Tax Deducted at Source is income tax collected at the moment a payment is made, rather than waiting for you to pay it at the end of the year. The person paying you, called the deductor, withholds a percentage and deposits it with the government against your PAN. You receive the remainder.
The purpose is collection efficiency: the government gets revenue through the year instead of in one annual rush, and it builds a paper trail linking income to a PAN. TDS is not an extra tax. It is an advance instalment of the tax you already owe.
Where you will meet it
| Payment | Who deducts | Rough threshold |
|---|---|---|
| Salary | Employer | Once income exceeds the basic exemption |
| Bank interest on FD and RD | Bank | Above an annual limit per bank, higher for senior citizens |
| Rent paid by a tenant | Tenant, in specified cases | Above a monthly or annual limit |
| Professional or contract fees | The paying business | Above an annual limit |
| Dividend | Company or fund house | Above an annual limit |
| Sale of property | The buyer | Above a specified sale value |
Thresholds and rates are set in the Income Tax Act and have been revised in several recent Budgets, including changes to the interest and rent limits. Verify the current figures for your financial year rather than relying on a number you remember.
How it flows back to you
Everything deducted against your PAN appears in two places:
- Form 26AS, the consolidated tax statement on the income tax portal
- The Annual Information Statement (AIS), which shows a broader picture of reported transactions
When you file your return, you add up your total income, compute the tax due, then subtract the TDS already deducted. Three outcomes are possible:
- TDS exceeds your liability: you claim a refund
- TDS is less than your liability: you pay the balance as self-assessment tax
- They match: nothing further to do
A worked case. A bank deducts Rs 5,000 of TDS on your FD interest, but once you apply your deductions your actual tax on that interest is Rs 2,000. You claim the Rs 3,000 back as a refund when you file.
The trap with fixed deposits
Two things catch people out repeatedly.
TDS is not the full tax. Banks deduct at a flat rate on interest. If you are in the 30% slab, that deduction covers only part of what you owe, and the balance is payable when you file. People who assume "the bank already deducted tax" often discover a shortfall.
The threshold is per bank, not per deposit. Splitting money into five FDs at the same bank does not avoid TDS, because the bank aggregates interest across your accounts. Spreading across different banks does affect it, though the income remains fully taxable either way. See fixed deposit for how FD interest is taxed as it accrues.
Form 15G and Form 15H
If your total income for the year is below the taxable limit, you can ask the payer not to deduct TDS at all.
- Form 15G is for individuals below 60
- Form 15H is for senior citizens aged 60 and above
Both are self-declarations submitted to each bank, usually at the start of the financial year, and they must be filed separately with every bank where you hold deposits. Critically, neither form makes the income tax-free. It only stops the withholding. Submitting one when your income is in fact taxable is a false declaration with consequences.
When PAN is missing
If the deductor does not have your PAN, TDS is deducted at a significantly higher penal rate, and the amount will not be credited to you properly because there is no PAN to map it to. Keeping PAN updated with your bank, employer and any client who pays you is a small piece of administration that prevents an expensive problem.
TDS on rent and property
Two cases individuals commonly stumble into.
A tenant paying rent above a specified monthly threshold to a resident landlord must deduct TDS and deposit it. Many salaried tenants claiming a large HRA exemption are unaware of this obligation.
A buyer purchasing immovable property above a specified value must deduct TDS from the payment to the seller and file the relevant challan. The obligation sits with the buyer, not the seller, and non-compliance attracts interest and penalty.
TDS is not TCS or GST
TCS, Tax Collected at Source, works in the opposite direction: the seller collects an amount from the buyer in specified transactions, such as certain foreign remittances and overseas tour packages. It too is adjustable against your final tax.
[GST](/glossary/gst) is an indirect tax on goods and services and has nothing to do with your income tax. The two are frequently confused because both appear as deductions on an invoice.