Indian TDS Withholding Slabs: Invoicing Compliance Rules

Last Updated: June 2026 • By Tushar Gupta

Tax Deducted at Source (TDS) is a system introduced by the Income Tax Department where the person responsible for making a payment is required to deduct tax at source and deposit it into the government account. For professionals, freelancers, and businesses, understanding TDS rates prevents compliance penalities and ensures accurate cash flow projection.

1. How TDS Works on Invoices

When you raise a professional invoice for a corporate client, they do not pay you the full amount. Instead, they deduct a specific percentage (TDS) based on the nature of the service under the Income Tax Act guidelines. The deducted tax is deposited under your **PAN card** and shows up in your **Form 26AS**, which you can claim as tax credits when filing your annual income tax return.

2. Common TDS Sections for Professionals and Businesses

Section 194J: Professional or Technical Services

Scope: Covers fees for professional services (doctors, lawyers, engineers, designers, consultants) and technical services.
Threshold: No deduction if the annual cumulative billing is under ₹30,000.
Rate: 10% for professional services; 2% for technical services, call center operations, or royalty payments.

Section 194C: Payments to Contractors

Scope: Covers contracts for carrying out any work (including supply of labor, advertising, broadcasting, catering, etc.).
Threshold: Deducted if a single transaction exceeds ₹30,000 or the annual aggregate exceeds ₹1,00,000.
Rate: 1% if the contractor is an Individual/HUF; 2% for Companies, partnership firms, and other entities.

Section 194I: Rent Payments

Scope: Rent paid for land, building, furniture, or plant & machinery.
Threshold: Exceeds ₹2,40,000 per annum.
Rate: 2% for plant & machinery; 10% for land, buildings, and furniture.

3. Crucial Rule: PAN Requirement

Always ensure that your PAN number is clearly printed on your invoices. As per **Section 206AA**, if a deductee fails to provide their PAN card to the deductor, the client is legally required to deduct TDS at a flat penal rate of 20% (or the rate in force, whichever is higher), regardless of the standard threshold limits.

4. Summary Recommendation

When projecting your business income, factor in these withholding slabs so you know your exact net cash receipts. If your total annual tax liability is lower than the total TDS deducted, you can claim a full refund of the excess TDS when filing your tax returns.

Calculate your exact TDS deductions and net payouts for contract or professional invoices using our TDS Calculator.