TDS stands for Tax Deducted at Source, which is basically the government's way of collecting tax upfront. The person making the payment (bank, employer, tenant paying rent, etc.) cuts a certain percentage as tax before paying you. This happens for various types of income - salary, interest from fixed deposits, rent from property, professional fees, dividends, and many others. The benefit is you get the rest of your money and claim credit for TDS when filing ITR.
For FY 2025-26, TDS rates vary based on income type. Salary income has TDS based on your tax slab (calculated by your employer based on estimated salary and investments). Interest from fixed deposits has 10% TDS if interest exceeds ₹40,000 in a year (₹50,000 for senior citizens). Rent has 10% TDS if annual rent exceeds ₹2.4 lakh. Professional fees have 10% TDS. The rates can be lower if you submit Form 15G or 15H declaring your taxable income is below the basic exemption limit.
Many people get confused because TDS is only an estimate of your tax liability. At the end of the year, when you file your ITR with all your deductions and exemptions, your actual tax might be less than total TDS paid. That difference comes back to you as refund. Use our refund calculator to see if you've paid excess TDS. On the flip side, if your actual tax is more than TDS paid, you need to pay the balance during ITR filing.
For salaried employees, TDS on salary is usually handled correctly by employers through Form 16. But if you have other income sources like rental income, interest from bank deposits, or freelance income, TDS gets deducted and you need to reconcile it at year-end. Use our comprehensive income tax calculator to see your complete tax picture including all TDS credits you're eligible for.
For complete TDS rates and rules, you may also check ClearTax's TDS Rate Chart for FY 2025-26 (AY 2026-27) which lists all TDS rates for different types of payments and income for FY 2025-26.
| Income Type | TDS Rate | Threshold | Form |
|---|---|---|---|
| Salary | 10% | ₹2.5L | Form 16 |
| Interest (Bank) | 10% | ₹40K | Form 16A |
| Interest (Senior) | 10% | ₹3L | Form 16A |
| Rent | 10% | ₹2.4L | Form 16A |
| Professional | 10% | ₹30K | Form 16A |
| Contractor | 10% | ₹30K | Form 16A |
Tax Deducted at Source (TDS) was introduced to ensure a steady flow of tax revenue to the government and to reduce tax evasion. Instead of waiting for taxpayers to pay tax at year-end, TDS collects tax at the time income is earned.
While this system benefits the government, it often creates confusion for taxpayers. Many people assume that TDS deducted equals final tax, which is not always true. TDS is only an advance collection, your actual tax liability is calculated later when you file your income tax return.
Understanding how TDS works helps you avoid overpayment, manage cash flow better, and reduce the wait time for refunds. A well-informed taxpayer can actively control excess TDS rather than treating it as unavoidable.
TDS is not your final tax. It is only a provisional deduction based on limited information available to the payer. Employers, banks, and tenants do not know your complete financial picture such as capital gains, rental income, or deductions claimed elsewhere.
This mismatch often results in either excess tax paid (leading to refunds) or shortfall (leading to additional tax payable during ITR filing). Both situations can be avoided with proactive planning and periodic review.
The goal should not be to “get refunds” but to ensure that TDS closely matches your actual tax liability. This improves cash flow and reduces dependency on delayed refund processing.
In practice, excessive TDS is most common among salaried employees with investments made late, freelancers with multiple clients, and senior citizens earning interest income without submitting declaration forms on time.
Experienced taxpayers review their Form 26AS and AIS at least twice a year. This allows early detection of excess deductions, missing credits, or incorrect PAN reporting issues that otherwise surface only at ITR filing time.
Treat TDS as something you manage, not something that happens to you. Timely submission of forms, proactive income disclosure, and periodic checks can save both money and compliance headaches.
TDS (Tax Deducted at Source) is a tax collection mechanism where the payer deducts tax before making payment. It's applicable when payments exceed specified thresholds for different income types.
You can avoid TDS by submitting Form 15G (below 60 years) or Form 15H (60+ years) if your total income is below the taxable limit, or by keeping payments below the TDS threshold.
Penalty for non-deduction of TDS is equal to the amount of TDS not deducted, plus interest at 1% per month from the due date of deduction to the date of payment.
Yes, you can claim TDS refund by filing your income tax return. The excess TDS will be refunded after processing your return, or it can be adjusted against other tax liabilities.
Form 15G is for individuals below 60 years, while Form 15H is for senior citizens (60+ years). Both forms declare that the person's total income is below the taxable limit.
If the deductor fails to deposit TDS, credit will not reflect in your Form 26AS. You may need to follow up with the deductor, as the liability rests with them, not the taxpayer.
You can verify TDS credits using Form 26AS and Annual Information Statement (AIS) on the income tax portal before filing your return.
Yes. TDS can still be deducted. You must submit Form 15G or 15H in advance to avoid deduction, or claim a refund later.
Yes. TDS already paid is adjusted against your final tax liability while filing ITR. You only pay the balance tax, if any.