How to Calculate TDS in India: Rates, Sections and Worked Examples

Published 13 July 2026 · Tax & Salary

Meera is a freelance graphic designer in Chennai. She invoiced a company ₹1,40,000 for a brand identity project. They paid her ₹1,26,000 and said the remaining ₹14,000 was "TDS." She has no idea if that amount is right, whether she ever gets it back, or what she needs to do with it when filing her ITR.

The ₹14,000 deduction was correct — Section 194J, 10% on professional fees. Here is exactly how TDS is calculated across the situations most Indians encounter.

What TDS Is and How It Works

TDS stands for Tax Deducted at Source. Instead of waiting for you to pay income tax when you file your return, the government requires the payer — your employer, your bank, your client — to deduct a percentage of the payment upfront and deposit it directly with the Income Tax Department in your name.

The deducted amount shows up in your Form 26AS as a tax credit. When you file your ITR, you claim this credit against your total tax liability. If TDS deducted was more than your actual tax, you get a refund. If it was less, you pay the difference as self-assessment tax before filing.

TDS is advance tax collection — not an extra tax. The money is yours. You are just giving it to the government earlier than you would have on your own.

TDS Rate Chart for FY 2025-26 (AY 2026-27) — Key Sections

Different types of payments have different TDS rates and thresholds. The section number tells you which rule applies.

How to Calculate TDS: Three Real Examples

Example 1: Meera's Freelance Invoice (Section 194J)

Invoice amount: ₹1,40,000. Payment type: graphic design (professional service). Section: 194J(b). Rate: 10%. Threshold: ₹30,000 — crossed, so TDS applies.

TDS = ₹1,40,000 × 10% = ₹14,000. Client pays Meera ₹1,26,000 and deposits ₹14,000 with the government under Meera's PAN. This ₹14,000 appears in Meera's Form 26AS as a TDS credit. When she files ITR, she claims it against her actual tax liability — if her total tax on ₹1,40,000 (plus other income) is lower than ₹14,000, she gets a refund.

Example 2: FD Interest at SBI (Section 194A)

Arjun has a ₹5,00,000 FD at SBI at 6.8% — annual interest ₹34,000. Threshold for banks: ₹40,000. His interest is below the threshold, so no TDS is deducted. But the ₹34,000 is still taxable income — he must declare it in Schedule OS of his ITR under "Other Sources."

If his total bank FD interest across all banks crosses ₹40,000 in a year, TDS at 10% applies on the entire amount from the crossing point. Many people with FDs at multiple banks are surprised by TDS because each bank looks only at its own payments — the threshold is per deductor, not aggregate.

Example 3: Rent Received by a Landlord (Section 194I and 194IB)

Rekha rents her flat in Pune to a company for ₹55,000/month (annual ₹6,60,000). The company must deduct TDS under Section 194I (corporate tenant, rent above ₹6L/year). Rate: 10%.

Monthly TDS = ₹55,000 × 10% = ₹5,500. Rekha receives ₹49,500 each month. Annual TDS credited to her Form 26AS: ₹66,000.

If Rekha's tenant were an individual (not a company) paying ₹55,000/month, Section 194IB applies instead: TDS at 2% = ₹1,100/month. Individuals use a lower rate and deduct only once a year (in March) or at the time of vacating, whichever is earlier.

What Most People Get Wrong About TDS

Assuming TDS means your tax is paid and you don't need to file ITR. TDS is advance tax — it doesn't close your tax liability. If your income from all sources, including what was TDS-deducted, plus your other income (bank interest, dividends) makes your total taxable income exceed the basic exemption limit, you must still file. Missing the filing means losing the right to carry forward losses, even if TDS covered everything.

Not filing ITR when TDS was over-deducted. If Meera's total income is ₹2.8L (below the ₹3L new regime threshold), she owes zero income tax. But her client deducted ₹14,000. That ₹14,000 is a refund — but only if she files ITR and claims it. Not filing means the government keeps it.

The 194J Rate Confusion That Costs Freelancers Money

Section 194J has two sub-sections with different rates: 194J(a) for technical services at 2%, and 194J(b) for professional services at 10%. The distinction matters — but most company accounts teams default to 10% for all 194J payments because it's the safer option for them. They face no penalty for over-deducting.

IT developers, BPO workers, and technical consultants providing "technical services" under 194J(a) should only have 2% deducted. If a company deducts 10%, that's ₹80,000 excess TDS on a ₹10L contract — your money locked with the government for up to 12 months until you file ITR and claim the refund.

Raise this before the invoice is paid: mention the specific sub-section (194J(a) at 2%) in your invoice if your service qualifies. Most accounts teams will comply rather than argue about the categorisation.

Frequently Asked Questions

How do I calculate TDS on my salary?

TDS on salary (Section 192) has no fixed rate. Your employer estimates your total annual taxable income, applies the income tax slab rates to calculate annual tax liability, deducts 4% cess, and divides by 12 months. This monthly amount is your TDS. It changes through the year as you submit investment declarations (Form 12BB). If you declare PPF, ELSS, or insurance under old regime, your employer reduces TDS accordingly.

Can I ask the deductor not to deduct TDS?

Yes — if your total income is below the basic exemption limit, you can submit Form 15G (individuals below 60) or Form 15H (senior citizens above 60) to your bank at the start of every financial year. This is a self-declaration that your income is below the taxable threshold, and the bank will not deduct TDS on your interest. If you submit 15G but your income actually exceeds the limit, you are liable for tax and penalty on the under-deduction.

What if TDS is deducted but not deposited by the deductor?

You cannot claim TDS credit that does not appear in Form 26AS — even if you have documentary proof of deduction. File your ITR without claiming the missing TDS credit, pay any additional tax due, and simultaneously raise a grievance against the deductor at incometax.gov.in under "Submit Grievance." Employers who deduct TDS and don't deposit it face penalties and prosecution under Section 276B — it is a criminal offence, not just a civil dispute.

TDS was deducted at 10% but I think it should be 2% — what do I do?

You cannot stop it after the fact. For future invoices, specify the correct section (194J(a) at 2% for technical services) in writing before payment. For the already-deducted excess, file ITR and claim the full TDS credit. If your actual tax liability is 2% worth of tax, the remaining 8% TDS credit becomes a refund. The refund typically arrives 4–8 weeks after filing a clean ITR.

Does TDS apply on payments below the threshold?

No — the deductor is not required to deduct TDS on payments below the threshold for that section. But income below the TDS threshold is still taxable. A bank that pays you ₹38,000 in FD interest (below the ₹40,000 194A threshold) will not deduct TDS, but that ₹38,000 is still income you must declare in Schedule OS of your ITR under "interest income."

If TDS was deducted from your last payment and your total income for the year is below the taxable threshold — have you filed ITR to claim that refund, or is that money still sitting with the government?