Who must deduct

• Companies, firms and limited liability partnerships, on all specified payments
• Individuals and Hindu undivided families whose business turnover or professional receipts in the preceding year exceeded the prescribed limits, on specified payments
• Individuals and Hindu undivided families in specified cases regardless of turnover — such as certain property purchases, high-value rent and contractual or professional payments above prescribed limits
• Government departments, local authorities and specified entities
• Any person making payment to a non-resident on which tax is deductible

TAN. Every deductor must obtain a Tax Deduction and Collection Account Number and quote it on all challans, returns and certificates. Certain deductions by individuals — such as those on purchase of immovable property and specified rent and contract payments — are reported through a challan-cum-statement using PAN, without requiring a TAN.

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Commonly Applicable TDS Sections

Each section carries its own threshold, rate, timing rule and exceptions, all of which are revised through the Finance Act. Section 206AA requires deduction at a higher rate where the deductee has not furnished a valid PAN. Provisions relating to higher deduction for persons who had not filed returns have themselves been amended, so the current position should be confirmed before applying any higher rate.

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When Deduction Must Happen

For most sections, deduction is required at the time of credit to the account of the payee or payment, whichever is earlier. This is where a large proportion of defaults originate — the expense is booked in March through a provision or year-end entry, but deduction is made only when the vendor is actually paid months later. Credit to a suspense account or any other account is expressly treated as credit to the payee.

For salary under Section 192, deduction is made at the time of payment, spread across the year on the basis of the employee’s estimated annual income and elected tax regime.

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Deposit and Filing Timetable

Deposit of tax deducted

• Tax deducted during a month is generally payable by the seventh day of the following month
• Tax deducted in March has a later, specially notified due date
• Government deductors paying without production of a challan follow same-day rules
• Deductions under the sections operating through a challan-cum-statement — such as those on property purchase, specified rent, specified contractual payments and virtual digital assets — must be deposited within the prescribed number of days from the end of the month of deduction
• Where a certificate for quarterly deposit has been obtained from the Assessing Officer in specified cases, that schedule applies

Quarterly statements

These are due by the notified date following the end of each quarter, with the statement for the last quarter of the financial year having its own due date. Statements must be filed even for quarters where deduction was made under only one section, and a nil statement or declaration may be required where no deduction arose, depending on the deductor’s status.

Certificates

Certificates must be downloaded from the reporting portal and issued within the prescribed time after the due date of the relevant statement. Certificates prepared manually outside the portal are not valid.

Rates, thresholds, due dates and forms are amended regularly. The position applicable to the relevant financial year and quarter should always be confirmed.

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Lower and Nil Deduction

• Section 197 — a deductee may apply to the Assessing Officer for a certificate authorising deduction at a lower rate or nil rate, where total income justifies it. The deductor must verify the certificate on the portal and apply it only for the period, amount and section specified.
• Section 197A — declarations in Form 15G and Form 15H allow specified resident recipients to receive certain income without deduction, subject to conditions. The deductor must report these declarations even though no tax is deducted.
• Payments to non-residents — relief under a Double Taxation Avoidance Agreement requires a tax residency certificate, Form 10F and confirmation of beneficial ownership. A certificate under Section 195(2) or 197 may be obtained where the appropriate portion chargeable to tax is in question.

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Defaults, Corrections and the Reporting Portal

The reporting portal generates default reports automatically after each statement is processed. Common defaults include:

• Short deduction — a lower rate applied than the one required
• Short payment — challan amount not matching the deduction reported
• Late deduction — deduction made after the date on which liability arose
• Late payment — deposit after the due date
• Late filing — statement filed after the due date
• PAN errors — invalid, inoperative or incorrect PAN, attracting deduction at the higher rate
• Challan mismatch — challan not traced, or incorrectly tagged in the statement

Correction statements allow rectification of PAN, challan details, deduction amounts, sections and deductee records. Some corrections are straightforward; PAN corrections beyond the permitted extent, and structural changes, require careful handling. Unresolved defaults accumulate as demands, appear against the deductor’s TAN, and can obstruct certificate downloads.

A practical discipline that prevents most of this: reconcile the deduction register, the challans deposited and the statement filed before submission, and review the default report and justification report after processing rather than waiting for a notice.

