TDS compliance for a growing company comes down to five repeating steps: get a TAN, deduct the right amount when you pay or credit a vendor, deposit it by the 7th of the next month, file the quarterly TDS return, and issue TDS certificates. This guide explains each step in plain words so that your finance team can build a routine around it.
What TDS compliance means for a company
TDS stands for tax deducted at source. When your company makes certain payments, such as professional fees, contractor bills, rent or salary, the law asks you to hold back a part of the payment and pay it to the government on behalf of the receiver. The receiver (the deductee) then claims credit for that tax in their own return.
As the person who deducts, you are called the deductor. If you fail to deduct, deduct too little or deposit late, the cost falls on your company: interest, a fee for late returns, and in some cases the expense being disallowed. That is why TDS needs a calendar and an owner, not a once-a-year clean-up.
Step 1: Get your TAN and set up vendor details
Every deductor needs a Tax Deduction and Collection Account Number (TAN). It goes on every challan, return and certificate. Check that your TAN is active and that the name and address on it match your records.
Next, make sure each vendor master has a correct PAN. A missing or invalid PAN usually leads to a higher rate of deduction, and it creates mismatches when the vendor looks at their tax credit statements later.
Step 2: Identify what is subject to TDS
Not every payment attracts TDS. The rate and the threshold depend on the nature of payment. As a working checklist, look at these groups of payments:
- Salary: deducted based on the employee's estimated tax for the year.
- Contractors and sub-contractors: work contracts, labour and similar bills.
- Professional and technical fees: lawyers, consultants, auditors and similar service providers.
- Rent: on office, warehouse or equipment hire above the prescribed limits.
- Commission and brokerage, interest and other specified payments.
Rates and annual thresholds are revised from time to time, and section numbers change with amendments to the Income-tax Act. So do not copy a rate from an old chart. Confirm the current rate and threshold on the Income Tax Department website, or with your chartered accountant, and record it in a rate table that your team can reuse.
Step 3: Deduct at the right time and the right rate
Tax is generally deducted at the earlier of the date the amount is credited to the vendor's account (when you book the bill) or the date you pay it. For a growing company this has a practical meaning: book the expense, and the TDS question arises at that moment, not only when cash leaves the bank.
Two situations deserve a pause before you deduct:
- A lower-deduction or nil-deduction certificate. If the vendor gives you one, keep a copy, note its validity period and any amount limit, and apply it only within those limits.
- A declaration or exemption. Some vendors submit declarations. Record the date and reason, and review it before the next payment.
Step 4: Deposit the tax on time
For most payments, TDS deducted in a month must be deposited by the 7th of the following month. The usual exception is the month of March, where the due date is in April; check the current notified date for this and for any special cases. Deposit it through a challan against your TAN and keep the challan details, since you will need them for the return.
Late deduction and late deposit carry interest for each month or part of a month. Our worked example in late TDS interest and the late filing fee shows how the numbers add up. For the current month's dates, see TDS and TCS deposit for October 2026.
Step 5: File quarterly returns and issue certificates
TDS returns are filed every quarter on the form that matches the payment type:
FormCovers 24QTDS on salary 26QTDS on non-salary payments to residents 27QTDS on payments to non-residentsThe usual due dates are 31 July, 31 October, 31 January and 31 May for the four quarters. The July to September 2026 return is covered in our TDS return checklist. A late return attracts a fee for each day of delay, so file before the date even if some corrections remain.
After filing, give each vendor a TDS certificate: Form 16 for salary and Form 16A for other payments. Vendors use it to match the credit shown in their statements. Our guide to issuing Form 16A on time explains the process.
A simple monthly TDS routine
- Week 1: Deposit last month's TDS before the 7th and save the challan.
- Weeks 2 and 3: Review the bills booked this month. Check that each vendor with a TDS-eligible payment has a PAN and a deduction entry.
- Month end: Reconcile the TDS payable balance in your books with the challans paid and the tax still to be deposited.
- Quarter end: Prepare the return, compare it with your ledger, and file well before the due date.
- After filing: Download and issue the certificates, then reconcile credits in Form 26AS and AIS.
Common mistakes to avoid
- Deducting only at payment time and missing the deduction when the bill is booked.
- Using an old rate chart after a change in law.
- Paying the tax but not filing the return, or the other way round.
- Using a wrong PAN or section, which causes a mismatch for the vendor.
- Forgetting to track a lower-deduction certificate's expiry date.
Key takeaways
- Get a valid TAN and clean PANs for every vendor.
- Think about TDS when you book the bill, not only when you pay.
- Deposit by the 7th of the next month, and check the notified date for March.
- File 24Q, 26Q or 27Q every quarter and issue Form 16 or Form 16A.
- Confirm current rates, thresholds and section numbers before you rely on them, and take a CA's advice on special cases.
If you keep your accounts in Smart Books, the voucher screen lets you add a TDS line with the nature of payment, base amount and rate, and you can record vendor certificates and declarations against the account. That keeps the deduction details next to the bill they belong to. This article is general guidance, so confirm specifics with your chartered accountant.
