TDS Compliance Checklist for Private Limited Company

Compliance with Tax Deducted at Source (TDS) is a crucial responsibility for any company in India, especially private limited companies. Beyond simply paying taxes, your business acts as a government agent in collecting and remitting taxes on behalf of others. Ignoring TDS compliance can lead to serious consequences, including hefty penalties and interest on delayed payments. It can even result in legal action, making it essential for companies to stay vigilant and proactive.

Beyond the legal ramifications, rigid TDS compliance for a private limited company also builds trust with employees and vendors. When a company deducts tax correctly and provides timely TDS certificates (like Form 16 and 16A), it helps recipients file their own income tax returns accurately. 

This transparency and reliability enhance your company’s professional reputation, making it a more attractive partner and employer in the long run. Therefore, treating TDS compliance for companies with the seriousness it deserves is vital for both legal security and business credibility.

When and Why TDS Applies to Companies?

The TDS applicability for a private limited company is a broad concept. A company must deduct TDS when it makes certain payments that exceed a specific threshold limit defined under the Income Tax Act, 1961. This applies to a wide range of common business transactions, not just salary payments.

Example: A company paying a freelancer Rs. 50,000 deducts 10% TDS (Rs. 5,000), giving Rs. 45,000 and depositing Rs. 5,000 with the government.

Common Payments Subject to TDS

TDS applies to a variety of payments made by a company. Here are some of the most common categories and their typical thresholds:

• Salaries (Section 192): You must deduct TDS from employee salaries if their total annual income exceeds the basic exemption limit. The TDS rate depends on the employee’s applicable tax slab.
• Payments to Contractors (Section 194C): TDS is applicable on payments made to resident contractors for work. The threshold is a single payment of more than Rs. 30,000 or an aggregate of payments exceeding Rs. 1 lakh in a financial year. The rates are typically 1% for individuals and HUFs, and 2% for other payees like companies.
• Professional/Technical Fees (Section 194J): When making payments for professional services, such as to a lawyer, architect, or consultant, TDS must be deducted if the total payment exceeds Rs. 30,000 in a financial year. The TDS rate is generally 10% for professional fees, royalties, and directors’ remuneration. Technical services, however, are subject to a 2% TDS rate.
• Rent (Section 194-I): TDS applies to rent paid for land, building, furniture, or plant and machinery. The threshold is Rs. 2,40,000 in a financial year. The rates are 2% for plant and machinery and 10% for land, building, and furniture.
• Commission or Brokerage (Section 194H): Payments for commission or brokerage exceeding Rs. 15,000 in a financial year are subject to a 5% TDS.
• Interest Other than Securities (Section 194A): Deduct 10% TDS on interest payments exceeding Rs. 5,000 (threshold is Rs. 40,000/Rs. 50,000 for banks/post offices).
• Property Purchase (Section 194-IA): Deduct 1% TDS on property purchases when the consideration exceeds Rs. 50 lakh.
• Rent by Individuals/HUFs (Section 194-IB): Deduct 5% TDS if monthly rent exceeds Rs. 50,000 (mainly applicable to non-audit liable individuals/HUFs).
• TCS on Sales (Section 206C(1H)): For sellers with turnover above Rs. 10 crore, collect TCS on sales exceeding Rs. 50 lakh to a buyer—useful to contrast with Section 194Q.

Key Exemptions and Important Rules

While TDS applies to many transactions, it’s important to know the exemptions and key rules.

• No PAN: If the payee does not provide their PAN (Permanent Account Number), the TDS rate is significantly higher, typically 20% or the applicable rate, whichever is greater.
• Government Payees: You don’t need to deduct TDS on payments made to the government, the Reserve Bank of India (RBI), or certain other government-exempted entities.
• No Taxable Income: If a recipient’s total income is below the taxable limit, they can submit a declaration in Form 15G or 15H to the deductor to avoid TDS.
• TDS on Purchases: TDS on the purchase of goods (Section 194Q) applies if a company’s turnover exceeds Rs. 10 crore in the previous financial year and it purchases goods worth more than Rs. 50 lakh from a single seller. The rate is 0.1%.

Due Dates & Filing Obligations:

Proper TDS compliance requires the timely deposit of taxes and the accurate filing of returns to avoid penalties.

• Depositing TDS: TDS must be deposited with the government by the 7th of the following month after deduction.
• Quarterly TDS Returns: File TDS returns quarterly using Form 24Q for salary and Form 26Q for non-salary payments.
• Issuing TDS Certificates: Issue Form 16 for salary TDS and Form 16A for non-salary TDS to the deductee.

What is the Checklist for TDS Compliance? Step-by-Step Guide

Following a clear checklist for TDS compliance for a limited company is the best way to manage this process. Here are the essential TDS compliance steps you should take.