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Interest, Fees, Penalties and Disallowance

• Interest under Section 201(1A) — at the prescribed monthly rate from the date deduction was due until deduction is made, and at a higher monthly rate from the date of deduction until deposit. Part of a month counts as a full month.
• Late filing fee under Section 234E — a fixed amount for every day of delay in filing the statement, subject to the ceiling of the tax deducted. This fee is mandatory and cannot be waived; the statement cannot be filed until it is paid.
• Penalty under Section 271H — for failure to file the statement or for furnishing incorrect information, subject to the relief available where tax, interest and fee are paid and the statement is filed within the specified period.
• Disallowance of expenditure — under Section 40(a)(ia) for resident payments and Section 40(a)(i) for payments to non-residents, where tax was not deducted or not deposited within the prescribed time. This is often the largest financial consequence, as it directly increases taxable income.
• Assessee in default under Section 201(1) — recovery of the tax itself from the deductor, with relief available where the recipient has included the income and paid tax, supported by the prescribed accountant’s certificate.
• Prosecution under Section 276B — where tax deducted is not deposited, in appropriate cases.

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Documents and Information Required

• TAN, PAN and the deductor’s portal credentials
• Deduction register — party-wise, section-wise and month-wise
• Vendor master with PAN, address, category and status
• Invoices, agreements and payment records supporting the nature of each payment
• Challans for tax deposited, with BSR code, date and serial number
• Salary computations, investment declarations and proofs for salary deduction
• Lower and nil deduction certificates, and Form 15G and 15H declarations received
• Tax residency certificates, Form 10F and beneficial ownership declarations for non-resident payments
• Form 15CA and 15CB records for foreign remittances, where applicable
• Previously filed statements, acknowledgements and any correction statements
• Default and justification reports, notices and demand details

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The TDS Compliance Calendar

Monthly

• Review of all payments and provisions to identify deduction liability, including year-end and suspense entries
• Verification of vendor PAN status and applicable rate, including any lower deduction certificate
• Deposit of tax deducted within the due date, with correct section and assessment year on the challan
• Reconciliation of the deduction register with the challans deposited

Quarterly

• Preparation and filing of Forms 24Q, 26Q, 27Q and 27EQ
• Reporting of Form 15G and 15H declarations received
• Review of the default and justification reports after processing
• Filing of correction statements where required
• Download and issue of Form 16A and other applicable certificates

Annually

• Final salary computation, adjustment of shortfall in the last quarter and verification of investment proofs
• Filing of the fourth-quarter Form 24Q with salary annexures
• Issue of Form 16 to all employees
• Reconciliation of total TDS with the expense ledgers and the income tax return
• Review of outstanding demands against the TAN and closure of open defaults

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Common TDS Mistakes

1. Deducting on payment rather than on credit, and missing March provisions and year-end entries entirely
2. Applying the wrong section — treating a professional service as a contract, or rent as a service charge
3. Missing the special due date applicable to deductions made in March
4. Failing to check whether a vendor’s PAN is valid and operative before applying the normal rate
5. Ignoring thresholds crossed later in the year, when deduction becomes applicable on the aggregate
6. Accepting a lower deduction certificate without verifying its section, rate, period and monetary limit on the portal
7. Not deducting under Section 195 on foreign payments, or ignoring Form 15CA and 15CB requirements
8. Depositing tax under the wrong section or assessment year on the challan, creating avoidable mismatches
9. Filing the statement but never reviewing the default report, so defaults compound quietly
10. Issuing certificates prepared manually instead of downloading them from the portal

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How Delhi Legal Company Can Help

Delhi Legal Company manages the complete TDS cycle, integrated with bookkeeping, payroll, GST and income tax services so that deduction, deposit, reporting and the books all reconcile.

• TAN registration and portal setup. Application for TAN, registration on the filing and reporting portals, and correction of deductor details.
• Applicability advisory. Determination of the correct section, rate and timing for each payment type, including complex categories such as technical services, royalty, reimbursements, e-commerce transactions and benefits or perquisites.
• Monthly deduction review. Examination of payments, provisions and journal entries to identify liability before the deposit date, rather than after it.
• Deposit management. Challan preparation with correct section, assessment year and deductee category, and timely deposit with challan records maintained.
• Quarterly return filing. Preparation, validation and filing of Forms 24Q, 26Q, 27Q and 27EQ, with pre-filing reconciliation of the deduction register against challans.
• Certificate issuance. Download and issue of Form 16, 16A and other applicable certificates within the prescribed timelines.
• Default resolution. Review of default and justification reports, preparation and filing of correction statements, and closure of demands appearing against the TAN.
• Salary TDS management. Employee tax computation, regime comparison, investment declaration and proof verification, quarterly adjustment and year-end Form 16 issuance.
• Non-resident payments. Section 195 analysis, treaty benefit evaluation, tax residency certificate and Form 10F documentation, Form 15CA and 15CB compliance, and applications under Section 195(2) or 197 where required.
• Lower deduction certificate support. Applications under Section 197 for clients receiving payments, and verification and monitoring of certificates received from vendors.
• Notices and proceedings. Responses to TDS notices, intimations and demands, rectification applications and representation support.
• Health check and past-period review. Review of earlier quarters to identify short deduction, unreported deductees and disallowance exposure before assessment raises it.

