What is Tax Deducted at Source (TDS)?
Nexa Consultancy | Startup & Finance Glossary
Tax Deducted at Source (TDS) is an Indian tax concept where a person (the deductor) making a specified payment (like salary, rent, commission, or professional fees) is responsible for deducting tax at the point of payment, rather than the recipient paying it later. The deducted tax is then deposited with the government.
Why it Matters for Startups:
TDS compliance is a major responsibility for startups. As a business, you are required to deduct TDS on a wide range of payments you make. Failure to deduct or deposit TDS on time can lead to significant interest, penalties, and disallowance of the expense, increasing your own tax liability.
Example:
A startup pays a freelance designer ₹50,000 for a project. Since this is a professional fee exceeding the ₹30,000 threshold, the startup must deduct 10% TDS (₹5,000), pay the designer ₹45,000, and deposit the ₹5,000 TDS with the government.