TDS and TCS for Small Business 2026: Rates, Due Dates, New Forms and Penalties

Tax | RegisCorp Team

Checked on 23 October 2026. If you pay rent, professional fees, contractor bills, commission or salary, the law may require you to deduct tax before you pay and send it to the government. That is TDS. This post covers what to deduct, how much, when to deposit it, when to file the quarterly statement, and what it costs if you are late. Three things matter this month. First, the quarterly TDS and TCS statements for July to September 2026 are due on Saturday 31 October 2026. Second, October deductions must be deposited by Saturday 7 November 2026. Third, the Income-tax Act, 2025 came into force on 1 April 2026, so the section numbers and form numbers you learned (194J, 26Q, 24Q) have been replaced. The rates have mostly stayed the same. The labels have not. The post ends with worked examples and a list of what we could not verify, because the secondary sources we read disagree with each other on some form numbers.

RegisCorp Consultancy LLP is a digital-first legal and compliance firm in Kota, Rajasthan, working with businesses across India. We write these guides so you can check the rules before you pay anyone, including us.

Key takeaways

• The Q2 statement (July to September 2026) is due on 31 October 2026. That is a Saturday. Do not plan to file on the last day.
• TDS for October is due on 7 November 2026. Deductions for March are the exception: they are due on 30 April.
• Section numbers changed from 1 April 2026. TDS provisions now sit mainly in section 393 of the Income-tax Act, 2025, TCS in section 394, and salary TDS in section 392. Old labels such as 194C or 194J may be rejected by software for transactions from 1 April 2026.
• Form numbers changed too. Sources we read give Form 138 for salary and Form 143 for TCS. For non-salary payments to residents, two sources say Form 140 and one says Form 141. We could not confirm which is right (see the end of this post).
• Late filing costs Rs 200 a day, capped at the tax amount. The old law called this section 234E. Sources say the 2025 Act keeps the same fee in section 427.
• Interest runs on two separate defaults. The figures reported are 1% a month if you fail to deduct and 1.5% a month if you deduct and fail to deposit.
• A penalty of Rs 10,000 to Rs 1,00,000 can apply for not filing or filing wrongly, reported under section 461, with relief if you pay the tax, fee and interest and file within a year of the due date.
• No PAN means a higher rate. One source says the rate is generally 20% where the payee has not given a PAN.
• Payments to partners are a new, separate category. A firm or LLP paying its partners now deducts at 10% above Rs 20,000, according to one rate chart. If you run an LLP, read this together with our LLP annual compliance guide.

The key numbers and dates in one place

Every figure in the table comes from commercial blogs. We did not read the Act, the rules or a CBDT notification.

What TDS and TCS are, in plain language

TDS means tax deducted at source. When you make certain payments, you hold back a percentage, pay the balance to the other person, and deposit the held-back part with the government in your own name and in theirs. The other person gets credit for it when they file their return. You are the collection agent.

TCS means tax collected at source. It works the other way round. The seller collects an extra percentage from the buyer at the time of sale for certain goods and services, and deposits it. The buyer gets credit.

Most small businesses deal with TDS, not TCS. Typical TDS payers are: a company paying rent for an office, a shop paying a freelancer, a contractor paying a sub-contractor, an employer paying salary, and an LLP paying a partner. Typical TCS collectors are sellers of certain goods (scrap, minerals, liquor, motor vehicles above a threshold) and overseas tour operators and banks handling foreign remittances.

If you collect or deduct and do not deposit, the money is not yours. It is the government's, and the law treats the default seriously.

