TDS Compliance for Enterprises in India: Checklist, Forms and Penalties

TDS compliance is a statutory obligation governed by the Income Tax Act. An enterprise is required to deduct a tax component before remitting payment to their suppliers. With the help of TDS compliances, the department is able to track revenues and ensure tax compliance. 

Key Takeaways

• TDS compliance involves deduction, deposit, return filing, and issuance of TDS certificates to vendors and employees.
• Enterprises must track applicable multiple sections, their thresholds and rates to ensure correct deduction.
• Non-compliance can lead to interest, penalties, and expense disallowance.
• ERP automation is essential for managing voluminous TDS compliance efficiently.

What is TDS Compliance?

Tax Deducted at Source (TDS) is a mechanism under the Income Tax Act, 1961, where tax is deducted by an enterprise at the time of making payments and remitted to the department. Specific payments which are covered under TDS include salaries, professional services, rent, commissions, and interest. 

An enterprise needs to obtain a Tax Deduction Account Number (TAN), deduct tax at correct rates, and deposit it within statutory timelines. After which the enterprise shall file quarterly returns and issue TDS certificates to their parties. 

Why TDS Compliance is Important for Businesses & Enterprises?

Non-compliance under TDS can lead an enterprise to face penalties, interest and non-deduction of expenses when filing an income tax return; this increases cash outflow in the form of higher taxes, late fees and penalties. 

TDS non-compliance is highlighted during audits and due diligence. Under tax audit, the auditor is required to report the non-compliances that occurred during the year. Also, consistent defaults under TDS may affect the enterprise's credibility among investors, lenders, and departments.

TDS Compliance Checklist

Enterprises must ensure the following for TDS Compliance:

1. Obtain a valid TAN and certificate from the Income Tax Department. Usually, companies and LLPs are allotted PAN & TAN at the time of registration with the Ministry of Corporate Affairs.
2. A copy of PAN for all vendors, employees, and payees is accurately captured and validated. Also, an enterprise should track the relevant sections applicable to each party.
3. In case, PAN details are not submitted, an enterprise should ensure that TDS is deducted at a higher rate (for example, 20%).
4. Deduct TDS at the correct rate and deposit it within the due dates as detailed below.
5. Verify lower deduction certificate given by Income Tax Department to eligible vendors, accordingly lower rate of TDS will be deducted and details of this certificate will be specified in TDS returns as well.
6. Maintain details of all challan paid along with party-wise details, which will be used at the time of filing TDS returns.
7. Distribute TDS certificates obtained after filing https://cleartax.in/s/tds-return-form to all parties; this will assure the vendors and employees that their TDS has been correctly deposited in their name.

Types of TDS Returns and Due Dates

Enterprises are required to file quarterly TDS returns based on the nature of payments. Details of various forms filed under TDS return are as follows:

These forms need to be filed quarterly with the Income Tax Department. The due dates for respective quarters are as follows:

Consequences & Penalties of Non-Compliance of TDS

1. Interest: Failure to deduct TDS will attract interest at the rate of 1% per month or part of a month, while if an enterprise deducts TDS but fails to deposit the same, then the interest increases to 1.5%. 
2. Late Fees: A delay in filing returns under TDS will attract a fee of ₹200 per day up to a maximum of the TDS amount.
3. Penalties: Other interest and late fees, the department can also levy a penalty ranging from Rs 10,000 to Rs. 1,00,000, if the enterprise fails to submit TDS return within due dates or provides incorrect details.

TDS Compliance for Enterprises in India

Enterprises have to comply with multiple TDS sections simultaneously. For instance payment to  contractors, professionals, rent, salaries, and cross-border payments. Certain entities must comply with Section 194Q on the purchase of goods. 

Section 194T was introduced in FY 2025–26, requiring firms to deduct 10% TDS on remuneration, commission and interest payments to partners.

Managing these obligations requires oversight, clear delegation of responsibilities, and systems to track limits and exemptions. The enterprise, especially banks, must also manage declarations such as Form 15G/15H, which is required for non-deduction of TDS. 

Some of the most common TDS sections applicable to enterprises along with their nature of payments, threshold limit and rate of deduction are given in the following table:

TDS Forms Issued by Enterprises

The following forms are issued by an enterprise:

1. Form 16 to employees stating their annual income, value of perquisites, deductions and total TDS deposited.
2. Form 16A to vendors stating gross amount paid and total TDS deposited

Vendors and employees can check Form 26AS, which is accessed through the Income Tax Portal, to check whether the enterprise has correctly submitted their details.

How Can Enterprises Automate TDS Compliance?

The regulatory landscape has shifted. As regulators leverage digital intelligence, your business's tax profile is viewed in totality: direct and indirect tax data are cross-checked, and mismatches across GST, TDS, and ITR entries are flagged automatically.

The imperative is clear: books, GST, and TDS records must be reconciled and aligned prior to filing, not merely after notices land on your desk. Proactive financial intelligence is now a necessity to preempt assessments and automated government queries.

That’s where an AI-powered compliance platform comes in. Built to understand intricate TDS accounting logic, spot potential deduction or section mismatches, and self-orchestrate reporting readiness, such technology shifts TDS from being compliance-driven to intelligence-led.

When TDS transitions from fragmented processing to unified intelligence, finance leaders regain control over two core assets: Time and Money.

You gain:

• Continuous visibility into every rupee deducted or receivable.
• Confidence that reports presented to auditors, boards, or regulators are backed by complete data traceability.
• Faster closures and cleaner reconciliations every month and quarter.
• Minimised reliance on manual processes and spreadsheet-based workflows.
• Assurance that compliance accuracy keeps pace with business scale.

In short, TDS becomes predictable, transparent, and audit-ready, all driven by the intelligence of AI.

The shift has already begun. CFOs adopting systems like the Clear Finance Cloud for Compliance, featuring GL-Stream technology, are no longer reacting to compliance delays; they are proactively governing them. Dashboards flag errors before they turn into audit queries, reconciliations run continuously, and filings move seamlessly from ledger to tax portal.