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Our Working Process

1. Assessment. We map payment categories, vendor base, employee count and current filing and default status against the TAN.
2. Health check. Past statements are reconciled with the books and portal data; open defaults, demands and disallowance exposure are identified with a corrective plan.
3. Setup. Vendor master with PAN and section mapping, deduction workflow, cut-off dates and a filing calendar are established.
4. Monthly cycle. Payment and provision review, deduction computation, challan deposit and reconciliation with the books.
5. Quarterly cycle. Statement preparation, review with management, filing, certificate download and issue, and post-processing default review.
6. Annual closure. Salary finalisation, Form 16 issuance, reconciliation with the expense ledgers and the income tax return, and clearance of open demands.

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Who We Work With

• Companies, firms and limited liability partnerships with regular vendor and salary payments
• Businesses with large contractor, professional and rent payment volumes
• Employers managing salary TDS across multiple locations and regime elections
• Businesses making payments to non-residents, including royalty, technical service and intra-group charges
• E-commerce operators and platforms with collection and deduction obligations
• Buyers and sellers of immovable property with transaction-specific deduction requirements
• Deductors facing accumulated defaults, demands or disallowance in assessment

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Conclusion

TDS compliance is a monthly and quarterly discipline where accuracy matters more than effort. The rules are detailed, the timelines are short, the systems match automatically, and the consequences fall on the deductor — in interest, in a daily late fee, in disallowed expenditure, and in the credit that a vendor or employee expected to see and did not.

Delhi Legal Company handles TDS deduction review, deposits, quarterly statements, certificates and default resolution as part of an integrated compliance function — so that every deduction is made at the right time, under the right section, deposited within the due date, and reported correctly the first time.

Get in touch: info@delhilegalcompany.com | +91-9599332456

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Frequently Asked Questions (FAQs)

1. What is TDS?

A. Tax deducted at source is a mechanism by which tax is collected at the point of payment rather than at assessment. The payer deducts a prescribed percentage, deposits it against the recipient’s PAN, and reports it in a quarterly statement. The recipient claims the amount as credit against their own tax liability.

2. Who is required to deduct TDS?

A. Companies, firms and limited liability partnerships on all specified payments; individuals and Hindu undivided families whose turnover or professional receipts in the preceding year exceeded the prescribed limits; individuals in specified cases such as property purchase and high-value rent regardless of turnover; and any person making a payment to a non-resident on which tax is deductible.

3. What is TAN and is it mandatory?

A. TAN is the Tax Deduction and Collection Account Number, which must be obtained by every deductor and quoted on all challans, statements and certificates. Certain deductions by individuals — such as on purchase of immovable property or specified rent — are reported through a challan-cum-statement using PAN and do not require a TAN.

4. When exactly must TDS be deducted?

A. For most sections, at the time of credit to the payee’s account or payment, whichever is earlier. Credit to a suspense or any other account counts as credit to the payee. This is why year-end provisions and March journal entries attract deduction even though the vendor has not yet been paid. Salary is an exception, where deduction is made at the time of payment.

5. By when must the deducted tax be deposited?

A. Tax deducted during a month is generally payable by the seventh of the following month, with a later specially notified date for deductions made in March. Challan-cum-statement sections, such as those on property purchase and specified rent, follow a separate timeline counted from the end of the month of deduction.

6. Which TDS returns must be filed and when?

A. Form 24Q for salary, Form 26Q for other resident payments, Form 27Q for payments to non-residents and Form 27EQ for tax collected at source — all quarterly, by the notified due date after each quarter, with the last quarter having its own date.

7. Must a nil return be filed if no TDS was deducted?

A. There is no statutory nil statement in the ordinary sense, but deductors who have a TAN and did not deduct in a quarter are generally expected to file a declaration for non-filing on the reporting portal. Doing so prevents avoidable non-filing notices against the TAN.

8. What is the penalty for late filing of a TDS return?

A. A late fee under Section 234E accrues for every day of delay until the statement is filed, subject to a ceiling equal to the tax deducted. The fee is mandatory, cannot be waived, and must be paid before the statement can be filed. A separate penalty under Section 271H may also apply, with relief available where tax, interest and fee are paid and the statement is filed within the specified period.

