Tax Deducted at Source (TDS) is one of the most important mechanisms used by the Indian Government to collect income tax at the source of income. It ensures steady tax collection and minimizes tax evasion. Any person or entity responsible for deducting tax at source must comply with strict legal requirements, including obtaining a Tax Deduction and Collection Account Number (TAN) and filing periodic TDS returns.
Failure to comply can lead to heavy penalties, interest, and even prosecution. Therefore, understanding TAN, TDS rules, applicable rates, filing procedures, and compliance timelines is crucial for businesses, employers, professionals, and deductors.
This comprehensive guide explains TAN and TDS compliance in detail, including meanings, rules, rates, quarterly filing calendar, and penalties.
1. What is TAN? (Tax Deduction and Collection Account Number)
TAN is a 10-digit alphanumeric number issued by the Income Tax Department to persons who deduct or collect tax at source. It is mandatory for:
- Employers deducting TDS on salary
- Businesses deducting TDS on payments
- Individuals or HUFs liable to deduct TDS
- Entities collecting TCS
Structure of TAN:
Example: BLRE12345F
- First 4 letters: Jurisdiction code
- Next 5 digits: Unique number
- Last letter: Alphabetic check digit
Why TAN is Mandatory:
TAN must be quoted on:
- TDS challans
- TDS returns
- TDS certificates (Form 16, Form 16A)
- All TDS communications
Without TAN, TDS deduction and return filing is invalid.
2. What is TDS? (Tax Deducted at Source)
TDS means deducting a certain percentage of tax at the time of making payment such as salary, rent, professional fees, interest, or contract payments. The deducted tax is deposited with the Government and credited to the payee’s PAN account.
Objectives of TDS:
- Prevents tax evasion
- Ensures steady tax collection
- Tracks income of taxpayers
- Reduces year-end tax burden
3. Who is Required to Deduct TDS?
TDS must be deducted by:
- Companies
- Partnership firms
- LLPs
- Proprietorships (subject to turnover limits)
- Trusts and societies
- Individuals or HUFs under specified conditions
If a person is liable to deduct TDS, obtaining TAN becomes compulsory.
4. TDS Rules and Provisions
Some important rules governing TDS are:
- TDS must be deducted at the time of payment or credit, whichever is earlier.
- Deductor must deposit TDS within prescribed due dates.
- Quarterly TDS returns must be filed.
- TDS certificates must be issued to deductees.
- PAN of the deductee must be collected and verified.
- Lower or nil deduction can be applied for using Form 13.
5. TDS Rates for Major Payments (FY 2025-26)
| Nature of Payment | Section | Rate |
|---|---|---|
| Salary | 192 | As per slab |
| Interest on Fixed Deposit | 194A | 10% |
| Rent (Building) | 194I | 10% |
| Rent (Machinery) | 194I | 2% |
| Professional Fees | 194J | 10% |
| Contract Payment | 194C | 1% / 2% |
| Commission or Brokerage | 194H | 5% |
| Dividend | 194 | 10% |
| Purchase of Property | 194IA | 1% |
| E-commerce operator | 194O | 1% |
If PAN is not provided by the deductee, TDS must be deducted at 20% or applicable higher rate.
6. TDS Deduction Process
The TDS compliance process includes:
- Identify payment liable for TDS
- Check applicable section and rate
- Deduct TDS at correct rate
- Deposit TDS to government
- File quarterly TDS return
- Issue TDS certificate
7. TDS Deposit Due Dates
| Month of Deduction | Due Date |
|---|---|
| April to February | 7th of next month |
| March | 30th April |
For property purchase (Section 194IA), TDS must be deposited within 30 days from month-end.
8. Quarterly TDS Return Filing Calendar
| Quarter | Period Covered | Due Date |
|---|---|---|
| Q1 | April – June | 31st July |
| Q2 | July – September | 31st October |
| Q3 | October – December | 31st January |
| Q4 | January – March | 31st May |
Forms used:
Form 24Q – Salary
Form 26Q – Non-salary
Form 27Q – NRI payments
Form 27EQ – TCS
9. Issuance of TDS Certificates
| Form | Purpose | Due Date |
|---|---|---|
| Form 16 | Salary | 15th June |
| Form 16A | Other payments | Within 15 days of return filing |
| Form 16B | Property TDS | 15 days from challan |
| Form 16C | Rent TDS | 15 days from challan |
10. Penalties and Consequences for Non-Compliance
a) Late Deduction
Interest @ 1% per month from due date till deduction.
b) Late Payment
Interest @ 1.5% per month from date of deduction till payment.
c) Late Filing of TDS Return
₹200 per day (max equal to TDS amount).
d) Penalty for Incorrect Return
₹10,000 to ₹1,00,000.
e) Failure to Issue TDS Certificate
₹100 per day per certificate.
f) Prosecution
Imprisonment from 3 months to 7 years.
11. Common Mistakes in TDS Compliance
- Not deducting TDS on applicable payments
- Applying wrong TDS rates
- Using wrong section code
- Not verifying PAN
- Missing quarterly filing deadlines
- Incorrect challan details
- Not issuing certificates
12. Importance of TDS Compliance for Businesses
- Avoids penalties and interest
- Maintains legal compliance
- Improves financial credibility
- Enables smooth audits
- Helps in accurate income reporting
- Builds trust with vendors and employees
13. How Professionals Help in TDS Compliance
Professional services ensure:
- Correct TAN registration
- Accurate TDS calculation
- Timely deposits
- Error-free returns
- Proper reconciliation
- Penalty avoidance
- Compliance tracking
Conclusion
TAN and TDS compliance is not optional but a legal obligation. Every deductor must understand when to deduct TDS, how much to deduct, when to deposit it, and how to report it through quarterly returns. With increasing digital scrutiny by the Income Tax Department, even small errors can result in notices and penalties.
A structured TDS compliance system helps businesses operate smoothly, avoid litigation, and build strong financial discipline. Whether you are an employer, business owner, or professional, staying compliant with TAN and TDS laws is critical for long-term success.
Yes. Any person deducting or collecting tax must obtain TAN before making deductions.
No. TDS deduction without TAN is invalid and attracts penalty.
