Form 26Q — Quarterly TDS Return for Non-Salary Payments to Resident Payees

Form 26Q Filing Services in India

Form 26Q is the quarterly statement of tax deducted at source on all payments made to resident payees other than salary. Every company, LLP, partnership firm, bank, insurance company, and other TDS-liable deductor that makes payments to Indian residents in the course of business — contractor fees, professional fees, rent, commission, interest, and a long list of other payment types — must file Form 26Q within the prescribed time after each quarter. Form 26Q is the backbone of the domestic TDS compliance system: the TDS credits that appear in every Indian resident's AIS (Annual Information Statement) and Form 26AS on the income tax portal flow directly from their payors' quarterly Form 26Q returns. When a Form 26Q is filed incorrectly or late, the payee loses their TDS credit, and the payor faces penalties that are mandatory and automatic.

N D Savla & Associates, Chartered Accountants based in Mumbai, handles quarterly Form 26Q preparation and filing as part of our comprehensive TDS Return Filing service for all business clients. We cover every TDS section included in Form 26Q: interest on fixed deposits and bonds (Section 194A), contractor and sub-contractor payments (Section 194C), commission and brokerage (Section 194H), rent on plant/machinery and property (Section 194-I), professional and technical service fees (Section 194J), purchase of goods (Section 194Q), and all other domestic non-salary TDS provisions. We verify payee PAN data before each return, compute TDS at the correct section-specific rate, prepare the Form 26Q data file for upload, deposit TDS through ITNS 281 challans, and file the quarterly return through the income tax portal at incometax.gov.in by the due date.

Form 26Q is not an isolated compliance exercise — it sits at the centre of a connected web of obligations. The Section 234E late filing fee is mandatory and cannot be waived; every day of delay costs Rs. 200. The TDS credit not reflected in a payee's AIS due to incorrect Form 26Q data generates Section 143(1)(a) prima facie adjustment notices to the payee. The disallowance of business expenditure under Section 40(a)(ia) for TDS not deducted shows up in the deductor's own income tax return and tax audit. Getting Form 26Q right, on time, every quarter is one of the most critical compliance activities for any business entity.

What Is Form 26Q? — The Non-Salary TDS Return for Resident Payees

Form 26Q is one of the four quarterly TDS/TCS return forms prescribed under the Income Tax Act, 1961. It covers tax deducted at source under Chapter XVII-B of the Income Tax Act on payments to resident Indians in all categories other than salary. