TDS and TCS explained
Part of Income tax. 7 min read. Free lesson with a short video, quiz and practice.
TDS (tax deducted at source) means the person paying you cuts some tax before the money reaches you and deposits it with the government in your name. TCS (tax collected at source) is the opposite: a seller collects extra tax from you when you buy certain things. Neither is an extra tax. Both are advance payments that count towards your final tax.
Common TDS you will see
| Payment | When TDS starts | Usual rate |
|---|---|---|
| Salary | When yearly tax is due | As per your slab |
| FD and RD interest | Above ₹50,000 a year per bank (₹1,00,000 for seniors) | 10% |
| Dividends | Above ₹10,000 a year per company or fund | 10% |
| Rent paid by individuals | Above ₹50,000 a month | 2% |
| Buying property | Price ₹50 lakh or more | 1% |
| Crypto (VDA) sale | Above ₹10,000 a year | 1% |
If the payer does not have your PAN, TDS is usually much higher, often 20%. Keep your PAN linked with Aadhaar and updated with banks and brokers.
When you owe no tax
If your total tax for the year will be nil, you can give a self-declaration to the payer so it does not deduct TDS on interest or dividends. Under the new law this is Form 121 (it replaced Forms 15G and 15H). Only use it if you truly qualify; a false declaration is an offence.
Where TDS shows up
Every TDS deducted under your PAN appears in your annual tax statement on the income-tax portal (now Form 168, earlier Form 26AS) and in the AIS (Annual Information Statement). When you file your return, TDS is subtracted from your tax.
A worked example
Kavita, 45, earns ₹80,000 of FD interest from one bank. The bank deducts 10%, which is ₹8,000. Her only other income is a salary of ₹9,00,000, so in the new regime her total taxable income is ₹9,05,000 after the standard deduction, which is below ₹12 lakh. Her tax is nil, so she gets the ₹8,000 back as a refund when she files her return.
If instead she were in the 30% slab, the tax on that interest would be ₹24,000 plus cess. TDS has covered only ₹8,000, so she would pay the rest when filing.
TCS in brief
TCS applies to things like overseas tour packages and large foreign remittances. Budget 2026 cut several TCS rates to 2% from 1 April 2026. Like TDS, TCS appears in your tax statement and is adjusted against your final tax.
Key takeaways
- TDS is tax cut by the payer before paying you; TCS is tax collected by a seller.
- FD interest TDS: 10% above ₹50,000 a year per bank (₹1 lakh for seniors).
- Without your PAN, TDS is usually much higher.
- Form 121 (earlier 15G/15H) stops TDS if your total tax will be nil.
- TDS shows in Form 168 (earlier 26AS) and AIS, and is subtracted from your final tax.
Quick quiz
What is TDS?
Answer: Tax cut by the payer before paying you. TDS is deducted by the payer and deposited in your name.
A 40-year-old earns ₹45,000 FD interest from one bank. Will the bank deduct TDS?
Answer: No, it is below ₹50,000. For people below 60, TDS starts above ₹50,000 of interest a year per bank.
What replaced Forms 15G and 15H?
Answer: Form 121. Form 121 is the self-declaration under the new law.
Your TDS is more than your final tax. What happens?
Answer: You get a refund after filing. Excess TDS is refunded when you file your return.