What is TDS? Complete Guide on Who Must Deduct Tax Under Income Tax Act 2025

What is TDS? Complete Guide on Who Must Deduct Tax Under Income Tax Act 2025

Under the Income-tax Act, 2025, the government has consolidated and renumbered the provisions for Tax Deducted at Source (TDS). While the core concept remains the same—collecting tax at the very source of income generation—the categories of people liable to deduct tax have been streamlined under new sections like Section 392 and Section 393.

Here is a breakdown of what TDS is and who is responsible for deducting it.

What is TDS?

TDS is a system where the person paying an income (the Payer) deducts a specific percentage of tax from the payment and deposits it with the Central Government on behalf of the recipient (the Payee). The recipient then claims this amount as a tax credit when filing their Income Tax Return,.

Who is Required to Deduct TDS?

The liability to deduct TDS depends on the nature of the payment and the status of the payer. Under the new Act, payers are broadly categorized into Employers, Specified Persons (Businesses), and Individuals/HUFs.

1. Employers (TDS on Salary)

• Who Deducts: Any person (individual, company, firm, or government office) responsible for paying income under the head “Salaries”.
• Section: Section 392.
• Rule: The employer must estimate the employee’s total annual income and deduct tax at the average rate of income tax applicable,.

2. “Specified Persons” (Business Payments)

For most business-related payments (like contractors, commission, or professional fees), the liability falls on a “Specified Person”.

• Who is a Specified Person? This typically includes:
  • Companies and Firms.
  • Individuals or HUFs whose business turnover or professional receipts exceed the audit threshold (₹ 1 Crore for business / ₹ 50 Lakh for profession) in the preceding year.
• Payments Covered (Section 393):
  • Contractors: Payments for work/labour supply.
  • Professionals: Fees for technical or professional services.
  • Commission/Brokerage: Payments to agents.
  • Rent (Business): Renting factory, building, or plant for business use.

3. Individuals & HUFs (High-Value Personal Payments)

Even if you are a salaried individual or a small business owner not liable for audit, you are required to deduct TDS in specific personal transactions. No TAN is required for these; you can use your PAN.

• Rent > ₹50,000: If you pay rent for your residence exceeding ₹ 50,000 per month,.
• Property Purchase: Any buyer purchasing immovable property (other than agricultural land) where the value exceeds ₹ 50 Lakh.
• Contractors/Professionals: If you pay more than ₹ 50 Lakh in a year to a contractor or professional for personal purposes.

4. Any Person (Universal Liability)

For certain transactions, “Any Person” paying the amount is liable to deduct tax, regardless of their turnover or status.

• Virtual Digital Assets (Crypto): Any person paying consideration for the transfer of a VDA (Crypto/NFTs) must deduct 1% TDS,.
• Winnings: Any person paying winnings from lotteries, crossword puzzles, or online games must deduct tax on the net winnings,.
• Interest on Securities: Any person paying interest on securities.

5. E-Commerce Operators

• Section 393(1) [Table Sl. No. 8(v)]: E-commerce operators must deduct tax at 0.1% on the gross amount of sales or services facilitated through their digital platform.

Summary Checklist: Do You Need to Deduct?

Compliance Note: Most deductors must apply for a Tax Deduction Account Number (TAN) using Form No. 135 (or Form 134 for Govt entities). However, individuals deducting tax on Rent (>50k) or Property Purchase are exempt from obtaining TAN and can file the challan-cum-statement Form No. 141 using just their PAN.

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