The moment your company starts paying salaries, vendors, rent, or professional fees, the tax department expects you to act as its collection agent. Tax Deducted at Source (TDS) means you withhold a small slice of certain payments and hand it to the government on the recipient's behalf. Separately, your company must pay its own income tax in installments through the year as Advance Tax. Both are strict-deadline compliances where the penalties fall on you, the payer, not the person you paid. Here is what a first-time founder needs to run correctly.
Step one: get a TAN
Before you deduct a single rupee, your company needs a Tax Deduction and Collection Account Number (TAN), a 10-character number distinct from your PAN. You quote it on every TDS deposit, return, and certificate. Deducting TDS without a TAN, or failing to obtain one when required, attracts a penalty of Rs. 10,000.
Deduct: the common sections
TDS applies only above per-section thresholds and at fixed rates. If the payee does not give a valid PAN, you must deduct at 20% or the section rate, whichever is higher (Section 206AA). The sections a startup meets most often (FY 2025-26 rates and thresholds) are:
- Section 192, Salary: deduct at the employee's applicable income-tax slab rate on estimated annual salary.
- Section 194C, Contractors: 1% for individual or HUF payees, 2% for companies and firms. Applies above Rs. 30,000 per single payment or Rs. 1,00,000 in aggregate over the year.
- Section 194J, Professional and technical fees: 10% for professional services, 2% for technical services, once payments cross Rs. 50,000 in the year.
- Section 194H, Commission or brokerage: 2%, threshold Rs. 20,000 per year.
- Section 194I, Rent on land or building: 10%, when rent exceeds Rs. 50,000 per month.
Deposit: pay it in fast
TDS you deduct in any month must be deposited with the government by the 7th of the following month. The one exception is TDS deducted in March, which is due by 30 April. Late deposit is expensive: interest runs at 1% per month from the date the tax was deductible until you actually deduct it, and 1.5% per month from deduction until deposit, under Section 201(1A).
File quarterly returns and issue certificates
Deducting and depositing is not enough. You must also file quarterly TDS returns so the credit reflects in the payee's Form 26AS. Use Form 24Q for salary TDS and Form 26Q for most non-salary payments to residents. The due dates for FY 2025-26 are:
- Quarter 1 (Apr to Jun): 31 July 2025
- Quarter 2 (Jul to Sep): 31 October 2025
- Quarter 3 (Oct to Dec): 31 January 2026
- Quarter 4 (Jan to Mar): 31 May 2026
After filing, issue Form 16 to employees (annually) and Form 16A to other payees (quarterly). Missing a return costs Rs. 200 per day under Section 234E until you file, capped at the TDS amount, plus a possible penalty of Rs. 10,000 to Rs. 1,00,000 under Section 271H.
Advance Tax: your company's own tax, paid in installments
TDS is tax on money you pay out. Advance Tax is the income tax your company owes on its own profits, paid as you earn rather than in one lump sum. Any taxpayer whose tax liability for the year, after reducing TDS already deducted, is Rs. 10,000 or more must pay it in four installments:
- By 15 June: 15% of estimated tax
- By 15 September: 45% (cumulative)
- By 15 December: 75% (cumulative)
- By 15 March: 100%
Miss these and interest applies: 1% per month under Section 234C for shortfalls in each installment, and 1% per month under Section 234B if you pay less than 90% of your total tax by year-end. A practical tip: estimate profit conservatively each quarter with your accountant and pay a little extra rather than risk the shortfall interest.
The founder's takeaway
Build a simple monthly rhythm. Deduct at the right rate when you pay, deposit by the 7th, file the return each quarter, and set calendar reminders for the four advance tax dates. These are low-effort tasks that become costly only when ignored.