Tax Deducted at Source

Key Operational Aspects

Introduction

Tax Deducted at Source (TDS) is deducted at the time of credit or payment of income, helping ensure regular tax collection and reducing chances of tax evasion. Even though NPOs get tax exemptions under Part B of Chapter XVII of the Income Tax Act, 2025, they are still required to follow TDS rules. NPOs have two roles under TDS:

As deductor when they make certain payments (like salary, rent, professional fees or contractor payments),
As deductee when they receive income on which tax is deducted (like interest or rent).

Below is explained how TDS applies to NPOs—including when it must be deducted, at what rate, the limits (thresholds), and the steps NPOs need to follow for compliance.

Applicability of TDS

When an NPO makes specified payments to third parties such as employees, professionals, contractors, etc. TDS may be applicable depending on the nature and amount of the payment. NPOs are required to deduct tax at source just like any other organization.

Key Sections under which NPOs are required to deduct TDS

Salary (section 392) – As per slab
Other than Salary Section 393 (1)

Section	Nature of Payment	Table Sl. No.	Code	Threshold Limit	TDS Rate
392	Payment of Salary to Employees other than Government Employees	-	1002	As per slab
393(1)	Commission or brokerage - insurance	1(i)	1005	20,000	10%
393(1)	Commission or brokerage - others	1(ii)	1006	20,000	2%
393(1)	Rent paid by a person other than specified person	2(i)	1007	Rs. 50,000 for a month or part of a month.	2%
393(1)	Rent for use of any machinery or plant or equipment – paid by a specified person	2(ii).D(a)	1008	Rs. 50,000 for a month or part of a month.	2%
393(1)	Rent for the use of any land, or building (including factory building), or land appurtenant to a building (including factory building), or furniture, or fittings. – paid by specified person	2(ii).D(b)	1009	Rs. 50,000 for a month or part of a month.	10%
393(1)	Any sum for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a designated person – if contractor is individual or Hindu undivided family	6(i).D(a)	1023	30,000 for any such sums and Rs. 100000 in case of aggregate of such sums	1%
393(1)	Any sum for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and a designated person – if contractor is a person other than individual or Hindu undivided family	6(i).D(b)	1024	30,000 for any such sums and Rs. 100000 in case of aggregate of such sums	2%
393(1)	Any sum by way of–– (a) fees for technical services (not being a professional services); or (b) royalty in the nature of consideration for sale, distribution or exhibition of cinematographic films; or (c) payee, engaged only in the business of operation of call centre - from Specified person	6(iii).D(a)	1026	50,000	2%
393(1)	Any sum by way of–– (a) fees for professional services; or (b) any sum referred to in section 26(2)(h) - from Specified person	6(iii).D(b)	1027	50,000	10%
393(1)	Any sum for purchase of any goods by any person being a buyer ( u/s 402(6))	8(ii)	1031	Exceeding 5,000,000	0.1%
393(1)	Any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession of any resident from specified person	8(iv)	1033	20,000	10%

For the purpose of Section 393(1) - a “specified person” is defined under section 402(37) of Income Tax Act, 2025 as:

1. Any person other than an individual or a Hindu Undivided Family (HUF).
2. An individual or a HUF whose total sales, gross receipts, or turnover from the business or profession carried on by them exceeds Rs. 1 crore in case of a business or Rs. 50 lakhs in case of a profession during the tax year immediately preceding the tax year in which such income or sum is credited or paid.

When to be Deducted

TDS must be deducted at the time of credit of the amount to the payee’s account or at the time of payment, whichever is earlier. However, as an exception, TDS u/s.392 is to be deducted at the time of payment.

Non-compliance with the deduction of the TDS can lead to 1% interest per month from the date on which TDS was deductible to date of deduction u/s 398(3)(a)(i).

When to be Deposited

TDS deducted must be deposited with the Central Government:

By 7th of the next month for all months except March.
For deductions in March: by 30th April of the next financial year.

(Payment is made using Challan ITNS-281). Non-compliance with the deposit of the TDS challan can lead to 1.5% interest per month from the date of deduction to date of deposit u/s 398(3)(a)(ii).

Filing of Return

Quarterly filing of the TDS return is a mandate. Failure to file TDS return on time may attract a fee of INR 200 per day, subject to amount of TDS. Following due dates are specified for filing the returns:

Quarter	Period	Form	Due Date
Q1	April–June	138/140	31st July
Q2	July–September	138/140	31st October
Q3	October–December	138/140	31st January
Q4	January–March	138/140	31st May

Issuance of TDS Certificates

NGOs must issue TDS certificates: Following Forms are issued to the deductee:

Form 130 – For salary payments (annually) (15^th June of the next tax year)
Form 131 – For non-salary payments (quarterly) Within 15 days following the due date for quarterly TDS return

Interest, Penalties & Punishment

Failure to deduct income-tax at source on various payments as discussed may attract interest, penalty and even severe punishment.

- If an organisation does not deduct tax then interest @ 1% per month or part of the month would be levied on the tax not deducted from the date on which such tax was deductible to the date on which such tax is deducted, under section 398(3)(a)(i).

- If an organisation has not paid the amount deducted then interest @ 1.5% per month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid under sec. 398(3)(a)(ii).

- The Income Tax Department may also levy penalties to the extent of the amount of tax not deducted in cases of failure to deduct tax, under section 448.

- If the tax is deducted but not deposited in favour of the Central Government as per the provisions of the Income-Tax Act, then the person can be punished with (Sec.476):

Simple imprisonment of upto 2 years or with fine or both where the amount of such tax exceeds 50 lakh rupees;
Simple imprisonment of upto 6 months or with fine or both where the amount of such tax exceeds 10 lakh rupees but does not exceed 50 lakh rupees;
with fine, in any other case.

Under section 476.

- If the returns required to be furnished under section 397(3)(b) are not filed then a penalty of Rs.200 per day may be imposed for each day of default, but total shall not exceed TDS amount deductible (Sec. 427).