What changed on 1 April 2026

The Income-tax Act, 2025 replaced the Income-tax Act, 1961 for tax years starting on or after 1 April 2026. In the sources we read:

1. Sections were renumbered. TDS on salary is under section 392. Most other TDS is under section 393, in a table of rows. TCS is under section 394. Old sections 194A, 194C, 194H, 194I, 194J and so on now appear as rows in a table in section 393.
2. Forms were renumbered. The quarterly statements and certificates have new form numbers. The table in the next section lists what the sources say.
3. Rates and thresholds were largely retained. Both GimBooks and the Busy guide say the 2025 Act mostly moved the old rules into new places. Changes reported include a higher commission threshold (Rs 20,000, up from Rs 15,000), a split of the old 194J into a 2% bucket and a 10% bucket, a separate row for insurance commission, and a new row for payments to partners.
4. Software rejects old references. If your accounting or TDS-filing software still uses 194C or 194J for payments from 1 April 2026, you may see validation errors. Update your master data and section mapping.
5. The trigger date is unclear. One section of GimBooks says the new references apply to transactions entered into on or after 1 April 2026, and its FAQ says they apply where payment or credit happens on or after that date. These are different tests. If you have a contract signed in March 2026 with payments in October, ask your accountant which regime applies.

Form numbers: what the sources say

Do not file anything on the strength of this table. Open the e-filing portal or TRACES and use the form names it shows.

Who must deduct

The rules differ by who you are and what you pay.

• Companies, firms, LLPs and others subject to tax audit must deduct on all the listed payments once the thresholds are crossed.
• Individuals and HUFs who are not subject to tax audit have a lighter set of obligations. In the old law, they were largely exempt from deducting on contractor, professional and commission payments made for personal use, with special simple rules for rent and for property purchase. We did not verify how the 2025 Act treats this, so check with your accountant.
• Employers deduct tax on salary at the person's estimated rate for the year. This post does not cover salary TDS in detail.
• Government offices and banks have separate deposit rules, which we do not cover.

You also need a TAN (Tax Deduction and Collection Account Number) to deduct and to file the statements. If you have never deducted, apply before your first deduction.

Which section and rate to use, with practical examples

The table in the first section gives the headline rates. Here is what they mean in practice for a small business.

Professional and technical fees

A lawyer, chartered accountant, doctor, architect, consultant, designer or freelancer is paid for professional services. The rate is 10% once total payments to that person in the year pass Rs 50,000. The Busy guide says the threshold is cumulative per payee, so the first payment of Rs 20,000 has no TDS but the payment that takes the total above Rs 50,000 triggers TDS on the whole amount, as we read it. We did not verify the cumulative method in the Act, so do not rely on this point without checking.

Technical services (as opposed to professional services), call-centre payments and a film royalty are at 2%.

Directors who are not employees and are paid fees are in the 10% bucket with a nil threshold, according to Busy.

Rent

For a building, land or furniture, the rate is 10% when rent crosses Rs 50,000 a month. For plant and machinery, it is 2%. The GimBooks chart gives the threshold as a monthly figure. The earlier law had used an annual limit of Rs 6 lakh, which is Rs 50,000 a month. We did not verify whether the monthly or annual test is applied.

Deduct on the rent, not on the GST. The Busy guide says that where GST is shown separately on a proper invoice, TDS is calculated on the amount before GST. The guide presents this as practice, not a statutory rule. If you are not sure, ask your tax adviser. We write about GST registration in our decision guide and about GST returns in our GST return filing guide.

Contractors

Payments to a contractor or sub-contractor for carrying out work are at 1% if the payee is an individual or HUF, and 2% for others. The thresholds are Rs 30,000 for a single payment and Rs 1,00,000 in aggregate during the year. Both thresholds apply separately: crossing either triggers TDS.

Commission and brokerage

The rate is 2% once payments to a person pass Rs 20,000 in a year. The Rs 20,000 figure is reported as a rise from Rs 15,000 in the earlier law.

Interest

Interest other than on securities, such as interest on a loan from a friend or a deposit with a non-bank firm, is at 10% above Rs 40,000 a year (Rs 50,000 for senior citizens). Interest paid by a company to a bank or a person is subject to specific rules.

