Who is Liable to Deduct Tax Under Income Tax Act 2025
Under the new Income-tax Act, 2025, the government has streamlined the rules regarding who must deduct Tax Deducted at Source (TDS). While Companies and Partnership Firms are almost always required to deduct TDS, the rules for Individuals and Hindu Undivided Families (HUFs) depend entirely on their Turnover or Gross Receipts in the preceding year.
Here is a complete breakdown of the turnover limits that trigger TDS liability under the new law.
1. The General Rule: “Specified Persons” (Business & Profession)
For most standard business payments—such as paying contractors, commission agents, brokers, or rent for business premises—an Individual or HUF is only liable to deduct TDS if they are classified as a “Specified Person”.
You become a “Specified Person” if your turnover in the immediately preceding tax year exceeded the following limits:
- For Business Owners: If total sales, turnover, or gross receipts exceeded ₹ 1 Crore.
- For Professionals: If gross receipts from the profession exceeded ₹ 50 Lakh.
Impact: If you cross these limits, you must deduct TDS under Section 393 for payments like:
- Contractors: For work or labor supply [Table Sl. No. 6].
- Professionals: Fees for technical/professional services [Table Sl. No. 6].
- Commission/Brokerage: [Table Sl. No. 1].
- Rent (Business Use): For machinery, plant, or building [Table Sl. No. 2].
Compliance Form: You must file Form No. 140 (Quarterly TDS Return) for these deductions.
2. The “Big Buyer” Rule: TDS on Purchase of Goods
There is a special, higher turnover threshold for deducting TDS specifically on the purchase of goods (previously Section 194Q, now under Section 393).
- Turnover Limit: You are liable to deduct TDS only if your total sales, gross receipts, or turnover from business exceeded ₹ 10 Crore in the immediately preceding tax year.
- Transaction Threshold: If you meet the ₹10 Cr criteria, you must deduct 0.1% TDS when buying goods worth more than ₹ 50 Lakh from a resident seller.
3. The “No Turnover” Rule: High-Value Personal Payments
The new Act continues to catch high-value transactions by Individuals and HUFs even if they do not have a business or do not meet the audit turnover limits mentioned above.
In these specific cases, Turnover is Irrelevant. You must deduct TDS regardless of your business size:
- Rent for Residence: If you pay rent exceeding ₹ 50,000 per month for your residence. You must deduct 2% TDS.
- Buying Property: If you buy immovable property (house/land) valued over ₹ 50 Lakh. You must deduct 1% TDS.
- Personal Contractors/Professionals: If you pay more than ₹ 50 Lakh in a year to a contractor or professional for personal purposes.
Compliance Form: For these “No Turnover” cases, you do not need a TAN. You simply file Form No. 141 (Challan-cum-statement) using your PAN.
4. Summary Table: Do You Need to Deduct TDS?
| Your Status | Nature of Payment | Turnover Limit (Preceding Year) | TDS Form |
|---|---|---|---|
| Individual / HUF | Contractors, Rent (Biz), Commission | > ₹ 1 Crore (Business)> ₹ 50 Lakh (Profession) | Form 140 |
| Any Buyer | Purchase of Goods (>₹50L value) | > ₹ 10 Crore | Form 140 |
| Individual / HUF | Rent for Residence (>₹50k/pm) | No Limit (Mandatory) | Form 141 |
| Individual / HUF | Buying House (>₹50L value) | No Limit (Mandatory) | Form 141 |
| Company / Firm | All Standard Payments | No Limit (Always Liable) | Form 140 |
Conclusion
If you are a freelancer, small business owner, or salaried individual, check your receipts from the last financial year.
- Did you cross ₹ 50 Lakh (Profession) or ₹ 1 Crore (Business)? If yes, get a TAN and start deducting TDS on your business expenses.
- If not, you are safe from most TDS compliances, unless you are paying high rent (>₹50k/month) or buying a property.
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