TDS a Startup Must Deduct (and the Penalties Hyderabad Founders Miss)

Here is a quiet, expensive mistake we see constantly among new companies: founders pay their vendors, consultants, contractors and landlords in full — and forget they were legally required to deduct TDS first. Two years later it surfaces in an assessment as disallowed expenses, interest and penalty. If you have just finished your company registration in Hyderabad and started spending, understanding TDS for startups is not optional. This guide sets out what a startup must deduct, when, and what happens if you don’t. (Rates and thresholds change from time to time; verify the current figures before deducting.)

Why TDS matters more than founders think

Once your company crosses into needing a TAN (allotted with incorporation via SPICe+), it becomes a deductor. The law expects you to deduct tax at source on certain payments, deposit it with the government, and file quarterly TDS returns. Skip it, and the consequences hit the company twice: the expense can be disallowed, and interest and penalties apply on top.

The TDS sections a typical startup runs into

These are the ones most Hyderabad startups — from IT teams in HITEC City and Madhapur to services firms in Gachibowli and Kondapur — encounter first:

• Section 192 — Salary: TDS on employee salaries at slab rates.
• Section 194J — Professional / technical fees: typically 10% (2% for certain technical services), where such payments exceed ₹30,000 in a year to a payee. This catches your CA, lawyer, consultants, freelancers and agencies.
• Section 194C — Contractors: generally 1% (payments to individuals/HUF) or 2% (others), with thresholds of ₹30,000 for a single payment or ₹1,00,000 in aggregate in a year.
• Section 194-I — Rent: for a company paying office rent, generally 10% on land/building where annual rent exceeds ₹2,40,000.
• Section 194Q — Purchase of goods: 0.1% where purchases from a seller exceed ₹50 lakh in a year (for buyers above the turnover threshold).

Other sections (commission, interest, and so on) can also apply depending on your payments. The exact rate and threshold for each payment should be checked, because several TDS rates were revised recently.

The part that actually hurts: 30% disallowance

If you fail to deduct (or deduct but don’t deposit) TDS on an expense, 30% of that expense can be disallowed under Section 40(a)(ia) — meaning you pay income tax as if you never incurred 30% of the cost. On top of that:

• Interest for late deduction (1% per month) and late deposit (1.5% per month);
• Late-filing fee under Section 234E of ₹200 per day for delayed TDS returns; and
• Potential penalties for non-deduction.

For a young company watching its runway, this is entirely avoidable leakage.

Not sure what TDS your startup should be deducting? Ask a CA near you in Hyderabad — call 99595 36391 or WhatsApp ComplianceKart.

The TDS rhythm to build into your startup

1. Deduct at the time of payment or credit, whichever is earlier.
2. Deposit with the government by the due date (generally the 7th of the next month).
3. File quarterly TDS returns and issue TDS certificates (Form 16 / 16A) to deductees.

Set this up as a monthly routine from day one, exactly like GST and payroll. Founders who treat TDS as a monthly habit never face the year-end disallowance shock.

Why founders search for a CA firm near me for this

TDS is low-glamour but high-consequence, and the rules (rates, thresholds, sections) shift often. Whether you run a startup in Kokapet, Nanakramguda or Kukatpally, having a CA firm near you map which sections apply to your specific vendors — and run the monthly deduct-deposit-file cycle — removes both the risk and the headache.

Frequently Asked Questions

Does a small startup really need to deduct TDS?

Yes. Once your company has a TAN and makes payments like professional fees, contractor payments, rent or salaries above the relevant thresholds, it must deduct TDS, deposit it, and file quarterly returns — regardless of size.

What happens if a startup doesn’t deduct TDS?

30% of the relevant expense can be disallowed under Section 40(a)(ia), and interest, a late-filing fee under Section 234E (₹200/day) and penalties can apply. It is expensive and avoidable.

What TDS applies when I pay my CA or a consultant?

Professional or technical fees generally attract TDS under Section 194J — typically 10% (2% for certain technical services) — where payments exceed ₹30,000 in a year to that payee.

Is TDS applicable on office rent paid by my company?

Yes. A company paying rent on land or building generally deducts TDS under Section 194-I at 10% where the annual rent exceeds ₹2,40,000.

When must TDS be deposited and returns filed?

TDS is generally deposited by the 7th of the following month, and TDS returns are filed quarterly, after which TDS certificates are issued to deductees. Exact dates should be confirmed each period.

Run a clean TDS cycle — with a Hyderabad CA firm

ComplianceKart sets up and runs the full TDS cycle for startups across Hyderabad — HITEC City, Gachibowli, Kondapur and Kokapet — so you never lose an expense to disallowance. Call 99595 36391, WhatsApp us, or contact us — your Virtual CA · CS · Advocate.