Purchases above Rs 50 lakh

A buyer whose turnover in the previous year was above Rs 10 crore and who buys goods from one seller worth more than Rs 50 lakh in a year must deduct 0.1% on the excess. The Rs 10 crore buyer test is from our general understanding of the old section 194Q. It is not in the sources we read for this post. Check it.

Payments to partners

New in the 2025 Act as a separate row, according to GimBooks: payments by a firm to its partners (such as salary, interest and remuneration) attract 10% above Rs 20,000 a year. If you run a partnership firm or an LLP, ask your accountant whether this applies to your partner payments. Our reading is that it replaces confusing earlier treatment. We did not read the section, and the same page gives the rate in two different ways in two tables.

E-commerce operators

Operators of e-commerce platforms deduct 1% on payments to sellers above Rs 5 lakh a year (for eligible individual and HUF sellers). If you sell on marketplaces, they may deduct this from your payout. Check the TDS in your payment statement and claim credit. See our marketplace selling guide.

No PAN, higher rate

If the person you pay has not given a PAN, the rate can be 20%, or the normal rate if higher, according to Busy. Collect a PAN from every vendor before you pay them. A vendor who refuses to give a PAN will cost you more than they are worth.

Lower or nil deduction

A payee can apply to the tax officer for a certificate permitting a lower or nil deduction (section 395(1), per Busy). If a vendor gives you one, keep a copy and apply the rate shown.

TCS: the short version

TCS rates from the GimBooks chart (section 394):

The same page has an internal inconsistency in a worked LRS example, which taxes Rs 3 lakh "above Rs 7 lakh" and does not match the stated Rs 10 lakh threshold. We did not verify the LRS figures. Anyone sending money abroad should check the rate with their bank, which is the collector.

The same page lists no general TCS on sales of goods. Section 194Q is a purchase-side TDS provision, not sale-side TCS.

When to deduct, when to deposit, when to file

When to deduct

The Busy guide says TDS on professional fees is deducted at the earlier of two events: crediting the payee's account in your books, or actually paying. That means an invoice booked as a payable on 28 September triggers TDS on 28 September, even if you pay in November. Accrual entries at the end of a quarter are a common source of late deduction.

When to deposit

TDS deducted in a month is deposited by the 7th of the next month. The exception is March, which can be deposited by 30 April. These dates come from GimBooks and KoinX, which agree.

For the current quarter:

Weekend due dates are not moved to Monday in any source we read. Deposit a day or two early.

When to file the statement

Every quarter you file a statement listing every deduction, the payee's PAN, the amount and the challan in which you deposited it.

As of 23 October the Q2 statement is eight days away. If you have not started, the order of work is: list the payments, check which crossed a threshold, match each deduction to a challan, collect missing PANs, and then prepare the statement.

Certificates

After filing, you give each payee a TDS certificate so they can claim credit. The Busy guide says non-salary certificates are due by 15 August, 15 November, 15 February and 15 June, which is 15 days after the statement due dates. For Q2 that is 15 November 2026. The older law charged Rs 100 a day for a late certificate. We did not verify the 2025 Act's equivalent.

What it costs to be late

There are four separate costs. They stack.

1. Late fee for the statement: Rs 200 a day from the day after the due date until you file, capped at the amount of TDS in the statement. GimBooks and KoinX say the old section 234E fee continues in section 427 of the new Act.
2. Interest if you did not deduct: 1% a month, from the date the tax should have been deducted to the date it was deducted (section 398 in the new Act, per KoinX).
3. Interest if you deducted and did not deposit: 1.5% a month, from the date of deduction to the date of deposit. In the old law, interest was charged for each month or part of a month. We did not verify the same wording in the new Act. One source (GimBooks, FAQ 10) describes the 1.5% rate in a way that conflicts with its own table, so confirm the rate before you rely on it.
4. Penalty: Rs 10,000 to Rs 1,00,000 for failing to file the statement or filing a wrong one (section 461, per KoinX). The same source says no penalty applies if you pay the tax, the late fee and the interest and file the statement within a year of the due date. Prosecution for wilful default is described, with imprisonment of three months to two years and a fine (section 476).

