: 10% × ₹6,05,000 = ₹60,500. In the 12th month, deduct 10% × ₹55,000 = ₹5,500. Total rent TDS = ₹60,500 + ₹5,500 = ₹66,000.
Commission: ₹18,000 is below ₹20,000, so no TDS.
Total TDS = ₹450 + ₹8,000 + ₹66,000 + ₹0 = ₹74,450.

Answer: Total TDS is ₹74,450: contractor ₹450, professional fees ₹8,000, rent ₹66,000 (₹60,500 in the 11th month and ₹5,500 in the 12th), commission nil.

Exam tips

Learn the rate and threshold list as a single table. Most MCQs test one number from it.
In written answers, state the threshold test in words before applying the rate. Examiners give marks for the condition.
Read the payee carefully: individual or HUF versus others for contractors, and building versus machinery for rent.
Always check for missing PAN. A line stating the higher rate applies earns marks even if you do not need it.
Salary TDS questions give the tax liability or ask you to compute it first. Do not forget cess before dividing by the months.

Practice questions from Tax Deduction or Collection at Source and Advance Tax

TDS on Salary and Other Payments to Residents in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

TDS on Salary and Other Payments to Residents: frequently asked questions

Is TDS on rent deducted on the whole rent or only the excess over ₹6,00,000?

On the whole rent paid or credited in the year to that payee, once the threshold is crossed. The threshold only decides whether TDS applies.

Does TDS on salary use a fixed rate?

No. The employer estimates the employee's total income for the year, computes the tax, including cess, and deducts it across the months. The result is an average rate, not a fixed one.

Is GST included when calculating TDS on professional fees?

If GST is shown separately in the invoice, TDS is deducted on the amount excluding GST. If the invoice does not show it separately, TDS is on the whole amount.

Where are the TDS rates for resident payments in the Income-tax Act, 2025?

They are tabulated under section 393, which lists the nature of payment, the payer, the threshold and the rate. Learn the table by nature of payment rather than by section number.