TDS
Tax deducted at source: tax a payer holds back from certain payments and deposits with the government on the receiver's behalf.
What it means in business
When a business pays specified amounts, such as salaries, contractor fees, professional fees or rent, the law can require it to deduct tax before paying and to deposit that tax by a due date. The payer files a return for it and gives the receiver a certificate, and the receiver then takes credit for it against their own tax.
Example
A factory pays a contractor and deducts TDS at the applicable rate, paying the contractor the balance. It deposits the tax, files its quarterly TDS return and issues a TDS certificate to the contractor. This is an illustration of normal business use rather than a quoted case study.
How to use it correctly
Keep each party's PAN in the master, work out whether a payment is covered and at what rate using the current rules or your accountant, and deposit and file on time. Missing a deduction or a deposit can leave the payer liable for the tax and interest.
Common confusion
TDS is a way of collecting income tax in advance, not a separate tax. TDS under income tax is different from tax collected at source and from GST, which has its own rules. Rates and thresholds change, so do not rely on a remembered figure.
Related glossary terms
Sources and further reading
Written on 24 October 2026 for lamp. Confirm the current rules with the official source or an adviser before relying on it.