How TDS Is Calculated: Sections, Thresholds & PAN Rule

Guides · Tax India · Updated 2026

Tax Deducted at Source (TDS) is the government's way of collecting tax at the point of income. If you run a business, pay rent, or work as a freelancer, you've likely seen a TDS cut on your invoices. The amount depends on the nature of payment, the section of the Income Tax Act, and whether you've provided your PAN. This guide explains the most common TDS sections, the threshold limits, and the critical PAN rule that can double your deduction if ignored.

Why the PAN Rule Is So Important

Under Section 206AA, if you fail to furnish your Permanent Account Number (PAN) to the deductor, TDS is deducted at the higher of the prescribed rate, 20%, or the rate in force. This can mean a 20% deduction instead of 2% or 10%. For small businesses and freelancers, this creates cash‑flow problems and requires claiming refunds later. Always provide your PAN and verify that it's correctly quoted in the TDS certificate (Form 16A).

Without PAN, TDS rate jumps to 20% for most non‑salary payments.
Even if the prescribed rate is 1% or 2%, the deductor must apply the higher rate.
PAN‑Aadhaar linking is mandatory; an inoperative PAN is treated as no PAN.

Step-by-step: Calculate TDS on Your Income

Open the TDS Calculator tool.
Select the TDS section (e.g., 194J for professional fees), enter the invoice amount, and confirm your PAN status.
The tool applies the correct rate and threshold (no TDS if below the exemption limit) and shows the deduction amount.
It also displays the net receivable and the due date for the deductor to deposit TDS.

💡 Tip: For recurring payments under 194C (contracts), keep a running total. The threshold of ₹30,000 is per single invoice, but if aggregate payments in a year exceed ₹1 lakh, TDS applies even on smaller individual bills.

Common TDS Sections & Thresholds (FY 2025‑26)

Section	Nature of Payment	Threshold (₹)	Rate (with PAN)
194A	Interest (bank, FD)	40,000 (senior: 50,000)	10%
194C	Contractors / sub‑contractors	30,000 per invoice / 1,00,000 annual	1% (individuals/HUF), 2% (others)
194J	Professional / technical fees	30,000	10% (2% for call centre, etc.)
194I	Rent – land/building	2,40,000 per year	10%
194H	Commission / brokerage	15,000	5%

Once TDS is deducted, it reflects in your Form 26AS and can be claimed as credit when filing your ITR. To see the impact on your total tax outgo, compare with the Old vs New Regime Calculator.

Frequently Asked Questions

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

You may not get credit in 26AS, and the amount won't appear as tax paid. Follow up with the deductor. You can raise a grievance on the income tax portal.

Can I avoid TDS if my total income is below taxable limit?

Yes, submit Form 15G (for non‑seniors) or 15H (for seniors) to the bank. If accepted, no TDS is deducted on interest income.

Is TDS deducted on service charges or GST separately?

TDS is deducted on the base amount excluding GST, unless the invoice doesn't clearly separate it. Always show GST as a separate line item.

What is the penalty for not deducting TDS?

The deductor faces interest (1% per month) and disallowance of the expense. As a deductee, your concern is ensuring it's deducted and deposited.

Is it free and private?

Yes — the tool runs entirely in your browser, free, with no sign‑up and nothing uploaded to a server.

Try the TDS Calculator