TDS and TCS basics for 2026-27: salary, FD interest, rent, fees and foreign remittances
TDS on salary (section 392) and other payments (section 393), common rates and thresholds, TCS on remittances and claiming credit for 2026-27.
TDS (tax deducted at source) is tax that the payer cuts from a payment to you and deposits against your PAN. TCS (tax collected at source) is tax that a seller or remitter adds on top of what you pay. Neither is an extra tax: both are advance payments of your own income tax, and you claim them as credit in your return. Under the Income-tax Act, 2025, TDS on salary is governed by section 392, and most other TDS (bank interest, rent, professional fees, commission, property purchases) is consolidated into one table in section 393. If TDS is more than your final tax you get a refund. If it is less, you pay the difference.
How TDS on salary works
Your employer estimates your income for the year, works out tax under the regime you have declared, and spreads it over the remaining months. Under section 392 the employer must:
- deduct at the average rate of tax on your estimated income for the year;
- take into account details you give, such as salary from a previous employer this year, loss from a let-out house property, or other income you want included;
- collect evidence for deductions you claim (rent receipts, investment proofs) if you choose the old regime;
- issue you a salary TDS certificate after the year ends. It was Form 16 under the old rules; from tax year 2026-27 it is Form 130 under the Income-tax Rules, 2026, due by 15 June after the year, and the employer's quarterly salary TDS return is Form 138 (formerly Form 24Q). Form 16 still covered FY 2025-26.
Illustrative example. Gross salary ₹18 lakh, new regime: estimated tax ₹1,50,800 (see the new regime slab guide). Monthly TDS ≈ ₹1,50,800 ÷ 12 = ₹12,567. If you join mid-year, give your new employer the previous employer's salary and TDS. Otherwise both will apply the lower slabs and you will owe tax when you file.
TDS on other common payments
The thresholds and rates below were in force under the 1961 Act from 1 April 2025 and were carried into the section 393 table. Thresholds apply per payer, per year unless stated. Confirm the current figure on the Income Tax Department's website before relying on it.
| Payment to you | Typical rate | Notes |
|---|---|---|
| Interest on bank, co-operative bank and post office deposits | 10% | Threshold ₹50,000 a year per bank (₹1,00,000 for senior citizens) |
| Other interest (e.g. company deposits, bonds) | 10% | Lower thresholds than bank interest |
| Dividends | 10% | Above ₹10,000 a year per company or fund |
| Rent paid by individuals not liable to audit | 2% | Where rent exceeds ₹50,000 a month |
| Professional or technical fees | 10% / 2% | Thresholds per payer |
| Lottery, game shows, online games | 30% | On net winnings |
| Purchase of property from a resident | 1% | Consideration ₹50 lakh or more |
| Any of the above without a valid PAN | Usually 20% or more | A key reason to keep PAN and Aadhaar linked |
Withdrawals from the Employees' Provident Fund before five years of continuous service can also attract TDS at 10% where the amount is ₹50,000 or more (section 392 covers provident fund payments).
Avoiding unnecessary TDS on interest
If your total income is below the taxable limit, you can give the bank a self-declaration that your income is not taxable, so it does not deduct TDS. It was known as Form 15G (or 15H for senior citizens) and may have a new number under the new rules. Points to check:
- The declaration is valid only if your estimated tax on total income is nil. A false declaration is an offence.
- For non-seniors, the total interest covered usually must be below the basic exemption limit.
- Submit it at the start of the tax year to every bank where you hold deposits.
Under the new regime, many people earning up to ₹12 lakh owe no tax because of the rebate, even though their income is above the basic exemption. Whether they can use the declaration depends on the conditions in the current rules. Ask the bank or check the form's eligibility text.
TCS: when tax is added to what you pay
TCS applies to some purchases and remittances, for example:
- money sent abroad under the Liberalised Remittance Scheme above a yearly threshold (with different treatment for education and medical treatment);
- overseas tour packages;
- certain purchases such as motor vehicles above ₹10 lakh and some other specified goods.
Rates and thresholds for foreign remittances and tour packages have been revised several times in recent budgets. From 1 April 2026 the Finance Act, 2026 cut TCS on overseas tour packages to a flat 2% with no threshold, and on education or medical remittances above ₹10 lakh to 2%; other LRS remittances above ₹10 lakh stay at 20%. Check the current table before you send money. TCS shows in your Form 26AS and Annual Information Statement, and you claim it in your return like TDS. A salaried person can also ask the employer to take TCS into account when deducting salary TDS, which helps cash flow.
Claiming credit and fixing mismatches
- Check Form 26AS and the Annual Information Statement (AIS) on the e-filing portal at least once a quarter. Every TDS and TCS entry should appear against your PAN.
- If an entry is missing, ask the deductor to file or correct its TDS statement. You can claim credit only for tax that appears against your PAN.
- If TDS was deducted in one year but the income belongs to another (for example accrued interest), report the income in the year it is taxable and claim the TDS in that year, keeping the certificate.
- Use the TDS calculator to check that the amount deducted matches the rate.
See the AIS and 26AS mismatch guide for how to correct errors.
Is TDS my final tax?
No. Interest, rent and fees are added to your total income and taxed at your slab rate. A bank that deducts 10% on FD interest leaves a 30%-slab taxpayer owing about 21.2% more (31.2% − 10%) on that interest. Pay it as advance tax if your total remaining liability is ₹10,000 or more. See the advance tax guide and the tax year overview.
Frequently asked questions
My bank deducted TDS but my income is below ₹12 lakh. Will I get it back?
Yes, if your final tax is nil, file a return and the TDS is refunded. A return is the only way to claim it.
Does TDS apply to savings account interest?
Generally no, but the interest is taxable and must be reported. The old regime allows a deduction of up to ₹10,000 (₹50,000 on deposits for senior citizens).
Who deducts TDS when I pay rent above ₹50,000 a month?
If you are an individual not under audit, you deduct 2% and deposit it with a challan-cum-statement. You do not need a TAN for this.
Sources
- Income Tax Department: sections 392 and 393 of the Income-tax Act, 2025 and the TDS rate chart
- Income Tax e-filing portal: Form 26AS, AIS and TDS statements
- TRACES: TDS certificates and correction status
- Reserve Bank of India: Liberalised Remittance Scheme rules
