TDS: the thresholds that catch people out
Thresholds apply to the aggregate, not the payment. Missing PAN costs double. And not deducting is usually more expensive than the tax itself.
TDS is arithmetic anyone can do. What causes the trouble is three rules that are easy to read past.
Thresholds apply to the aggregate
Most sections set an annual limit. Once the year's total crosses it, tax is deducted on the whole amount, not merely on the excess. Six payments of ₹6,000 each look safely below a ₹30,000 threshold until the seventh arrives — and then deduction applies to all of it.
Section 194C adds a per-contract threshold alongside the annual one, and either crossing triggers deduction. The TDS Calculator takes the amount paid earlier in the year so it tests the aggregate rather than the single payment.
No PAN is expensive
Section 206AA raises the rate to the higher of twice the normal rate or 20%. A 10% professional fee becomes 20%. Your vendor will not thank you, and the extra is genuinely payable — you cannot deduct at the normal rate and settle it later.
Collecting PAN before the first payment is the cheapest compliance step available anywhere in Indian tax.
Not deducting costs more than the TDS
Fail to deduct and you owe interest at 1% a month; deduct but fail to deposit and it is 1.5%. That is annoying. What actually hurts is section 40(a)(ia): 30% of the expenditure is disallowed. On a ₹10 lakh contractor payment where ₹10,000 of TDS was missed, ₹3 lakh of expense is added back to your income. The disallowance is thirty times the tax you skipped.
Practical points that come up constantly
- Deduct at credit or payment, whichever is earlier. Booking the invoice triggers it even if you pay next month.
- Not on the GST component, where GST is shown separately on the invoice.
- Deposit by the 7th of the following month; March runs to 30 April.
- File the quarterly statement and issue Form 16A. A deductee who cannot see credit in 26AS will chase you, and they will be right to.
Where it goes wrong in practice
Almost never in the calculation. It goes wrong because nobody is tracking the annual aggregate per vendor, and by the time someone checks in March the thresholds were crossed in November. That is a bookkeeping problem, and it is solved by having vendor payments and tax deduction live in the same system rather than in a spreadsheet nobody owns.