A fifth cost sits outside the TDS rules. In the old law, if you did not deduct or did not deposit on time, 30% of the payment could be disallowed as a business expense in your own return. We did not find a source confirming the equivalent in the 2025 Act, so we flag it as something to ask your accountant. In practice, it is the cost that hurts most, because it raises your own tax.

Worked example: a late Q2 statement

Assumptions:

• A company deducted TDS of Rs 62,000 in the quarter and deposited it all on time.
• It files the Q2 statement on Friday 20 November 2026 instead of 31 October.

If the statement shows TDS of only Rs 3,000, the fee stops at Rs 3,000 on day 15, because it cannot exceed the tax amount.

Worked example: deducted late, deposited late

A firm pays a freelancer Rs 1,50,000 for design work and should deduct 10%, which is Rs 15,000.

• Invoice credited to the freelancer's account on 10 July 2026.
• The firm forgets to deduct. It deducts on 15 September 2026 when it pays.
• It deposits the Rs 15,000 on 22 October 2026, after the due date of 7 October.

If the Q2 statement for this deduction is also filed on 20 November, add the late fee of Rs 4,000 calculated above. The tax amount in the statement is Rs 15,000, so the cap is not an issue.

The "month or part of a month" method is how the old law counted. We did not verify the same wording in the 2025 Act. Under a strict day-count method the interest would be lower.

The small interest is not the main risk. The main risk is that the department can treat the freelancer's payment as an expense that is not allowed if the deduction and deposit were not made in time, which makes the cost much higher than Rs 900.

A worked example: a Kota coaching firm's quarter

Meenakshi runs a coaching institute in Kota, set up as a private limited company. In July to September 2026 she makes these payments:

Total non-salary TDS for the quarter: Rs 25,500 + Rs 12,000 + Rs 9,000 + Rs 6,000 + Rs 900 = Rs 53,400.

Her deposit schedule:

(Rent TDS is Rs 8,500 a month: 10% of Rs 85,000.)

What she should check before filing the statement for the quarter due on 31 October:

1. A PAN for every payee. A missing PAN can mean a 20% rate and a validation error.
2. Whether the printing firm's contract crosses the Rs 1,00,000 annual aggregate (it does) and whether she deducted on each bill or only when the total crossed the threshold.
3. Whether the guest faculty crossed Rs 50,000 in the year. Faculty paid in earlier quarters count toward the total.
4. Whether the agent's commission is properly classed as commission and not as a contractor payment.
5. That each deposit matches a challan and the amount in the statement.

The point is not the arithmetic. The point is that TDS compliance is a data discipline. Collect PANs when you onboard a vendor, tag each bill with its section when you book it, and reconcile once a month.

A second example: an LLP paying its partners

An LLP in Jaipur has two partners. In the year it credits each partner Rs 6,00,000 as remuneration and Rs 40,000 as interest on capital. Under the 2025 Act, GimBooks lists a new row for payments by a firm to its partners: 10% above Rs 20,000.

Our reading of that row: the LLP deducts 10% on each partner's remuneration and interest above the threshold, which would be Rs 64,000 per partner, to be deposited by the 7th of the following month and reported in the quarterly statement. This is an illustration of how the row might work, not tax advice. The same page gives the rate in two different ways, and we did not read section 393(3). An LLP should ask its accountant for the exact rule for its facts before the next payment.

Deadlines and the extended income tax dates

Different deadlines are easy to mix up this time of year, so here they are side by side.

The tax audit and return extensions were reported after an announcement dated 28 September 2026. We did not read the order. If you are a tax-audit case, check dates with your auditor. See our posts on LLP compliance and GST returns for those items.

