Tax Deducted at Source — commonly known as TDS — is one of the most pervasive tax mechanisms in India. Whether you receive a salary, earn interest on a fixed deposit, receive rent, get paid as a freelancer, or sell property, TDS is likely being deducted somewhere in your financial life. Understanding TDS is not optional for any taxpayer who wants to manage their finances intelligently, avoid notices from the Income Tax Department, and ensure they receive every rupee of refund they are entitled to.
This comprehensive guide covers the complete TDS framework for 2026 — what TDS is, applicable rates, who deducts it, how to verify your TDS credits in Form 26AS and AIS, and how to claim a refund if excess TDS has been deducted.
What is TDS and How Does It Work?
TDS is a mechanism where the person making a payment (the deductor) deducts a specified percentage of tax at the point of payment and deposits it with the government on behalf of the recipient (the deductee). The deducted amount is credited against the recipient’s tax liability when they file their income tax return.
The TDS system ensures a regular flow of tax revenue to the government and reduces the risk of tax evasion by collecting tax at the source of income, rather than waiting for taxpayers to pay at year-end. It applies to a wide range of payments: salary, interest, rent, professional fees, commission, dividends, and more.
Key TDS Rates in 2026
TDS rates vary significantly based on the nature of payment. Some of the most commonly applicable rates for individual resident taxpayers include: Salary (Section 192) — at applicable slab rate. Interest on FD from banks (Section 194A) — 10% (if interest exceeds Rs. 40,000 per year, or Rs. 50,000 for senior citizens). Rent exceeding Rs. 50,000 per month (Section 194IB) — 5% by individuals. Professional or technical service fees exceeding Rs. 30,000 per year (Section 194J) — 10%. Commission exceeding Rs. 15,000 per year (Section 194H) — 5%. Dividend from companies (Section 194) — 10% if dividend exceeds Rs. 5,000.
If the recipient does not provide their PAN to the deductor, TDS is deducted at 20% or the applicable rate, whichever is higher. This is a critical reason why keeping your PAN updated with all financial institutions is essential.
Who Deducts TDS?
TDS must be deducted by specific categories of payers designated as ‘deductors’. These include all companies (public and private), government departments, banks and financial institutions, individuals and HUFs who are required to get their accounts audited (for certain payments), e-commerce operators paying sellers, and individuals paying rent above Rs. 50,000 per month to a landlord.
After deducting TDS, the deductor must deposit it with the government by the 7th of the following month (or by April 30th for March deductions), issue a TDS certificate (Form 16 for salary, Form 16A for others) to the deductee, and file quarterly TDS returns (Form 24Q for salary, Form 26Q for non-salary).
How to Check Your TDS Credits in Form 26AS and AIS
Form 26AS is your consolidated annual tax statement maintained by the Income Tax Department. It shows all TDS deducted by various deductors on your behalf, advance tax and self-assessment tax paid, and tax refunds received. You can access Form 26AS by logging into the Income Tax e-filing portal at incometax.gov.in.
The Annual Information Statement (AIS) is a more comprehensive document introduced alongside Form 26AS. It shows not just TDS but also details of all financial transactions — bank interest, dividends, stock market transactions, property sales, and more. Reviewing your AIS before filing ITR helps ensure you do not inadvertently miss disclosing any income.
Real-Life Tip: Sunita, a Mumbai teacher with a savings bank account and two FDs, checks her Form 26AS every April. She noticed that TDS on one of her FDs had been credited under a slightly different PAN spelling — she raised a correction request with the bank, ensuring the credit was properly reflected before filing her ITR.
What to Do When Excess TDS is Deducted
If more TDS has been deducted than your actual tax liability, the excess is your tax refund. You claim it simply by filing your income tax return correctly and declaring all TDS credits from Form 26AS. The IT Department processes your return and credits the refund to your pre-validated bank account.
If you expect your income to be below the taxable limit, you can submit Form 15G (for individuals below 60 years) or Form 15H (for senior citizens) to your bank or deductor at the beginning of the year to prevent TDS deduction on interest income. This is particularly useful for retirees and individuals with low incomes who would otherwise receive refunds every year.