Step 1: Obtain a TAN

You cannot deduct or file TDS without a TAN. So, is TAN mandatory for a private limited company? 

Yes, it is.

• You must apply for a TAN and quote the unique 10-digit alphanumeric number on all TDS-related documents.
• You can apply for a TAN online or during the company incorporation process itself.

Step 2: Deduct TDS at the Right Rate

The TDS rate for a private limited company is not a single rate. It varies depending on the type of payment. You must check the Income Tax Act to find the correct rate for each transaction.

• Verify the Permanent Account Number (PAN) of the person you are paying. Without a valid PAN, you must deduct TDS at a higher rate (usually 20%).
• Calculate the exact amount of TDS you need to deduct from each payment.

Step 3: Deposit the Deducted TDS

Once you deduct the tax, you must deposit it with the government.

• Deposit the TDS using Challan ITNS 281.
• Make sure you deposit the amount by the 7th of the following month. For tax deducted in March, you get an extension until April 30th.

Step 4: File Quarterly TDS Returns

Filing a TDS return is a statement you submit to the Income Tax Department that provides details of all the tax you deducted and deposited.

• You must file this return every quarter to maintain compliance.
• The TDS return contains details of both the deductor (your company) and the deductee (the person you paid).

Step 5: Issue TDS Certificates

As a deductor, you must provide proof to the deductee that you have deducted and deposited their tax.

• Issue Form 16 to employees for the tax deducted from their salary annually.
• Issue Form 16A to other deductees quarterly.

Step 6: Maintain Comprehensive Records

Keeping proper records is vital for future reference and audits.

• Save all your TDS payment challans, acknowledgment receipts of returns filed, and TDS certificates.
• Store these documents securely for at least eight years.

Deadlines for Companies to File TDS Returns

Understanding the deadlines to file TDS returns for a private limited company is crucial to avoid penalties.

• Quarter 1 (Apr–Jun): 31 July 2025
• Quarter 2 (Jul–Sep): 31 October 2025
• Quarter 3 (Oct–Dec): 31 January 2026
• Quarter 4 (Jan–Mar): 31 May 2026

You must file your returns on or before these dates. Missing a deadline can attract penalties.

Penalties for Non-Compliance

Failing to deduct or deposit TDS can have serious repercussions. Under Section 201, the company may be treated as an “assessee-in-default,” resulting in demand notices from the tax authorities. 

Additionally, directors can be held personally liable if TDS is not deposited. Penalties, interest on delayed payments, and potential legal action make it crucial for companies to maintain strict TDS compliance.

Penalty Type	Details
Interest on Late TDS Deduction	1% per month on the tax amount — applicable if TDS is not deducted on time
Interest on Late TDS Deposit	1.5% per month on the deducted amount — applicable when TDS is deducted but not deposited promptly
Late Filing Fee (Section 234E)	Rs. 200 per day, capped at the total TDS payable
Penalty for Very Late Filing (Section 271H)	Rs. 10,000 to Rs. 1,00,000 for filing delays beyond one year or for incorrect information

Required Forms for TDS Compliance

To successfully manage your TDS compliance for companies, you need to use the right forms.

Form/Challan	Purpose
Form 24Q	To report TDS deducted on salaries by a private limited company.
Form 26Q	To report TDS on payments to residents (e.g., rent, professional fees, contractor payments).
Form 27Q	To report TDS on payments made to non-residents.
Challan ITNS 281	To deposit the deducted TDS with the government.

What Is the Correct TDS Filing Process to Avoid Penalties?

Here is a simple breakdown of how to file a TDS return for a private limited company online:

1. Prepare Your Data

• Collect payment details, deduction amounts, challan details (CIN), and deductees’ PANs.
• Ensure challans are reconciled with actual TDS payments made via Challan ITNS 281.

Note: You can make payments easily using Net Banking, Debit Card, or NEFT/RTGS through authorized banks.

2. Use the TDS Utility (RPU)

• Download the free Return Preparation Utility (RPU) from the NSDL/Protean website.
• Choose the correct form based on the type of payment: Form 24Q for salaries and Form 26Q for payments to residents. Use Form 27Q for non-residents and Form 27EQ for TCS (Tax Collected at Source).
• Enter all necessary transaction and TDS deduction details, and file the TDS returns directly through the Income Tax e-Filing Portal.

3. Validate the File (FVU)

• Pass the return file through the File Validation Utility (FVU).
• Correct any errors flagged during validation before proceeding.

4. Generate and Attach DSC (if applicable)

• If your company is required to file with a Digital Signature Certificate (DSC), attach it to the validated file.
• You can also file TDS using an Electronic Verification Code (EVC), which is permitted only for individual deductors and select other entities.