How to file: the practical steps

1. Get a TAN if you do not have one. It is applied for online.
2. Collect PANs from all payees. Verify them in the portal where possible.
3. Deduct at the right row and rate at the time of credit or payment.
4. Deposit by the 7th using the online challan. Note the challan serial number, the BSR code and the date.
5. Prepare the quarterly statement in the format the department prescribes. Software or the department's free utility can do it. Match every deduction to a challan.
6. File the statement on the e-filing portal or through TRACES, depending on the current process.
7. Check the processing result on TRACES. Mismatches in PAN or challan details lead to default notices.
8. File a correction statement if needed. The original statement cannot be edited directly, GimBooks says. A correction is filed after the department's processing centre has processed the original.
9. Issue certificates to payees by the due date.
10. Reconcile with Form 26AS or the annual statement the payee can see. Payees will complain if your deductions do not show.

Mistakes that cost money

• Deducting TDS and spending it. The money is not yours.
• Missing the accrual trigger. Booking an invoice in September triggers TDS in September.
• Using the wrong section. A consultant paid for technical services is at 2%, and for professional services at 10%. The difference matters, and arguments about which row applies are common.
• No PAN on file. 20% on a payment of Rs 1 lakh is Rs 20,000, not Rs 10,000.
• Deducting on GST. If the GST is shown separately, many practitioners deduct on the fee alone. Check with your adviser.
• Using old section codes in software. Validation errors in the statement come from this.
• Filing without matching challans. The statement and the challan must agree.
• Ignoring TRACES notices. A default notice left unread grows through interest.
• Forgetting certificates. Payees need them to claim credit. A late certificate causes complaints from vendors and can damage the relationship.
• Assuming TDS is only for big companies. A small proprietorship that pays rent above the threshold may need to deduct. Whether it must depends on whether the proprietor is subject to tax audit, so check.

Frequently asked questions

When is the TDS return for July to September 2026 due?

Saturday 31 October 2026, for the Q2 statement. TDS and TCS statements share the same quarterly dates: 31 July, 31 October, 31 January and 31 May.

What is the due date for depositing TDS?

The 7th of the month after the deduction. March deductions can be deposited by 30 April. October 2026 deductions are due on Saturday 7 November 2026.

What is the late fee for a TDS return?

Rs 200 a day, capped at the amount of TDS in the statement, according to GimBooks and KoinX. The old law called it section 234E. The new Act is reported to keep it under section 427.

What is the interest rate on late TDS?

The reported rates are 1% a month if the tax was not deducted on time and 1.5% a month if it was deducted and not deposited on time. Confirm the exact wording on how a part-month is counted before you rely on a calculation.

Which form do I use for the quarterly TDS statement now?

The sources agree on Form 138 for salary, Form 144 for non-residents and Form 143 for TCS. For non-salary payments to residents, two sources say Form 140 and one says Form 141. Use the form name the portal shows.

Are the old sections like 194C and 194J still valid?

For transactions from 1 April 2026, the Income-tax Act, 2025 applies, and TDS sits under section 393, with a table of rows. Software may reject old references. The rates are largely the same.

What is the TDS rate on professional fees?

10% once payments to a person cross Rs 50,000 in the year. Technical services, call centres and film royalty are 2%.

What is the TDS rate on rent?

10% for land, building and furniture, and 2% for plant and machinery, above Rs 50,000 a month, according to the rate chart we read.

Do I deduct TDS on GST?

Common practice, described by Busy, is to deduct on the fee excluding GST when GST is shown separately on the invoice. It is not stated as a rule of law in the source. Ask your adviser.

What if the vendor has no PAN?

The rate can be 20%, or the normal rate if higher. Collect PANs when you onboard vendors.

Do individuals and sole proprietors have to deduct TDS?

It depends on whether they are subject to tax audit and on the payment. The old law gave lighter rules to individuals and HUFs who were not subject to audit. We did not verify how the 2025 Act treats this.

Do I need a TAN?

Yes, to deduct and to file statements. You apply online.

What happens if I deduct TDS but do not deposit it?

Interest at the reported 1.5% a month, a late fee on the statement, a possible penalty, and in serious cases prosecution. The tax you collected is held for the government.

