Starting 1st April 2026, many individuals and Hindu Undivided Families (HUFs) will find themselves subject to Tax Deducted at Source (TDS) obligations for the first time. The trigger is straightforward — if your aggregate turnover, gross receipts, or total sales during FY 2025-26 exceed specified thresholds, you must deduct TDS on certain payments made from 1st April 2026 onwards.
This is not a new tax. It is a compliance responsibility that requires you to deduct tax from payments made to others and deposit it with the government on their behalf. Failure to comply attracts interest, penalties, and prosecution proceedings.
The Three Turnover Thresholds You Must Know
Threshold 1: Rs 50 Lakh — Professionals (Individuals and HUFs)
If you are an individual or HUF earning income from a profession and your gross receipts during FY 2025-26 exceeded Rs 50 Lakh, you become liable to deduct TDS on profession-related payments from 1st April 2026.
This covers professionals such as chartered accountants, doctors, lawyers, architects, engineers, interior decorators, and other notified professionals under Section 44AA. Once this threshold is breached, you must deduct TDS under Sections 194C, 194J, 194H, 194I, and other applicable sections on payments made in the course of your professional activity.
Threshold 2: Rs 1 Crore — Business Owners (Individuals and HUFs)
If you are an individual or HUF earning income from business and your total sales, turnover, or gross receipts during FY 2025-26 exceeded Rs 1 Crore, you must deduct TDS on business-related expenses from 1st April 2026.
This applies to proprietorship firms, traders, manufacturers, and any individual or HUF carrying on business. The relevant sections include 194C (contractors), 194J (professional and technical services), 194H (commission and brokerage), and 194I (rent).
Threshold 3: Rs 10 Crore — Section 194Q (Purchase of Goods)
If the aggregate turnover, gross receipts, or total sales of an individual or HUF exceed Rs 10 Crore during FY 2025-26, an additional obligation under Section 194Q kicks in from 1st April 2026. You must deduct TDS at 0.1% on the purchase of goods from any resident seller where the aggregate purchase value exceeds Rs 50 Lakh in the financial year.
The value of goods is calculated excluding GST. This provision applies irrespective of the nature of goods purchased.
Which TDS Sections Apply?
| Section | Nature of Payment | TDS Rate | Threshold Per Payee |
|---|---|---|---|
| 194C | Contractors and sub-contractors | 1% (individual/HUF); 2% (others) | Rs 30,000 single or Rs 1,00,000 aggregate/year |
| 194J | Professional and technical services | 10% (professional); 2% (technical/royalty) | Rs 50,000/year |
| 194H | Commission and brokerage | 2% | Rs 20,000/year |
| 194I | Rent — plant and machinery | 2% | Rs 50,000/month |
| 194I | Rent — land, building, furniture | 10% | Rs 50,000/month |
| 194Q | Purchase of goods (Rs 10 Cr turnover) | 0.1% | Rs 50 Lakh per seller/year (excl. GST) |
| 194M | Payments by non-audit individuals/HUFs | 2% | Rs 50 Lakh aggregate/year |
Important Note on Section 194M
Section 194M is a special provision for individuals and HUFs who are not required to get their accounts audited under Section 44AB. If you fall below the audit thresholds but still make payments exceeding Rs 50 Lakh in aggregate to contractors, professionals, or as commission, you must deduct TDS at 2% under Section 194M. This means even small professionals and business owners have a TDS obligation if their payments are large enough.
How to Calculate Aggregate Turnover
The turnover threshold is determined based on the immediately preceding financial year. For TDS obligations starting 1st April 2026, you look at your turnover during FY 2025-26.
- For business: Total sales, turnover, or gross receipts from all business activities — including cash sales, credit sales, export sales, and any other revenue from business operations.
- For profession: Gross receipts from professional services rendered during the year, regardless of the method of accounting (cash or accrual).
- For Section 194Q: Aggregate of total sales, turnover, and gross receipts from business. The Rs 10 Crore threshold considers total business turnover, not just purchases.
Key clarification: If more than 95% of your total receipts and payments are through banking channels (non-cash), the tax audit threshold under Section 44AB is enhanced to Rs 10 Crore. However, for TDS applicability under Sections 194C, 194J, 194H, and 194I, the base threshold remains Rs 1 Crore for business.
Section 194Q — Purchase of Goods: A Closer Look
- Who must deduct: Any buyer whose total turnover exceeds Rs 10 Crore in the preceding financial year.
- When to deduct: At the time of credit to the seller's account or at the time of payment, whichever is earlier.
- Rate: 0.1% on purchase value exceeding Rs 50 Lakh from a single seller in the FY. If the seller does not furnish PAN, the rate increases to 5%.
