TDS Compliance Checklist for Small and Medium Businesses (SMBs) in India

Tax Deducted at Source (TDS) compliance is crucial for SMBs to avoid penalties and ensure smooth business operations. Below is a detailed TDS compliance checklist with explanations and examples

Identify Payments Subject to TDS

Businesses must determine which expenses require TDS deduction. Common payments subject to TDS include

Salary payments (Section 192)
Professional fees (Section 194J)
Contractor payments (Section 194C)
Rent exceeding ₹2,40,000 annually (Section 194I)
Interest other than on securities (Section 194A)

Example
If a business pays ₹50,000 per month to a consultant, TDS @10% (₹5,000) must be deducted before payment under Section 194J.

Also Read :- TDS Rate Changes in 2024

Verify TDS Rate and Threshold Limits

Different transactions have different TDS rates and threshold limits. Businesses should verify

Whether the recipient has a PAN (higher rates apply without PAN).
The latest applicable TDS rates as per the Finance Act.

Example:
Payment of ₹2,50,000 towards rent requires TDS @10% (₹25,000) since it exceeds ₹2,40,000 annually (Section 194I).

Deduct TDS at the Time of Payment or Credit

TDS must be deducted whichever is earlier:

When the payment is made.
When the expense is credited to the books of accounts.

Example
If a business records a professional fee of ₹1,00,000 on March 31 but pays it on April 5, TDS must still be deducted in March.

Also Read :- NEW INCOME TAX RULES 2025 ON THE CASH TRANSACTIONS

Deposit TDS Before the Due Date

TDS deducted must be deposited to the government using Challan ITNS-281.
Due Date
- 7th of the following month for regular deductions.
  - 30th April for deductions made in March.

Example
If TDS of ₹10,000 is deducted in May, it must be deposited by June 7 to avoid interest and penalties

File Quarterly TDS Returns (Form 24Q & 26Q)

Businesses must file TDS returns every quarter:

Form 24Q – Salary payments
Form 26Q – Non-salary payments
Form 27Q – Non-resident payments

Due Dates for TDS Return Filing

Quarter	Period	Due Date
Q1	April – June	31st July
Q2	July – September	31st October
Q3	October – December	31st January
Q4	January – March	31st May

Example
If TDS is deducted in July, the TDS return must be filed by 31st October.

Issue TDS Certificates (Form 16 & 16A)

Form 16 – For salaried employees, issued by 15th June.
Form 16A – For non-salary payments, issued within 15 days after filing the TDS return.

Example
A contractor receiving payments in Q1 (April-June) must receive Form 16A by 15th August.

Also Read :- How to avoid 7 common mistake in GST Filling

Verify TDS Credit in Form 26AS

Businesses should reconcile their TDS deductions with Form 26AS (Annual Tax Statement) available on the Income Tax portal to ensure:

All TDS deductions are correctly reflected.
There are no mismatches or discrepancies.

Example
If a vendor claims TDS of ₹5,000 was deducted, but Form 26AS shows ₹4,000, corrective action should be taken.

Handle Non-Filing or Late Filing Consequences

Non-compliance can result in

Interest: 1% per month for non-deduction and 1.5% for late deposit.
Penalty: ₹200 per day for late TDS return filing.
Prosecution: In extreme cases, imprisonment up to 7 years.

Example
If TDS of ₹10,000 was deducted on 10th May but deposited on 10th July, interest @1.5% per month for 2 months = ₹300 applies

Keep Proper Records for Audit & Compliance

Maintain records of
- TDS challans
- TDS returns filed
- TDS certificates issued

Example
During a tax audit, the business should have records of all TDS transactions, payments, and filings.

Conclusion

Following this TDS compliance checklist helps SMBs stay compliant, avoid penalties, and ensure smooth tax operations. Regular monitoring and timely action are key to maintaining compliance.