TDS and TCS Compliance for Small Businesses in India: 2025 Edition
Introduction
Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are crucial aspects of tax compliance for small and medium-sized businesses (SMEs) in India. Non-compliance can result in hefty penalties, disallowance of expenses, and even legal scrutiny. This 2025 guide by Makwana Sweta & Associates, trusted Chartered Accountant in Mumbai, walks you through everything SMEs must know about TDS and TCS.
What is TDS?
TDS is the tax deducted at the point of making specific payments such as salary, contractor payments, rent, professional fees, etc. It ensures tax collection at the source of income.
Applicability for SMEs: If your turnover exceeds Rs. 1 crore (business) or Rs. 50 lakh (profession), you must deduct TDS under various sections such as:
- Section 194C: Payments to contractors
- Section 194J: Professional or technical service fees
- Section 192: Salary payments
- Section 194I: Rent
TDS Rate Example (FY 2024-25):
- Professional fees above Rs. 30,000/year: 10%
- Rent above Rs. 2.4 lakh/year: 10%
What is TCS?
TCS is the tax collected by a seller while receiving payment for goods/services specified under the Income Tax Act, such as:
- Sale of scrap
- Sale of minerals, timber
- Sale of goods exceeding Rs. 50 lakh/year (Section 206C(1H))
Example: If you sell goods worth over Rs. 50 lakh, 0.1% TCS must be collected on the excess amount.
Key TDS/TCS Compliance Requirements
1. Obtaining TAN (Tax Deduction and Collection Account Number)
Every business deducting TDS or collecting TCS must obtain a TAN.
2. Timely Deduction & Collection
TDS must be deducted at the time of payment or credit, whichever is earlier. TCS must be collected at the time of sale or receipt, as specified.
3. Deposit of TDS/TCS
- Due Date: 7th of the following month
- Mode: Online through challan ITNS 281
4. Filing of TDS/TCS Returns
Returns must be filed quarterly:
- TDS: Form 24Q, 26Q
- TCS: Form 27EQ
5. Issuance of Certificates
- TDS: Form 16 (Salary), Form 16A (Non-salary)
- TCS: Form 27D
6. Late Fees & Penalties
- Late filing fee: Rs. 200/day under Section 234E
- Penalty for non-filing: Up to Rs. 1 lakh under Section 271H
- Interest: 1%/1.5% per month for delayed deduction or deposit
Budget 2025 Updates
- Threshold for TDS on online gaming winnings lowered to Rs. 10,000 per month.
- Relaxation for MSMEs: TDS not applicable on delayed payments within 45 days.
- Digital payments: UPI and online payments above Rs. 5 lakh may trigger automated TDS alerts.
(Source: Budget Highlights 2025 – Income Tax Department)
Practical Tips for Small Businesses
- Automate TDS calculations using accounting software
- Set reminders for TDS deposit deadlines
- Reconcile TDS with Form 26AS monthly
- Outsource compliance to Tax Consultants Mumbai for accuracy
Common Mistakes to Avoid
- Not obtaining a TAN before deduction
- Incorrect TDS section usage (e.g., applying 194J instead of 194C)
- Missing quarterly filing deadlines
- Failure to issue TDS certificates
Role of a Chartered Accountant in Mumbai
A professional CA in Mumbai like Makwana Sweta & Associates helps you:
- Determine applicable TDS/TCS sections
- File accurate returns
- Avoid penalties
- Maintain full audit readiness
Inbound Link:
Outbound Link:
TDS & TCS Circulars – Income Tax India
Final Thoughts
TDS and TCS compliance may seem daunting, but with timely actions and expert support, it becomes a smooth process. At Makwana Sweta & Associates, we ensure that your business meets all statutory requirements with ease.
Need help with TDS compliance for SMEs? Get in touch with our Chartered Accountant Services Mumbai team today.