What Is TDS (Tax Deducted at Source)?

The idea in one sentence

Instead of waiting for you to pay tax at year-end, the law asks the payer to deduct a slice of certain payments and remit it to the government immediately. That slice is TDS. It is reported against your PAN, so the government already knows part of your income before you file. TDS belongs to the direct tax system (tax on what you earn); the GST you see on bills is an indirect tax on what you buy — see what is GST.

Where you will meet it

• Salary — your employer estimates your annual tax and deducts it in monthly instalments.
• Bank and post-office deposit interest — deducted once the interest credited to you in a financial year crosses a threshold.
• Rent, professional fees, commission, contract payments — deducted by the payer above specified limits.
• Sale of property, dividends, some investments — specific provisions and rates apply.

From 1 April 2026, TDS provisions are governed by section 393 of the Income-tax Act, 2025, which sets out the payments, payers, rates and thresholds in a single table. Older section references you may still see — such as section 194A for interest other than interest on securities — relate to the previous Income-tax Act, 1961. Rates and thresholds are revised by the Finance Act each year; the authoritative place to look is the Income Tax Department portal rather than a remembered figure.

It is a prepayment, not the final bill

TDS is credited against the tax you actually owe once your full income is computed (see how income tax calculation works). Three outcomes are possible:

1. TDS equals your liability — nothing more to do.
2. TDS exceeds your liability — you claim a refund in your return.
3. TDS falls short — you pay the balance (possibly as advance tax during the year).

A deduction at 10% on bank interest, for example, is not the tax on that interest; it is a down payment. Someone in a 30% bracket still owes the other 20% at filing, while someone with no taxable income gets the whole 10% back.

TDS on deposit interest: a ₹ example

Banks and post offices deduct TDS on FD and RD interest once the interest credited to you across all your deposits with that bank in a financial year exceeds the threshold. Under section 393(1) of the Income-tax Act, 2025 (Table, Sl. No. 5(ii)), the threshold for interest paid by a banking company, co-operative bank or post office is ₹50,000 a year for most depositors and ₹1,00,000 for resident senior citizens; the Income Tax Department's published guidance (checked October 2026) gives the TDS rate as 10% when a PAN is on record (a higher rate applies without PAN). Once the threshold is crossed, TDS applies to the entire interest, not just the excess. Sources: Income-tax Act, 2025 — section 393; Income Tax Department — TDS from interest other than interest on securities (written under the 1961 Act's section 194A, which the 2025 Act replaces). These figures are revised by Finance Acts, so confirm them before relying on them.

Two depositors, both under 60, each holding a one-year FD at 7% with quarterly compounding:

Interest figures are from the FD calculator. Depositor B's maturity amount is lower than the calculator's pre-tax figure by the TDS — but that ₹5,749 is not lost; it appears in B's Form 26AS and is adjusted against B's final tax. Depositor A, with no TDS, still owes tax on ₹43,115 at their slab rate if their total income is taxable. No TDS does not mean no tax.

Form 15G and 15H: requesting non-deduction when no tax is due

If you expect the tax on your total income for the year to be nil, you may submit a self-declaration to the bank — Form 15G (under 60) or Form 15H (resident senior citizens) — at the start of the financial year to request that TDS not be deducted on your interest (section 393(6) of the Income-tax Act, 2025). Submission does not automatically guarantee no deduction: eligibility conditions apply (for people under 60, the declaration cannot be used if the interest itself exceeds the basic exemption limit), the bank verifies the form, and a declaration made when tax is in fact due is a false declaration. Forms must be given to each bank separately and renewed every year.

Practical use: spreading deposits does not avoid tax

Because the threshold is applied per bank, splitting ₹8 lakh across two banks (₹4 lakh each) would keep each bank's interest under ₹50,000 and avoid TDS. It does not reduce the tax owed — all the interest is still added to your income at filing. The only things that change are cash flow during the year and the paperwork at filing. If you want a cumulative FD's maturity to be predictable, check the TDS impact before choosing between cumulative and non-cumulative payouts.

Common misunderstandings

• "The bank deducted TDS, so my interest is taxed." TDS at 10% is only the advance; the balance (or refund) is settled in your return.
• "No TDS was deducted, so the interest is tax-free." Interest below the threshold is still fully taxable if your total income is above the exemption limit — see how FD and RD interest is taxed.
• "TDS applies only on maturity." On a cumulative FD, interest accrues every year and TDS is deducted each year it crosses the threshold, even though you receive nothing until maturity.
• "My employer's TDS covers everything." Salary TDS covers only salary unless you declare other income to your employer; interest and other income may leave a balance due.

How to check what was deducted

Every deduction is reported against your PAN and appears in Form 26AS and the Annual Information Statement (AIS) on the income-tax portal, usually within a few weeks of the quarter in which it was deducted. Reconcile these against your bank interest certificates and salary slips before filing; a mismatch — for example interest that the bank reported but you did not include — is a common cause of notices and delayed refunds.

Limitations of this guide

This page explains the mechanism of TDS as it affects individuals, with deposit interest as the main example. It does not cover TDS compliance for businesses or landlords who must deduct and deposit tax themselves, the detailed rate table for every payment type, or provisions for non-residents. Thresholds and rates are statutory and change; the figures above are quoted from the official source as of the date shown and should be re-checked for the year you are filing.

Frequently asked questions

Is TDS an extra tax on top of income tax?

No. It is part of your income tax, collected early. Whatever is deducted is credited to you in full when your final tax is computed.

What if my bank deducted TDS but I have no taxable income?

File a return and claim the refund — the department repays it, usually with interest. To reduce the chance of it happening next year, submit Form 15G or 15H to the bank at the start of the financial year, if you meet the eligibility conditions.

Does TDS apply to savings-account interest?

The deposit-interest TDS rules above apply to time deposits (FDs and RDs). Savings-account interest is not subject to this TDS, but it remains taxable income (with a separate deduction available up to a limit) — check the Income Tax Department's current rules.

Is TDS deducted on PPF or SIP returns?

PPF interest has historically been exempt from tax and carries no TDS. Mutual fund redemptions by resident investors generally do not attract TDS, though the gain is taxable — see how mutual fund gains are taxed. Payouts under a fund's income-distribution option can attract TDS above a threshold.

What does a bank do if I have not given my PAN?

Without a PAN, TDS is deducted at a higher rate, and the credit cannot be matched to you in Form 26AS, so claiming it back becomes difficult. Make sure your PAN is linked to every deposit account.

Can I ask the bank to deduct less TDS if I am in a low slab?

Form 15G/15H is only for people whose total tax for the year is expected to be nil, and the bank may still deduct if the eligibility conditions are not met. Others can apply to the Assessing Officer for a lower- or nil-deduction certificate in the prescribed form, which the bank then honours. For most individuals the simpler route is to let TDS be deducted and settle the difference at filing.