TDS when you pay others

When you must deduct, the no-TAN routes for individuals, 194T on partner pay, and the penalties

TDS is not only deducted from you, as you grow you may have to deduct it when you pay others. An individual or HUF generally must deduct under the main sections (194C contract, 194J professional, 194H commission, 194I rent) only if they were subject to a tax audit in the preceding year. Below that, two no-TAN routes can still apply: Section 194M (2% on contract, professional or commission payments over Rs 50 lakh in a year) and Section 194-IB (2% on rent over Rs 50,000 a month). Every partnership firm and LLP must now deduct 10% under Section 194T on partner pay over Rs 20,000. Getting deduction wrong carries interest, penalties, and disallowance of the expense.

Last reviewed: 29 May 2026

Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact Income Tax Department. Read our editorial scope →

When the duty to deduct starts

For the main TDS sections (194C, 194J, 194H, 194I), an individual or HUF is liable to deduct only if their turnover or gross receipts in the preceding year crossed the tax-audit thresholds (Rs 1 crore for business, Rs 50 lakh for profession). Companies, firms and LLPs are liable regardless of turnover. So a small proprietor below the audit limit usually does not deduct under these sections, but two situations catch even small payers, covered next.

194M and 194-IB: deduction without a TAN

Two sections make even a small individual payer deduct, without needing a TAN, using PAN-based challan-cum-statements instead. Section 194M applies a 2% deduction (since 1 October 2024) where an individual or HUF not otherwise liable pays a contractor, professional or commission agent more than Rs 50 lakh in a year. Section 194-IB applies a 2% deduction (since 1 October 2024) where an individual or HUF pays rent of more than Rs 50,000 a month. Both are designed to bring large personal or business payments into the TDS net.

tip194M and 194-IB do not need a TAN, you deduct and pay through a simple PAN-based challan. So even a small business paying high rent or a large one-off contract has a TDS duty to remember.

194T on partner pay, and the cost of mistakes

From 1 April 2025, every partnership firm and LLP must deduct 10% TDS under Section 194T on remuneration, interest, commission or bonus paid to a partner over Rs 20,000 a year, a genuinely new duty. Across all TDS, getting it wrong is expensive: interest of 1% a month for late deduction and 1.5% a month for late deposit, a fee for late TDS returns, and disallowance of 30% of the expense under Section 40(a)(ia) where you should have deducted but did not. If you deduct, get a TAN (except for 194M/194-IB), deposit by the 7th of the next month, file quarterly returns, and issue the TDS certificate.

warningFailing to deduct TDS you owed disallows 30% of that expense under Section 40(a)(ia), and late deposit adds 1.5% a month interest. The new 194T on partner pay catches firms that never deducted on partners before.

Obtain a TAN (not needed for 194M or 194-IB)
Deduct at the correct rate when crediting or paying, whichever is earlier
Deposit by the 7th of the following month
File the quarterly TDS return (24Q for salary, 26Q for others)
Issue Form 16 / 16A so the payee can claim the credit

Calculators

Am I a TDS Deductor? checker

Companion guides

Source / notes

Income-tax Act 1961 s.194M (2% on large payments by individuals, from 1 Oct 2024) + s.194-IB (2% on rent over Rs 50,000/month)
Income-tax Act 1961 s.194T (10% on partner pay, from 1 Apr 2025) (TDS consolidated into the Income-tax Act 2025 s.393)
Income-tax Act 1961 s.40(a)(ia) (30% expense disallowance) + s.201 (interest for default)

Frequently asked questions

Do I have to deduct TDS when I pay contractors or professionals?+

For the main sections (194C, 194J, 194H, 194I), an individual or HUF must deduct only if they were subject to a tax audit in the preceding year (turnover over Rs 1 crore, or professional receipts over Rs 50 lakh). Companies, firms and LLPs deduct regardless. A small proprietor below the audit limit usually does not deduct under these sections.

What are Sections 194M and 194-IB?+

They make even small individual payers deduct, without needing a TAN. Section 194M is a 2% deduction where an individual or HUF not otherwise liable pays a contractor, professional or commission agent over Rs 50 lakh in a year. Section 194-IB is a 2% deduction on rent over Rs 50,000 a month. Both use a simple PAN-based challan.

Does my firm have to deduct TDS on partner pay?+

Yes, from 1 April 2025. Section 194T requires every partnership firm and LLP to deduct 10% TDS on remuneration, interest, commission or bonus paid to a partner once it exceeds Rs 20,000 in the year. This is a new duty, firms that historically paid partners without any withholding must now deduct, deposit and report it.

What happens if I do not deduct TDS I should have?+

It is costly. 30% of the expense is disallowed under Section 40(a)(ia), so you lose part of the deduction. On top of that, late deduction attracts 1% a month interest and late deposit 1.5% a month, plus a fee for a late TDS return. So if a payment falls in the TDS net, deduct and deposit it on time.