Tax Deducted at Source (TDS) remains one of the most important compliance mechanisms under Indian tax laws. With the introduction of the Income-tax Act, 2025, the provisions relating to TDS have been consolidated and streamlined under Section 393, replacing the scattered structure that existed earlier.
This new framework not only simplifies compliance but also expands the scope of TDS to cover modern transactions such as e-commerce, virtual digital assets, and online gaming. Therefore, it becomes essential for taxpayers, professionals, and businesses to understand the updated provisions in detail.
In this article, we provide a comprehensive overview of TDS under Section 393, including applicability, rates, threshold limits, special cases, and practical compliance considerations.
1. What is TDS under the New Income-tax Act, 2025?
TDS refers to tax deducted by the payer at the time of making specified payments such as salary, interest, rent, commission, etc.
As per Section 393(1):
- TDS must be deducted at the time of credit or payment, whichever is earlier
- Applicable when payment exceeds specified threshold limits
- Deduction must be at prescribed rates
2. Key Principles of TDS (Section 393)
1. Time of Deduction
One of the fundamental rules under Section 393 is that tax must be deducted at the earlier of:
- Credit of income to the account of the payee, or
- Actual payment in cash, cheque, draft, or any other mode
Even if the amount is credited to a suspense account or any other account, it will still be treated as credit to the payee, and TDS will apply.
2. Applicability Based on Threshold Limits
TDS is required only when the payment exceeds the specified threshold limit. However, certain payments such as dividends, virtual digital assets, and e-commerce transactions have no threshold limits.
3. Deduction at Prescribed Rates
The rate of TDS varies depending on the nature of payment. Some payments are subject to fixed rates, while others are taxed at “rates in force,” which means applicable slab rates or rates specified under the Act.
4. Applicability to Residents and Non-Residents
Section 393 clearly differentiates between:
- Payments to residents
- Payments to non-residents
- Payments to any person (special cases like winnings, cash withdrawals)
3. TDS Chart for Payments to Residents (Section 393(1))
The provisions relating to residents form the core of Section 393(1). These include a wide range of payments such as commission, rent, interest, professional fees, and more.
A. Common Payments
| Nature of Payment | Payer | Rate | Threshold |
| Insurance Commission | Any person | Rates in force | ₹20,000 |
| Commission/Brokerage | Specified person | 2% | ₹20,000 |
| Rent (general) | Non-specified person | 2% | ₹50,000/month |
| Rent (specified person) | Specified person | 2% / 10% | ₹50,000/month |
B. Immovable Property
| Nature | Rate | Threshold |
| Sale of property | 1% of higher of consideration or stamp value | ₹50 lakh |
| Compulsory acquisition | 10% | ₹5 lakh |
C. Capital Market Income
| Payment Type | Rate | Threshold |
| Mutual fund units | 10% | ₹10,000 |
| Business trust income | 10% | Nil |
| Investment fund | 10% | Nil |
| Securitisation trust | 10% | Nil |
D. Interest Income
Interest payments attract TDS based on the nature of the payer:
- Bank interest has a higher threshold of ₹50,000 (₹1,00,000 for senior citizens).
- Other interest payments attract TDS once they exceed ₹10,000.
| Type | Rate | Threshold |
| Interest on securities | Rates in force | ₹10,000 |
| Bank interest | Rates in force | ₹50,000 / ₹1,00,000 (senior citizen) |
| Other interest | Rates in force | ₹10,000 |
E. Contractors & Professional Payments
Payments to contractors and professionals are among the most common TDS categories:
| Payment Type | Rate | Threshold |
| Contractor (Individual/HUF) | 1% | ₹ 30,000; for any such sum; and ₹ 1,00,000 in case of aggregate of such sums. |
| Contractor (Others) | 2% | ₹ 30,000; for any such sum; and ₹ 1,00,000 in case of aggregate of such sums. |
| Professional fees | 10% | ₹50,000 |
| Technical services | 2% | ₹50,000 |
| Director remuneration | 10% | Nil |
F. Other Important Payments
| Payment | Rate | Threshold |
| Dividend (Note.—The tax shall be deducted at source before making any distribution or payment of dividend.) | 10% | Nil |
| Life insurance proceeds | 2% | ₹1,00,000 |
| Purchase of goods (> ₹50 lakh) Note: The tax shall be deducted on the sum exceeding fifty lakh rupees. | 0.1% | ₹50 lakh |
| E-commerce payments (Any sum on account of sale of goods or provision of services by an e-commerce participant, facilitated by an e-commerce operator through its digital or electronic facility or platform.) | 0.1% | Nil |
| Virtual digital assets | 1% | Nil |
| Any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession of any resident. | 10% | ₹20,000 |
