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Mastering Your Tax Compliance: The Ultimate TDS & TCS Guide for FY 2025-26
As we step into Financial Year 2025-26, staying ahead of tax obligations is not just about being a good citizen—it is about smart financial management. The latest tax landscape introduces specific thresholds and rates that every business owner, professional, and salaried individual must navigate. From digital assets to partner remunerations, here is everything you need to know to stay compliant and avoid hefty interest penalties.
1. The Essentials of TDS: Salaries and Professional Fees
For salaried employees, the threshold stands at Rs. 2,50,000 as per old and new both regime, with tax deducted at the average rate under the New Scheme unless the Old Scheme is specifically chosen. High-income earners should remain vigilant regarding surcharges: a 10% surcharge kicks in for income between Rs. 50 Lakhs and 1 Crore, jumping to 25% for those earning above Rs. 2 Crores, alongside a 4% Health and Education Cess.
Professional services also see tiered rates. While Professional Fees generally attract a 10% TDS, a lower rate of 2% applies specifically to Call Centres and Technical Services once the Rs. 50,000 threshold is crossed.
2. Modern Transactions: E-commerce, Goods, and VDA
The tax net continues to widen in the digital and commercial sectors:
- Virtual Digital Assets (Section 194S): Payments for VDAs carry a 1% TDS.
- E-commerce & Goods (Sections 194O & 194Q): Both carry a minimal rate of 0.1% if the recipient has a PAN, provided thresholds of Rs. 5 Lakhs (E-commerce) and Rs. 50 Lakhs (Purchase of Goods) are met.
- Partner Payments (Section 194T): A newer focus for firms and LLPs is the 10% TDS required on interest or remuneration paid to partners if it exceeds Rs. 20,000.
3. The High Cost of Missing PANs
One of the most critical rules to remember is the “No PAN” penalty. If a deductee fails to provide their PAN, the TDS rate typically skyrockets to 20% or higher. For TCS, the rate for non-PAN holders is generally 5%, though it can reach 20% for overseas tour packages.
4. Comprehensive TDS & TCS Chart for FY 2025-26
| Section | Nature of Payment | Threshold (Rs.) | Rate (With PAN) | Rate (No PAN) |
|---|---|---|---|---|
| 192 | Salary | 2,50,000 | Average Rate | 20% or Higher |
| 194 | Dividend | 10,000 | 10% | 20% |
| 194A | Interest (Bank – Sr. Citizen) | 1,00,000 | 10% | 20% |
| 194A | Interest (Bank – Others) | 50,000 | 10% | 20% |
| 194C | Contractors (Indiv./HUF) | 30k/1 Lakh | 1% | 20% |
| 194C | Contractors (Co./Firm) | 30k/1 Lakh | 2% | 20% |
| 194H | Commission / Brokerage | 20,000 | 2% | 20% |
| 194I | Rent (Land & Building) | 50k/Month | 10% | 20% |
| 194I | Rent (Plant & Machinery) | – | 2% | 20% |
| 194IA | Immovable Property Purchase | 50,00,000 | 1% | 20% |
| 194J | Professional Fees (Others) | 50,000 | 10% | 20% |
| 194J | Technical / Call Centre | 50,000 | 2% | 20% |
| 194N | Cash Withdrawal (Returns Filed) | 1 / 3 Crore* | 2% | 20% |
| 194O | E-commerce Participants | 5,00,000 | 0.1% | 5% |
| 194Q | Purchase of Goods | 50,00,000 | 0.1% | 5% |
| 194S | Virtual Digital Assets | 10k / 50k | 1% | 20% |
| 194T | Firm Payments to Partners | 20,000 | 10% | 20% |
| 206C(1) | Scrap (TCS) | No Limit | 1% | 5% |
| 206C(1F) | Motor Vehicle / Luxury Goods | 10,00,000 | 1% | 5% |
| 206C(1G) | Overseas Tour Package | No Limit | 20% | 20% |
*The 3 Crore threshold for cash withdrawals applies specifically to Co-operative society customers.
Difference b/w section 194Q Vs. 206C(1H)
Section 194Q: TDS on Purchase of Goods
According to the sources, Section 194Q is a provision for Tax Deducted at Source (TDS) that applies specifically to the purchase of goods.
• Responsibility: The obligation to deduct tax lies with the buyer.
• Applicability: It applies only if the buyer’s turnover exceeds Rs. 10 crore.
• Threshold: TDS is triggered when the value of the purchase exceeds Rs. 50,00,000.
• Rate: The deduction rate is 0.1% if the seller provides a PAN, and increases significantly to 5% if no PAN is provided.
Section 206C(1H): TCS on Sale of Goods
Information regarding Section 206C(1H) is not contained in the provided sources.
In general tax practice, Section 206C(1H) is the Tax Collected at Source (TCS) counterpart to Section 194Q. While the sources list other TCS sections like 206C(1) for scrap and 206C(1F) for motor vehicles, 206C(1H) specifically governs the sale of goods. Under this section, the seller is responsible for collecting tax from the buyer if the seller’s turnover exceeds Rs. 10 crore and the sale consideration received exceeds Rs. 50 lakhs.
Key Differences
| Feature | Section 194Q (In Sources) | Section 206C(1H) (Not in Sources) |
|---|---|---|
| Nature of Tax | TDS (Tax Deducted at Source) | TCS (Tax Collected at Source) |
| Primary Actor | The Buyer must deduct tax. | The Seller must collect tax. |
| Condition | Buyer’s turnover > Rs. 10 Cr. | Seller’s turnover > Rs. 10 Cr. |
| Threshold | Transaction > Rs. 50 Lakhs. | Receipt > Rs. 50 Lakhs. |
| Precedence | If both apply, 194Q takes precedence; the buyer deducts TDS and the seller does not collect TCS. | Secondary to Section 194Q. |
Compliance Note: Under Section 194Q, if the tax is deducted late, an interest rate of 1% per month applies; if it is deducted but paid late, the interest rises to 1.5% per month. Similar interest penalties generally apply to TCS late payments as well
5. Compliance Deadlines & Penalties
Missing a deadline can be expensive. If tax is deducted late, interest is charged at 1% per month. If the tax is deducted but paid late, the interest rate increases to 1.5% per month.
To stay on the right side of the law, mark these Quarterly TDS Return deadlines in your calendar:
- Q1 (April–June): 31st July 2025
- Q2 (July–Sept): 31st October 2025
- Q3 (Oct–Dec): 31st January 2026
- Q4 (Jan–March): 31st May 2026
For those with no taxable income, remember to submit Form 15G or 15H (for senior citizens) to ensure interest, dividends, or rent are received without deduction. Stay organised, file on time, and ensure your PAN details are always up to date!
Still got confused and willing to discuss TDS/TCS applicability for your firm /company ; feel free to write us at info@thecadesk.com