Tax Deducted at Source (TDS) is a mechanism where the payer deducts tax before making payment to the payee. The deducted amount is deposited with the government and credited to the payee's tax account. Different TDS rates apply for different types of payments, and thresholds determine when TDS becomes applicable.

How the calculation works

TDS = Payment Amount × Applicable TDS Rate

Common TDS Rates (FY 2026-27):
Salary: As per income tax slab
Interest on FD (194A): 10% (above ₹40,000)
Rent (194I): 10% (Plant/Machinery 2%)
Professional Fees (194J): 10%
Contractor (194C): 1% (Individual) / 2% (Others)

A quick example

Let us calculate TDS for common scenarios:

Salary Income:₹12,00,000 per year

FD Interest:₹60,000 (above ₹40,000 threshold)

Rental Income:₹3,00,000 per year

Step by step

1.TDS on Salary: Calculated as per income tax slab. For ₹12L gross with std deduction of ₹75,000, taxable = ₹11.25L. Approx TDS/month = ₹6,000
2.TDS on FD Interest: ₹60,000 @ 10% = ₹6,000 (deducted by bank)
3.TDS on Rent: ₹3,00,000 @ 10% = ₹30,000 (deducted by tenant if rent > ₹50,000/month)
4.Total TDS deducted during the year ≈ ₹1,08,000

So the answer is: TDS on Salary ≈ ₹72,000/yr | TDS on FD Interest = ₹6,000 | TDS on Rent = ₹30,000 | Total TDS ≈ ₹1,08,000/year

Frequently Asked Questions

What is TDS?

TDS (Tax Deducted at Source) is a tax collection mechanism where the payer deducts tax before making payment. It ensures regular tax collection and prevents tax evasion.

What is the TDS rate for salary?

TDS on salary is deducted as per the applicable income tax slab rates. Your employer calculates tax on your estimated annual income and deducts TDS monthly.

What is the threshold for TDS on FD?

TDS on FD interest is applicable if interest exceeds ₹40,000 (₹50,000 for senior citizens) in a financial year under Section 194A.

What if I don't have a PAN?

Without PAN, TDS is deducted at 20% or twice the applicable rate, whichever is higher. Always provide your PAN to avoid higher TDS.