TDS for Special Cases (Section 393(3))
| Nature | Rate | Threshold |
| Any income by way of winnings (other than winnings from online games as referred to in serial number 2) from— any lottery; orcrossword puzzle; orcard game and other game of any sort; orgambling or betting of any form or nature whatsoever. | Rates in force | ₹10,000in case of a single transaction. |
| Online gaming | Rates in force | No fixed limit |
| Horse racing | Rates in force | ₹10,000 in case of a single transaction. |
| Cash withdrawals | 2% | Threshold limit: (a) three crore rupees in case of recipient being, a co-operative society; or (b) one crore rupees in case of recipient being person other than a co-operative society. |
| Any sum in the nature of salary, remuneration, commission, bonus or interest paid to a partner of the firm or credited to his account (including capital account). | 10% | ₹20,000 |
Important Exemptions (No TDS Cases)
No TDS Chart – Income-tax Act, 2025 (Section 393)
| S. No. | Nature of Payment | When TDS is NOT Required |
| 1 | Commission / Brokerage | Commission paid by Bharat Sanchar Nigam Limited / Mahanagar Telephone Nigam Limited to PCO franchisees |
| 2 | Rent | Rent paid to REIT (business trust) for directly owned property |
| 3 | Land Acquisition Compensation | Compensation exempt under Right to Fair Compensation and Transparency in Land Acquisition Act 2013 |
| 4 | Income from Units | If income is in the nature of capital gains |
| 5 | Business Trust Income | Certain income where SPV has not opted for special taxation |
| 6 | Interest on Securities | Interest on Govt securities, notified bonds, and payments to insurers/business trusts |
| 7 | Interest (Other than Securities) | Paid to banks, LIC, insurance companies, UTI, or specified institutions |
| 8 | Co-operative Society Interest | Interest to members or other co-op societies (subject to turnover condition) |
| 9 | Government Interest Payments | Interest paid by Central Government or notified schemes |
| 10 | Small Compensation Interest | Motor accident compensation interest up to ₹50,000 |
| 11 | Transport Contractors | If contractor owns ≤ 10 goods vehicles and provides PAN + declaration |
| 12 | Personal Payments to Contractors | Payment by Individual/HUF for personal purposes |
| 13 | Professional / Technical Fees | Paid by Individual/HUF for personal purposes |
| 14 | Dividend | Paid to insurers, business trusts, or specified entities |
| 15 | Small Dividend | Dividend ≤ ₹10,000 (non-cash payment to individuals) |
| 16 | E-commerce Transactions | Individual/HUF seller with turnover ≤ ₹5 lakh + PAN/Aadhaar furnished |
| 17 | Virtual Digital Assets | Small transactions (₹50,000 for individuals / ₹10,000 for others) |
| 18 | Investment Fund Income | Income not chargeable to tax |
| 19 | UTI Payments to NRI | Subject to prescribed conditions |
| 20 | FII Capital Gains | Capital gains on securities for FIIs |
| 21 | IFSC / Specified Funds | Income exempt under Schedule VI |
| 22 | Cash Withdrawals | Withdrawals by Govt, banks, banking correspondents, ATM operators |
| 23 | National Savings Scheme | Payment made to legal heirs |
| 24 | Payments to Government / RBI | No TDS on payments to Govt or Reserve Bank of India |
| 25 | Mutual Funds | Income (interest/dividend) paid to specified mutual funds |
| 26 | Declaration Cases | If valid declaration (like 15G/15H) submitted for nil tax liability |
Declaration for No TDS (Form-Based Relief)
Taxpayer can submit declaration (similar to Form 15G/15H concept) if:
- Total income is below taxable limit
- Applicable to:
- Interest
- Dividend
- Insurance income
- Rent
Final Words
The TDS provisions under the Income-tax Act, 2025 have made the system more clear, structured, and easy to understand. By bringing all major rules under Section 393, the government has simplified compliance for taxpayers, professionals, and businesses. At the same time, the scope of TDS has increased to include modern transactions like e-commerce, online gaming, and virtual digital assets.
However, with wider coverage comes greater responsibility. It is now more important than ever to correctly identify transactions where TDS is applicable, apply the correct rate, and deduct tax at the right time. Missing TDS or deducting it incorrectly can lead to interest, penalties, and disallowance of expenses, which can impact your business financially.
Understanding threshold limits, exemptions, and special cases is equally important to avoid unnecessary deductions and maintain proper cash flow. A well-managed TDS system not only ensures compliance but also builds trust with clients and avoids future tax notices.
In short, staying updated with the latest TDS provisions is not just a legal requirement but a smart financial practice for every taxpayer.