9. What interest applies if TDS is deducted or deposited late?

A. Interest under Section 201(1A) applies at a prescribed monthly rate from the date deduction was due until deduction is actually made, and at a higher monthly rate from the date of deduction until deposit. Any part of a month is treated as a full month, so a delay of a single day attracts a full month’s interest.

10. What happens to our expense if TDS is not deducted?

A. A portion of the expenditure is disallowed under Section 40(a)(ia) for resident payments, and the entire amount under Section 40(a)(i) for payments to non-residents, where tax was not deducted or not deposited within the prescribed time. The deduction can be claimed in the year the tax is eventually deposited. In practice this is usually the largest financial consequence of a TDS default.

11. Can we be treated as an assessee in default?

A. Yes, under Section 201(1), where tax was not deducted or not deposited. Relief is available where the recipient has furnished a return, included the income and paid the tax due, supported by the prescribed accountant’s certificate — though interest for the period of delay still applies.

12. What if a vendor does not provide a PAN, or the PAN is inoperative?

A. Section 206AA requires deduction at a higher rate where a valid PAN is not furnished. An inoperative PAN — commonly due to non-linkage with Aadhaar — produces the same result, and the higher deduction remains the deductor’s liability. Verifying vendor PAN status before payment is far cheaper than correcting the statement afterwards.

13. When must Form 16 and Form 16A be issued?

A. Form 16 is issued annually to employees after the fourth-quarter statement, and Form 16A quarterly to non-salary deductees, both within the prescribed period after the due date of the relevant statement. Both must be downloaded from the reporting portal; certificates prepared manually are not valid.

14. Can a filed TDS return be corrected?

A. Yes. Correction statements can rectify PAN, challan details, deduction amounts, sections and deductee records. Certain corrections, such as extensive PAN changes, are subject to restrictions. Corrections should be made promptly, because unresolved defaults accumulate as demands against the TAN.

15. What is a lower deduction certificate?

A. A certificate obtained by the deductee under Section 197 authorising deduction at a lower or nil rate. The deductor must verify it on the portal and apply it strictly within the section, rate, period and monetary limit specified — applying it beyond those limits creates a short deduction default.

16. What are Form 15G and Form 15H?

A. Declarations under Section 197A by specified resident recipients whose income is below the taxable limit, allowing certain income to be received without deduction. The deductor must retain and report these declarations in the quarterly statement even though no tax has been deducted.

17. How is TDS on payments to non-residents different?

A. Deduction under Section 195 applies to the sum chargeable to tax in India, at rates that depend on the nature of income and on any applicable Double Taxation Avoidance Agreement. Treaty relief requires a tax residency certificate, Form 10F and beneficial ownership confirmation. Reporting in Form 15CA, and a chartered accountant’s certificate in Form 15CB where applicable, are additional requirements. Rates and applicability should be determined transaction by transaction.

18. What is the difference between TDS and TCS?

A. TDS is deducted by the payer from a payment made. TCS is collected by the seller from the buyer on specified goods and transactions under Section 206C. Both are deposited and reported in quarterly statements, but the mechanics, sections, rates and reporting form differ.

19. What is the difference between Section 194C and Section 194J?

A. Section 194C covers contractual work, including carriage, catering, manufacturing to specification and similar arrangements. Section 194J covers professional and technical services, royalty and specified payments, at a higher rate. Misclassification between the two is among the most frequent causes of short deduction defaults, and the distinction turns on the substance of the arrangement rather than on the wording of the invoice.

20. Can we deposit TDS for multiple sections in one challan?

A. The challan requires the nature of payment to be specified, so deductions under different sections should be deposited correctly according to the challan format applicable at the time. Incorrect tagging leads to challan mismatch, which then requires a correction statement to resolve.

21. How do we check whether we have any TDS defaults?

A. Default and justification reports are available on the reporting portal after each statement is processed. These should be reviewed after every quarter as a matter of routine, not only when a notice is received — most demands originate in defaults that were visible on the portal months earlier.

22. Can you review our past TDS filings?

A. Yes. A TDS health check reconciles earlier statements with the books and portal data to identify short deduction, missed deductees, unreported payments, open demands and disallowance exposure — allowing voluntary correction before it surfaces in assessment.

23. Can TDS be handled together with payroll and accounting?

A. Yes, and it works considerably better that way. Salary TDS depends on payroll data, and vendor TDS depends on how payments are booked. When one team handles the books, payroll and TDS, deduction liability is identified when the entry is passed rather than reconstructed at quarter end.

24. How do I get started?

A. Write to info@delhilegalcompany.com or call +91-9599332456. We will review your TAN status, filing history and any open defaults, and share a clear scope and quotation before any work begins.