- GST exclusion: The value of goods is taken excluding GST, provided GST is indicated separately in the invoice.
- Interplay with Section 206C(1H): If both buyer TDS (194Q) and seller TCS (206C(1H)) obligations exist on the same transaction, Section 194Q takes precedence.
Practical Examples
Example 1: Doctor with Rs 65 Lakh Professional Receipts
Dr. Sharma's gross professional receipts in FY 2025-26 were Rs 65 Lakh. From 1st April 2026, he must deduct TDS on professional payments. If he pays Rs 2 Lakh to a hospital maintenance contractor, he must deduct TDS at 1% (Rs 2,000) under Section 194C.
Example 2: Trader with Rs 1.5 Crore Turnover
Mr. Gupta runs a trading business with total sales of Rs 1.5 Crore in FY 2025-26. From 1st April 2026, if he pays Rs 40,000 as commission to a broker, he must deduct TDS at 2% (Rs 800) under Section 194H since the payment exceeds Rs 20,000.
Example 3: Wholesaler with Rs 12 Crore Turnover
Mrs. Patel's wholesale business had Rs 12 Crore turnover in FY 2025-26. From 1st April 2026, she must deduct TDS under Section 194Q when purchasing goods from any single seller exceeding Rs 50 Lakh (excl. GST). If she buys Rs 80 Lakh worth of goods from Seller A, she deducts 0.1% on Rs 30 Lakh (amount exceeding Rs 50 Lakh threshold) = Rs 3,000.
Penalties for Non-Compliance
| Default | Consequence | Provision |
|---|---|---|
| Failure to deduct TDS | Interest at 1% per month from date deductible to date of actual deduction | Section 201(1A) |
| Failure to deposit after deduction | Interest at 1.5% per month from deduction to actual deposit | Section 201(1A) |
| Late filing of TDS return | Late fee of Rs 200 per day, up to the TDS amount | Section 234E |
| Failure to file TDS return | Penalty of Rs 10,000 to Rs 1,00,000 | Section 271H |
| Disallowance of expense | 30% of payment disallowed as business expense | Section 40(a)(ia) |
The disallowance under Section 40(a)(ia) is particularly damaging — if you fail to deduct TDS on a Rs 10 Lakh contractor payment, Rs 3 Lakh will be disallowed from your business expenses, increasing your taxable income.
Summary: Quick Reference
| Category | FY 2025-26 Threshold | TDS Sections | From |
|---|---|---|---|
| Individual/HUF — Professional | Gross receipts > Rs 50 Lakh | 194C, 194J, 194H, 194I | 01/04/2026 |
| Individual/HUF — Business | Turnover > Rs 1 Crore | 194C, 194J, 194H, 194I | 01/04/2026 |
| Individual/HUF — Goods Purchase | Turnover > Rs 10 Crore | 194Q (purchases > Rs 50L/seller, excl. GST) | 01/04/2026 |
| Individual/HUF — Below Audit | No turnover threshold | 194M (payments > Rs 50L aggregate) | Already in force |
Action Items Before 1st April 2026
- Calculate your FY 2025-26 turnover or gross receipts to determine which threshold you fall under.
- Apply for TAN if you do not already have one (required for Sections 194C, 194J, 194H, 194I, and 194Q).
- Set up accounting systems to track payments that exceed TDS thresholds for each payee.
- Collect PAN details from all vendors, contractors, professionals, and suppliers.
- Register on the TRACES portal for filing TDS returns and generating TDS certificates.
- Brief your accountant or tax professional about the new obligations.
The transition from being a TDS-free individual or HUF to a TDS-compliant one is a significant compliance step. Plan ahead, set up the right systems, and ensure timely deduction and deposit to avoid the costly consequences of non-compliance.
Comments (6)
Good article Priya. For lawyers specifically — if a CA firm pays you more than 50K in a year, they deduct 194J. But if you as a lawyer pay a junior more than 30K, you deduct 194C. People mix these up.
The 95% digital payment route to get Rs 10 Cr audit threshold — does that also change the TDS obligation threshold from 1 Cr? Or is it still 1 Cr for TDS?
One thing to add — dont forget Section 206AB higher TDS rate for non-filers. If your vendor hasnt filed returns for 2 years, TDS rate doubles. Check on the compliance portal.
Section 194Q vs 206C(1H) interplay is tricky. We had to restructure our vendor payment systems when 194Q was first introduced. Buyer TDS prevails is the key takeaway.
Many of my clients with Rs 60-70 lakh turnover dont even know they need TAN. This article should be mandatory reading for every new business owner.
The 30% disallowance under 40(a)(ia) is what catches most small business owners off guard. Good that you highlighted it with a practical example.