How TDS Threshold Limits Work

The Basic Idea

TDS (Tax Deducted at Source) applies once a payment — rent, professional fees, contractor payments, interest, and so on — crosses a specified threshold for the financial year, or per transaction, depending on the section. Below that threshold, no deduction is required at all; above it, tax is deducted on the payment (in most cases on the whole amount, not just the portion above the threshold).

Why You Shouldn't Rely on a Remembered Number

Threshold limits aren't uniform across TDS sections, and they do get revised in Finance Acts from time to time. A limit that was correct last year, or for a different section, can be wrong for the payment in front of you right now. Before deciding whether to deduct on a payment, the safer habit is to check the threshold that currently applies to that specific section — rather than deduct (or skip deducting) based on a number remembered from an earlier year.

What To Check Before Each Payment

• Which TDS section actually applies to this type of payment.
• The current threshold for that section — per transaction, or cumulative for the year, depending on how that section is structured.
• Whether the deductee has a valid PAN — a missing or invalid PAN generally triggers a higher deduction rate regardless of the payment type.
• Whether a lower-deduction or nil-deduction certificate is on file for that deductee, which can override the standard rate.

Getting It Wrong Both Ways Costs You

Deducting when you shouldn't have creates an unnecessary reconciliation headache for the person you paid. Not deducting when you should have can mean interest, a disallowance of the expense in your own return, and a correction filing later. Neither is a big problem caught before the payment goes out — both are a bigger one caught after.