What is TDS and Why Does It Matter?
TDS (Tax Deducted at Source) is the government's way of collecting income tax at the time income is generated ā rather than at the end of the year. Your employer, bank, or tenant deducts a percentage of your income and pays it to the government on your behalf.
Understanding TDS is important because:
- It affects your monthly take-home salary ā your employer deducts TDS every month
- It reduces your FD interest payout ā banks deduct 10% TDS on interest above ā¹40,000/year
- If excess TDS is deducted, you can claim a refund when filing ITR
- If TDS is not deducted properly, you may face penalties from the IT department
Use our free TDS Calculator to see exactly how much TDS applies to your income.
TDS Rates Table 2025-26 ā Complete List
| Income Type | Section | TDS Rate | Threshold |
|---|---|---|---|
| Salary | 192 | As per slab | Basic exemption limit |
| FD Interest (Bank) | 194A | 10% | ā¹40,000/year (ā¹50,000 seniors) |
| FD Interest (Post Office) | 194A | 10% | ā¹40,000/year |
| Rent (> ā¹50,000/month) | 194-IB | 2% | ā¹50,000/month |
| Property Sale | 194-IA | 1% | ā¹50 lakh+ |
| Professional Fees | 194J | 10% | ā¹30,000/year |
| Contractor Payments | 194C | 1% (individual) / 2% (company) | ā¹30,000 single / ā¹1 lakh aggregate |
| Commission | 194H | 5% | ā¹15,000/year |
Note: If PAN is not provided, TDS is deducted at 20% instead of the regular rate.
TDS on Salary ā How Your Employer Calculates It
Your employer calculates TDS on salary based on:
- Estimate your annual income ā total salary for the financial year
- Subtract exemptions ā HRA, LTA, standard deduction (old regime) or just standard deduction (new regime)
- Subtract deductions ā 80C, 80D, etc. (only in old regime)
- Calculate tax on the remaining taxable income as per applicable slab rates
- Divide by 12 ā deduct equally from each month's salary
Example: TDS on ā¹10 Lakh Salary (New Regime)
| Component | Amount |
|---|---|
| Annual Salary | ā¹10,00,000 |
| Standard Deduction | -ā¹75,000 |
| Taxable Income | ā¹9,25,000 |
| Tax (New Regime) | ā¹42,500 |
| Cess (4%) | ā¹1,700 |
| Total Annual TDS | ā¹44,200 |
| Monthly TDS | ā¹3,683 |
Calculate your exact TDS with our Income Tax Calculator.
TDS on FD Interest ā How Banks Deduct Tax
Banks deduct 10% TDS on FD interest when your total interest from that bank exceeds ā¹40,000 per year (ā¹50,000 for senior citizens).
Example
| Scenario | FD Amount | Rate | Interest/Year | TDS Deducted | You Receive |
|---|---|---|---|---|---|
| Below threshold | ā¹5,00,000 | 7% | ā¹35,000 | ā¹0 | ā¹35,000 |
| Above threshold | ā¹8,00,000 | 7% | ā¹56,000 | ā¹5,600 | ā¹50,400 |
| Senior citizen | ā¹8,00,000 | 7.5% | ā¹60,000 | ā¹6,000 | ā¹54,000 |
How to Avoid TDS on FD
- Submit Form 15G (below 60 years) if your total income is below taxable limit
- Submit Form 15H (60+ years) if your total tax liability is zero
- Split FDs across banks to keep interest below ā¹40,000 per bank
Remember: Even if TDS is avoided via Form 15G/15H, you must still declare FD interest income in your ITR.
Read more: Compare FD rates across banks
TDS on Rent ā Rules for Tenants & Landlords
If you pay rent above ā¹50,000 per month, you must deduct 2% TDS under Section 194-IB.
- Who deducts: The tenant (even if not an employer or business)
- Rate: 2% of annual rent
- When to deduct: Last month of tenancy or March, whichever is earlier
- How to pay: Use Form 26QC on the TIN-NSDL portal
Example
If rent = ā¹60,000/month (ā¹7,20,000/year), TDS = 2% Ć ā¹7,20,000 = ā¹14,400
For tenants claiming HRA: Ensure your landlord's PAN is provided if annual rent exceeds ā¹1 lakh. Read our HRA exemption guide for details.
ā Frequently Asked Questions
How is TDS calculated on salary?
Your employer estimates your annual income, subtracts exemptions and deductions (based on your declared investments), calculates tax as per applicable slab rates, and deducts 1/12th of the tax every month from your salary.
How to avoid TDS on FD interest?
Submit Form 15G (if below 60) or Form 15H (if 60+) at the start of the financial year to each bank where you hold FDs. This is valid only if your total income is below the taxable limit.
What happens if more TDS is deducted than my actual tax?
You can claim a refund by filing your Income Tax Return (ITR). The excess TDS amount will be refunded to your bank account, typically within 30-60 days of ITR processing.
Is TDS applicable on savings account interest?
No, banks do not deduct TDS on savings account interest. However, savings interest above ā¹10,000/year (ā¹50,000 for seniors under Section 80TTB) is taxable ā you must include it in your ITR.
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