Tax deducted at source (TDS) means that when your business makes certain payments, it deducts tax and pays it to the government on the recipient’s behalf. For a small business, the risk is not complexity; it is forgetting a step.

Which payments usually involve TDS

  • Salaries.
  • Rent above the applicable threshold.
  • Fees for professional and technical services.
  • Payments to contractors.
  • Commission and brokerage.
  • Interest, other than certain bank interest.

Thresholds and rates differ by payment type and change from time to time. India’s new Income-tax Act took effect from April 2026, so check current rules rather than older articles.

The monthly routine

  1. Identify deductible payments as bills come in, and check the vendor’s PAN.
  2. Deduct at the applicable rate when you pay or credit the vendor, whichever is earlier.
  3. Deposit the tax deducted with the government by the due date for that month.
  4. Record the deduction correctly in the vendor’s ledger and in your books.

The quarterly steps

  • File the TDS return for the quarter, separately for salary and non-salary payments.
  • Issue TDS certificates to the people you deducted from, so they can claim the credit.
  • Reconcile what you deducted, deposited and reported, so all three agree.

Common mistakes

  • Missing a deduction on a payment that crossed the threshold during the year.
  • Depositing late, which attracts interest.
  • Wrong or missing PAN, which can mean a higher deduction rate.
  • Returns that do not match deposits, leading to notices.

TDS as part of monthly accounting

FigureWise computes TDS during the monthly bookkeeping cycle, keeps it reconciled with your books and files returns as part of compliance, so deductions, deposits and returns agree.

This article is a general guide, not tax advice. Rules, thresholds, rates and due dates change; confirm the current position for your business.