TDS Rate Chart FY 2026-27: A Complete Guide for Businesses#
Tax Deducted at Source (TDS) is the government's mechanism for collecting tax at the very source of income generation. For businesses, the responsibility is immense: you act as the government's tax collection agent every time you make a payment to a vendor, contractor, or employee.
If your business fails to deduct TDS, or deducts it at an incorrect lower rate, the Income Tax Department will disallow 30% of that expenditure from your Profit & Loss account, artificially inflating your profits and causing a massive corporate tax liability.
To ensure strict compliance, here is the updated, comprehensive TDS rate chart for Financial Year 2026-27 (Assessment Year 2027-28) covering payments made to resident Indians.
Primary Business TDS Sections#
These are the most common sections encountered in daily business operations.
| Section | Nature of Payment | Threshold Limit (₹) | TDS Rate (%) |
|---|---|---|---|
| 192 | Payment of Salary. | Basic Exemption Limit | Average rate based on employee's tax slab. |
| 194C | Payment to Contractors / Sub-contractors. | ₹30,000 (single) or ₹1,00,000 (aggregate in FY). | 1% (Individual/HUF) 2% (Others). |
| 194J(a) | Fees for Professional Services (e.g., CA, Lawyer). | ₹30,000 | 10% |
| 194J(b) | Fees for Technical Services (or Royalty). | ₹30,000 | 2% |
| 194I(a) | Rent for Plant, Machinery, or Equipment. | ₹2,40,000 | 2% |
| 194I(b) | Rent for Land, Building, or Furniture. | ₹2,40,000 | 10% |
| 194H | Commission or Brokerage. | ₹15,000 | 5% |
| 194Q | Purchase of Goods (Applicable if buyer's previous year turnover > ₹10 Cr). | ₹50 Lakhs | 0.1% (on amount exceeding ₹50L). |
Financial and Investment TDS Sections#
These sections typically relate to banking, investments, and property transactions.
| Section | Nature of Payment | Threshold Limit (₹) | TDS Rate (%) |
|---|---|---|---|
| 194A | Interest other than interest on securities (e.g., Bank FDs). | ₹40,000 (₹50k for Senior Citizens). | 10% |
| 194 | Dividends from domestic companies. | ₹5,000 | 10% |
| 194IA | Payment on transfer of certain immovable property (Sale of Land/Building). | ₹50 Lakhs (Consideration or Stamp Duty Value). | 1% |
| 194IB | Payment of rent by Individuals/HUFs not liable for tax audit. | ₹50,000 per month | 5% |
Specialized TDS Sections#
| Section | Nature of Payment | Threshold Limit (₹) | TDS Rate (%) |
|---|---|---|---|
| 194O | Payment by E-Commerce Operator to E-Commerce Participant. | ₹5,000 | 1% |
| 194S | Payment on transfer of Virtual Digital Assets (Crypto). | ₹10,000 (₹50k for specific persons). | 1% |
| 194B | Winnings from Lotteries, Crossword Puzzles, Games. | ₹10,000 | 30% |
| 194BA | Winnings from Online Games. | No threshold | 30% (on Net Winnings). |
Critical Compliance Rules (The "Gotchas")#
While the table above provides the baseline rates, businesses must be aware of several conditional rules that can drastically alter the required TDS rate:
- The No-PAN Penalty (Section 206AA): If the vendor (deductee) fails to provide a valid Permanent Account Number (PAN), the deductor is legally required to deduct TDS at the specified rate or 20%, whichever is higher.
- The Non-Filer Penalty (Section 206AB): If the vendor has not filed their Income Tax Returns for the previous year and the aggregate TDS/TCS in that year was ₹50,000 or more, they are classified as a "specified person." You must deduct TDS at twice the normal rate or 5%, whichever is higher. (The IT Department provides a compliance check portal to verify vendor status).
- Timing of Deduction: TDS must be deducted at the time of credit of such income to the account of the payee, or at the time of payment in cash/cheque/draft, whichever is earlier. You cannot wait until you actually pay the invoice if you have already booked the expense in your accounting software.
Conclusion#
TDS compliance is not a year-end activity; it requires real-time vigilance by your accounts payable team. Integrating this rate chart into your ERP or accounting software (like Tally or Zoho) ensures that the correct deductions are made automatically, protecting your business from massive expenditure disallowances during tax audits.