TDS for Small Businesses in FY 2025-26: Thresholds, Rates, Due Dates and Penalties
The TDS sections a small business actually meets — contractors, rent, professional fees, commission, interest, purchases — with the thresholds raised from 1 April 2025, deposit and return dates, and what non-deduction costs.
In this article
Most small businesses that get a TDS notice did nothing wrong on the sale side. They missed a deduction on a payment — a contractor, a landlord, a consultant — because nobody knew the threshold had been crossed. The Finance Act 2025 raised most thresholds from 1 April 2025, which helps, but the sections still bite.
Here are the ones a typical MSME meets in FY 2025-26.
Who has to deduct
- Companies, firms and LLPs: always.
- Individuals and HUFs: only if they were liable to tax audit in the previous year (business turnover above ₹1 crore, or professional receipts above ₹50 lakh). Below that, only sections 194M and 194-IA apply.
You need a TAN before you deduct; apply in Form 49B.
The sections you will meet
| Section | Payment | Threshold (FY 2025-26) | Rate |
|---|---|---|---|
| 194C | Contractors, sub-contractors, job work, transporters | ₹30,000 per contract / ₹1,00,000 aggregate in the year | 1% (individual/HUF payee), 2% (others) |
| 194H | Commission or brokerage | ₹20,000 | 2% |
| 194-I | Rent | ₹6,00,000 a year (₹50,000 a month) | 2% plant and machinery; 10% land, building, furniture |
| 194J | Professional fees / technical fees | ₹50,000 each | 10% professional; 2% technical, call centre |
| 194A | Interest other than on securities | ₹10,000 (₹50,000 from banks/co-ops/post office; ₹1,00,000 for senior citizens) | 10% |
| 194Q | Purchase of goods | ₹50 lakh per seller in the year, if your turnover exceeded ₹10 crore last year | 0.1% on the excess over ₹50 lakh |
| 194M | Individuals/HUFs not liable to audit paying contractors or professionals | ₹50 lakh in the year | 2% |
| 194-IA | Purchase of immovable property | ₹50 lakh | 1% |
| 192 | Salary | Tax on estimated salary above the exemption limit | Slab rates |
Transporters owning 10 or fewer goods carriages who give a declaration with their PAN are exempt from 194C deduction.
No PAN, higher rate: if the payee does not provide a PAN, deduct at 20% (5% under 194Q). Non-filers of returns attract the higher of twice the rate or 5% under section 206AB.
Deposit and return dates
- Deposit by the 7th of the following month; March deductions by 30 April.
- Quarterly statements (24Q salary, 26Q others, 27Q non-residents):
| Quarter | Due date |
|---|---|
| April–June | 31 July |
| July–September | 31 October |
| October–December | 31 January |
| January–March | 31 May |
- TDS certificates: Form 16 (salary) by 15 June; Form 16A within 15 days of the quarterly statement due date.
What non-compliance costs
- Interest: 1% a month from the date the tax was deductible to the date deducted; 1.5% a month from the date deducted to the date deposited. Part of a month counts as a full month.
- Late-filing fee: ₹200 per day under section 234E until the statement is filed, capped at the TDS amount.
- Penalty for not filing a statement within a year of the due date: ₹10,000 to ₹1,00,000 (section 271H).
- Disallowance: 30% of the expense on which TDS was not deducted or not deposited is added back to your income (section 40(a)(ia)); it is allowed in the year you finally pay.
- Prosecution for failure to deposit deducted tax is possible in serious cases.
Practical controls for a small office
- Tag every vendor in your accounting software with the applicable section and threshold at the time you create the ledger.
- Set the software to deduct at the earlier of credit or payment — TDS is triggered on booking the expense, not on paying it.
- Reconcile the 26Q with the ledger before filing; mismatches surface later as demand notices under section 200A.
- Download Form 26AS/AIS for your own business each quarter to confirm customers have deposited what they deducted from you.
- Collect PANs before the first payment. A missing PAN doubles the rate and cannot be corrected retrospectively.
From 1 April 2026
The Income-tax Act 2025 consolidates all TDS provisions into a single section with rate tables. The thresholds and rates above are carried forward; only the references change. FY 2025-26 compliance — including the fourth-quarter statement due 31 May 2026 — remains under the 1961 Act.
Our income tax services include monthly TDS computation, deposit and quarterly filing for MSMEs, and replies to 200A demands.
Frequently asked questions
Do I need to deduct TDS as a proprietor?
Only if your business turnover exceeded ₹1 crore (or professional receipts ₹50 lakh) in the previous financial year — i.e. you were liable for tax audit. Below that, individuals and HUFs deduct only under section 194M (payments above ₹50 lakh to contractors/professionals) and on property purchases above ₹50 lakh under 194-IA. Firms, LLPs and companies deduct regardless of turnover.
What happens if I forget to deduct TDS on a contractor bill?
30% of that expense is disallowed in your income computation for the year (section 40(a)(ia)), you owe the TDS with interest at 1% a month for non-deduction and 1.5% a month for non-deposit, and the deductee has to pay their own tax on it anyway. Deduct late and deposit — the disallowance is reversed in the year you pay.
Does TDS apply to GST on the bill?
No. Deduct on the value excluding GST if GST is shown separately on the invoice (CBDT Circular 23/2017).
Sources
This article is general information for Indian MSMEs, not advice on your specific case. Scheme terms, tax rates and due dates change; the sources above were checked when the article was written or last updated. Speak to a professional before acting on it.
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