TDS · Glossary

TDS (Tax Deducted at Source)

Mechanism where the payer withholds and deposits income tax on the payee's behalf.

Updated 2026-10-08Source: Income-tax Act · CGST Act · CBDT/CBIC

What it means

TDS, governed by Chapter XVII-B of the Income Tax Act, 1961, is the system where the person making a payment (deductor) withholds a specified percentage as income tax and deposits it with the government on the recipient's (deductee's) behalf. The deductee gets credit for the TDS while filing their ITR.

For freelancers, TDS sections most commonly encountered: 194J (10% on professional fees), 194C (1-2% on contractual work), 194O (0.1% by e-commerce platforms, including Upwork and Fiverr), 195 (on payments to non-residents). TDS is computed on the service value EXCLUDING GST per CBDT Circular 23/2017 when GST is shown separately on the invoice.

A worked example

On a Rs. 1,18,000 invoice (Rs. 1L + 18% GST), the 194J TDS @ 10% is Rs. 10,000 (on the Rs. 1L pre-GST value), not Rs. 11,800. Net wire to the freelancer: Rs. 1,08,000.

Apply for a Section 197 Lower Deduction Certificate via TRACES if your final tax (under 44ADA + 87A) will be well below the standard 10% — eliminates the year-long refund chase.

Run it on your own numbersFree TDS Calculator — no signup.

FAQ

My PAN is inoperative. What TDS rate applies?

An inoperative PAN is treated like no PAN: generally 20%, or the section rate if higher; 5% for e-commerce (194-O) and goods purchases (194Q). That is Section 206AA up to FY 2025-26 and s.397(2) of the Income-tax Act 2025 from 1 April 2026. Link PAN-Aadhaar immediately to restore the normal rate.

I haven't filed ITR for 2 years. Does my TDS rate go up?

Not any more. Section 206AB, which doubled TDS for non-filers, was omitted by the Finance Act 2025 with effect from 1 April 2025. Unfiled returns still carry late fees, interest and possible notices, so file them; an updated return is allowed within 48 months.

Look up the details

TDS rates & sections — 194J, 194C, 194O and more.
All 28 terms — the full glossary, by category.

Track every TDS deduction and reconcile with 26AS in HourSlip →Built into HourSlip — free to start.

Sources

Income-tax entries cite the Income-tax Act 1961, which governs FY 2025–26 (the return filed in 2026); from tax year 2026–27 the Income-tax Act 2025 applies, with new section numbers shown where we give them. GST law is unchanged. General information, not tax advice; verify with your CA before you file.

Related terms

Compliance without the vocabulary

Learn it once, or never learn it.

HourSlip works out the GST on each invoice, logs every TDS deduction and estimates your advance-tax instalments — you check the numbers, and the glossary stays optional.

• No card required• Export your data as CSV