Master TDS for Indian startups in FY 2026-27 across salaries, freelancers, rent, vendors and foreign payments with sections, rates and the compliance calendar.
TDS is the single most common compliance pothole for Indian startups. Founders track GST closely but miss TDS on freelancer invoices, software subscriptions and rent until a 234E penalty notice arrives. With CBDT data analytics matching Form 26AS, AIS and TDS returns automatically in FY 2026-27, your TDS hygiene must be flawless from incorporation.
The TDS Architecture in One Page
- Deductor: your startup that pays.
- Deductee: the person who receives, who gets credit in Form 26AS and AIS.
- TAN: mandatory tax deduction account number, applied through Form 49B.
- Sections to know: 192 (salary), 194C (contractors), 194J (professional fees), 194I (rent), 194Q (purchase of goods), 194H (commission), 194O (e-commerce operators).
Salary TDS Under Section 192
Estimate each employee's annual taxable income, apply the appropriate slab (new or old regime as opted), divide by 12 and deduct monthly. The new regime is default from AY 2024-25 unless the employee submits Form 10IEA. Standard deduction of ₹75,000 applies in both regimes for salaried employees.
Freelancers and Professionals (194J / 194C)
- Section 194J at 10 percent applies to professional services like legal, technical, consultancy where the aggregate payment in the year exceeds ₹30,000.
- Section 194C at 1 percent (individual / HUF) or 2 percent (others) applies to contracts including work, advertising, manpower, where single payment exceeds ₹30,000 or aggregate exceeds ₹1,00,000.
- When in doubt, the professional nature of the work generally tips it into 194J for software development, design and content.
Vendors, Rent and Goods
- Section 194I: rent on plant, machinery (2 percent) or land, building (10 percent), threshold per current Finance Act.
- Section 194Q: TDS at 0.1 percent on purchase of goods above ₹50 lakh from a seller, applicable to buyers with turnover above ₹10 crore.
- Section 194O: e-commerce operators deduct 0.1 percent on payments to participants.
- Section 194H: commission or brokerage at 2 percent above ₹15,000.
Foreign Vendor Payments (Section 195)
Cross-border payments to SaaS providers and consultants need Section 195 TDS at rates per the relevant DTAA after obtaining a Tax Residency Certificate and Form 10F from the recipient. Form 15CA and CB are required to remit through your AD bank. Treat every recurring foreign SaaS invoice with this process.
Compliance Calendar
- Deposit TDS by the 7th of next month (30 April for March deductions).
- File quarterly returns: 24Q (salary), 26Q (other resident), 27Q (non-resident) by 31 July, 31 Oct, 31 Jan and 31 May.
- Issue Form 16 by 15 June, Form 16A within 15 days of quarterly return.
- Reconcile TDS in books with traces 26AS quarterly and resolve mismatches before they appear in scrutiny.
Conclusion
Set up automated TDS workflows in your accounting tool from day one, map every vendor to a section, and run a monthly close that includes traces reconciliation. The discipline pays back many times over when scrutiny notices arrive.
