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A small-business owner does not know whether they personally are required to deduct TDS on rent, consultants and freight.
Four questions: who am I, what am I paying, is it over the limit, and has the payee given a certificate or declaration.
A list of payment types with their thresholds, last year's turnover against the tax-audit limit, and a register of vendor certificates.
A clear yes or no for each payment type, and a TAN in place before the first deduction.
You must deduct TDS when you make a listed payment above its limit and you are a company, firm or LLP, or an individual or HUF whose business turnover or professional receipts crossed the tax-audit limit in the previous year. A few payments, such as high rent or property purchase, make even ordinary individuals deductors.
Which kinds of business are deductors?
| Entity | When TDS applies | TAN needed? |
|---|---|---|
| Private or public limited company | Any listed payment above its threshold | Yes |
| Partnership firm or LLP | Any listed payment above its threshold | Yes |
| Proprietor or HUF in business | If last year’s turnover exceeded the tax-audit limit (₹1 crore for business; ₹50 lakh for professionals) | Yes, once liable |
| Individual or HUF not liable to audit | Only for specific payments: rent above ₹50,000 a month, property purchase, large contractor or professional payments | Usually PAN is enough for these |
The ₹1 crore business limit rises to ₹10 crore where cash receipts and payments are each within 5 percent of the total. See the tax-audit explainer below for the detail.
When does an individual or HUF outside business become a deductor?
Three usual triggers:
- Rent above ₹50,000 a month paid by an individual or HUF not under audit: 2 percent TDS.
- Buying immovable property worth ₹50 lakh or more: 1 percent TDS on the price.
- Payments to a contractor or professional above ₹50 lakh in a year for personal purposes.
The four-question test
- Who am I? A company or firm, or an individual or HUF over the audit limit?
- What am I paying? Contract work, professional fee, rent, commission, interest?
- Is it over the limit? Each section has its own threshold.
- Any certificate or declaration? A lower-deduction certificate or a Form 15G or 15H (Form 121 from tax year 2026-27) can change the answer.
Worked example
A proprietor whose turnover last year was ₹2.5 crore (over the audit limit) makes three payments this year:
| Payment | Annual amount | Threshold | TDS? |
|---|---|---|---|
| Consultant (professional fee) | ₹60,000 | ₹50,000 a year from 1 April 2025 | Yes, at 10 percent: ₹6,000 |
| Shop rent | ₹3,60,000 (₹30,000 a month) | ₹50,000 a month from 1 April 2025 | No, below the monthly limit |
| Freight to a transporter, single bills under ₹30,000 | ₹85,000 | ₹30,000 a bill or ₹1,00,000 a year | No, under both limits |
If the same proprietor’s turnover had been ₹60 lakh, the consultant payment would not need TDS either, because the business would be below the audit limit.
What to read next
- Next in the series: What is the time of deduction for TDS?
- What is TDS deduction?
- When do I need a tax audit under Section 44AB?
Once you are a deductor, TransactIG reconciles TDS across your books, challans and returns. See TDS reconciliation software and reconciliation software for India.