What is the penalty for not filing the TDS statement?

Rs 10,000 to Rs 1,00,000, reported under section 461. KoinX says no penalty applies if you pay the tax, fee and interest and file within a year of the due date.

Can I correct a TDS statement after filing?

Yes, by filing a correction statement after the department has processed the original. You can fix PAN, challan, amount and section details.

Is a TDS certificate mandatory?

Yes. You give a certificate to each payee for the TDS deducted. The Q2 certificates for non-salary payments are due by 15 November 2026, according to Busy.

What is TCS and who collects it?

Tax collected at source. Sellers of certain goods collect it from buyers, and banks and tour operators collect it on foreign remittances and overseas packages. Most small businesses do not collect TCS.

Does the platform deduct TDS from my marketplace payout?

Operators of e-commerce platforms deduct 1% on payments to sellers above Rs 5 lakh a year, per the rate chart. Check your payout statement and claim the credit in your return.

What to do next

1. Make a list of every payment you made from July to September that might be subject to TDS: rent, fees, contractors, commission, interest, and payments to partners.
2. Check which crossed a threshold and whether you deducted on time.
3. Match every deduction to a challan. Find the ones that are missing and deposit them today with interest.
4. Collect missing PANs.
5. Prepare the Q2 statement now. Do not leave it for 31 October, a Saturday.
6. Plan the 7 November deposit for October deductions.
7. Update your accounting software with the new section labels and forms.
8. Calendar the 15 November certificate date.

If you want help with TDS classification, deposits, quarterly statements, notices or correction filings, contact RegisCorp.

This post is general information, not legal or tax advice. Rules change, so check your facts with a qualified professional before you act.

Sources and what we could not verify

Sources used

• GimBooks, TDS return due dates, forms and penalties for FY 2026-27: payment and return due dates, new forms, late fee, interest and the 2026 changes. Published 15 April 2026, modified 23 September 2026.
• GimBooks, TDS and TCS rate chart for FY 2026-27: rates, thresholds, section mapping and TCS table. Published 7 April 2026, modified 21 June 2026.
• KoinX, TDS return filing and payment due dates for FY 2026-27: due dates, late fee, interest, penalty and prosecution references. Updated 7 August 2026.
• Busy, section 393 TDS on professional and technical fees: professional fee rates, timing, PAN rule, certificates. Updated 21 August 2026.
• TaxGuru, tax audit report deadline extended to 21 October 2026: the reported CBDT announcement of 28 September 2026.

All are secondary or commercial sources. We did not open the Income-tax Act, 2025, the Income-tax Rules, 2026 or any CBDT notification.

What we could not verify

• The text of sections 392, 393, 394, 395, 398, 427, 461 and 476, and the rows of the section 393 tables. We rely on summaries.
• The form number for non-salary TDS statements for residents (Form 140 or Form 141), and whether Form 141 is the form for challan-cum-statement cases.
• Whether the monthly rent threshold of Rs 50,000 is applied monthly or on an annual total of Rs 6 lakh.
• How the cumulative threshold on professional fees works in practice, including whether TDS applies to the whole amount once the threshold is crossed.
• The rate for payments to partners (10% in one table, "applicable rate" in another) and its scope.
• Whether interest is charged for each month or part of a month under the 2025 Act, and the exact interest rate for late deduction. One source's FAQ conflicts with its own table.
• Whether the disallowance of 30% of expenses for non-deduction or non-deposit continues in the 2025 Act, and under which section.
• The treatment of individuals and HUFs who are not subject to tax audit, and the buyer-turnover test for TDS on purchases above Rs 50 lakh.
• The penalty and fee for a late TDS certificate under the new Act.
• The trigger date rule for contracts signed before 1 April 2026.
• The LRS and other TCS thresholds, where one source's example does not match its stated threshold.
• The CBDT order behind the tax audit and ITR extensions.
• Any notification, extension or circular after 20 October 2026.