5. Upload the Return

• Log in to the Income Tax e-Filing portal.
• Go to e-File → Income Tax Forms → File Income Tax Forms → TDS.
• Select the correct form (24Q, 26Q, 27Q), financial year, and quarter.
• Upload the validated file and submit.

6. Acknowledge the Submission

• Once uploaded successfully, you will receive an acknowledgment number.
• Save this for future reference and compliance tracking.

7. Download Form 27A (Optional for paper-based filing)

• For older cases or physical submission, Form 27A (control chart) may be required.
• In online filings, acknowledgment generally replaces this step.

8. Check Form 26AS / AIS

• Verify that the TDS return reflects correctly in the deductees’ Form 26AS (Annual Tax Statement).
• This ensures deductees can claim credit without mismatch issues.

Best Practices for Smooth Compliance

Proactive compliance is better than reactive compliance. Implement these best practices for seamless TDS compliance steps.

• Automate: Use accounting software that automates TDS calculations, reminders, and return generation. This significantly reduces the risk of human error and helps ensure timely deductions and deposits.
• Reconcile Regularly: Match the tax you have deducted and deposited with the amount shown in your Form 26AS. This helps you catch errors early and ensures your records align with the Income Tax Department’s data.
• Stay Updated: Stay informed about changes in the TDS rate for a private limited company and other rules. Tax laws can change, and staying current helps you apply the correct rates from the start.
• Seek Expert Help: When in doubt, consult a tax professional. For complex transactions, such as payments to non-residents or new payment types, seeking expert guidance ensures accurate and timely TDS compliance for companies.

Final Thoughts

In conclusion, viewing TDS compliance as a core business function rather than just a chore is vital for any private limited company. The process, while detailed, is manageable with the right approach and a clear checklist. 

By consistently deducting, depositing, and filing on time, you protect your business from the significant financial penalties and interest that can arise from non-compliance. This proactive stance ensures your company operates with integrity and financial discipline, which are key ingredients for sustainable growth.

Frequently Asked Questions (FAQs)

1. What is TDS compliance for a private limited company?

TDS compliance for a private limited company means following the rules set by the Income Tax Department for deducting tax. When the company makes certain payments, such as salaries, rent, professional fees, or commissions, it has to subtract a small portion as tax before paying the amount to the recipient. The company then deposits this deducted tax with the government.

2. Is it mandatory for a company to have a TAN for TDS compliance?

Yes, a Tax Deduction and Collection Account Number (TAN) is mandatory for any private limited company that is required to deduct TDS. You must quote this 10-digit number on all TDS challans, returns, and certificates. Without a TAN, you cannot legally deduct or deposit TDS.

3. What are the key steps in the TDS compliance process?

The key steps for TDS compliance include:

1. Obtain a TAN: Apply for a TAN from the Income Tax Department.
2. Deduct TDS: Deduct tax at the correct rate when making payments.
3. Deposit TDS: Pay the deducted TDS to the government’s account by the due date.
4. File Quarterly Returns: Submit a detailed quarterly TDS return to the Income Tax Department.
5. Issue Certificates: Provide TDS certificates (like Form 16 or 16A) to the recipients whose tax was deducted.

4. What are the deadlines for filing quarterly TDS returns?

TDS returns must be filed every quarter. The due dates are as follows:

• Q1 (April to June): July 31st
• Q2 (July to September): October 31st
• Q3 (October to December): January 31st
• Q4 (January to March): May 31st

5. What forms are used for filing TDS returns?

Different forms are used depending on the type of payment:

• Form 24Q: For TDS deducted from salaries.
• Form 26Q: For TDS on payments to residents other than salary, such as rent or professional fees.
• Form 27Q: For TDS on payments to non-residents.

6. What happens if a company fails to deduct TDS?

If a company fails to deduct TDS, it is treated as a default. The company will have to pay interest at a rate of 1% per month on the amount that should have been deducted, calculated from the due date of deduction until the date it is actually deducted.

7. What are the penalties for late TDS return filing?

Late filing of a TDS return attracts a mandatory late fee of Rs. 200 per day until the return is filed. This fee, however, cannot exceed the total amount of TDS payable for that quarter. In more severe cases of non-compliance, such as a delay of more than one year, a penalty ranging from Rs. 10,000 to Rs. 1,00,000 may be imposed under Section 271H.

8. How does a company issue TDS certificates?

After filing the quarterly TDS return, the company must generate and download TDS certificates from the TRACES portal. These certificates (Form 16 for salaries and Form 16A for other payments) must then be provided to the recipients of the payments within 15 days of the return filing due date.