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The Complete TDS Compliance Guide for Employers & Freelancers (2024-25 Budget Update)

Understanding TDS: The Basics


Tax Deducted at Source (TDS) is India's pay-as-you-earn tax system where specified payments are subject to tax deduction at the time of payment itself. This mechanism ensures regular tax collection by the government while distributing the tax burden across the financial year.


Why TDS Matters


  • Mandatory for businesses making specified payments

  • Ensures advance tax collection

  • Reduces tax evasion

  • Simplifies year-end tax liabilities for recipients


Who Needs to Deduct TDS?


1. Employers


  • Must deduct TDS on salaries under Section 192

  • Applies when employee income exceeds ₹3 lakh (new tax regime)

  • Rates vary according to income tax slabs


2. Businesses & Professionals


  • Required to deduct TDS when making payments to:


    • Freelancers/consultants

    • Contractors

    • Landlords

    • Service providers


Complete TDS Rate Chart (2024-25 Budget Update)


Section

Payment Type

Threshold

Normal Rate

Special Cases

192

Salaries

₹3 lakh

Slab rate

New: No TDS if gross salary ≤ ₹3L

194J

Professional Fees

₹30k/single ₹1L/year

10%

5% for MSMEs (new)

194C

Contractor Payments

₹30k/₹1L

1%(Ind) 2%(Firms)

Exempt for GeM vendors

194I

Rent (Machinery)

₹2.4L/year

2%

-

194IB

Rent (Residential)

₹50k/month

5%

PAN mandatory

194A

Interest (Non-Bank)

₹40k (₹75k seniors)

10%

Form 15G/H exempt

194BA

Online Gaming

Net winnings

30%

-

194S

Crypto/VDAs

All transactions

1%

-

194O

E-commerce

₹10L/year

1%

Deducted by platform

194DA

Insurance Claims

₹1L

5%

On maturity benefits


Key Changes in 2025 Budget


  1. MSME Benefits

    • Reduced TDS from 10% to 5% for professional payments

    • Extended to all MSME-registered professionals

  2. Digital Payment Incentives

    • No TDS on UPI/RTGS payments below ₹1 lakh

    • Lower compliance for fully digital transactions

  3. Green Initiatives

    • 50% reduced TDS for EV-related services

    • Special rates for renewable energy projects

  4. Simplification Measures

    • New Form 26QD for lower deduction claims

    • Auto-populated challans on compliance portal

    • Relaxed thresholds for startup R&D payments


Step-by-Step TDS Compliance Process


1. Determine Applicability


  • Check if payment type and amount cross threshold

  • Verify payee's PAN status


2. Deduct Correct Amount


  • Apply appropriate rate

  • Consider special cases (MSMEs, senior citizens etc.)


3. Deposit TDS


  • Use Challan 281

  • Due by 7th of next month

  • Exception: March TDS (due April 30)


4. File Quarterly Returns


Quarter

Period

Due Date

Q1

Apr-Jun

July 31

Q2

Jul-Sep

October 31

Q3

Oct-Dec

January 31

Q4

Jan-Mar

May 31


5. Issue Certificates


  • Form 16 for employees

  • Form 16A for other deductees

  • Due by June 15 annually


Common Penalties to Avoid


  1. Late Deduction


    • 1% monthly interest

    • From deduction date to actual deduction


  2. Late Payment


    • 1.5% monthly interest

    • From deduction date to payment date


  3. Late Filing


    • ₹200/day (max up to TDS amount)

    • Additional ₹10,000-₹1 lakh penalty


  4. Incorrect Deduction


    • Penalty under Section 271H

    • Disallowance of expense in some cases


Pro Tips for Smooth Compliance


For Employers


  • Use payroll software with automatic TDS calculation

  • Conduct mid-year tax liability reviews

  • Educate employees about tax-saving investments


For Freelancers/Businesses


  • Always provide PAN to avoid 20% TDS

  • Regularly check Form 26AS for discrepancies

  • Claim refunds for excess TDS in ITR

  • Maintain separate records for exempt payments


For Startups/MSMEs


  • Avail lower 5% TDS rate by registering as MSME

  • Use new compliance portal for easier filing

  • Document all vendor MSME certifications


Special Scenarios & Solutions


Case 1: Payment to freelancer without PANSolution: Deduct 20% TDS under Section 206AA and request PAN immediately


Case 2: Rent payment of ₹55,000/month in cash Solution: Deduct 5% TDS under Section 194IB and ensure PAN is obtained


Case 3: Contractor payment of ₹1.2 lakh to unregistered firmSolution: Deduct 2% TDS under Section 194C and file Form 26Q


Future-Proofing Your TDS Compliance


  1. Go Digital


    • Use GSTN-compliant accounting software

    • Enable auto-TDS features


  2. Stay Updated


    • Subscribe to CBDT notifications

    • Attend annual tax workshops


  3. Build Systems


    • Create TDS compliance checklists

    • Designate a compliance officer


  4. Leverage Technology


    • Use the new TDS compliance portal

    • Implement e-Verification processes


Final Checklist


✅ Verify all applicable payment categories

✅ Update TDS rates in accounting systems

✅ Train staff on new provisions

✅ Review vendor documentation

✅ Set calendar reminders for due dates


Need Professional Help? Consider consulting a tax expert for:

  • Complex payment structures

  • NRI transactions

  • High-value contracts

  • Discrepancy resolution

(Note: This guide reflects provisions as of July 2024. Always verify with the Income Tax Department for latest updates.)


Have specific TDS questions?


Consult a CA from browsing section in "Consult a Lawyer"

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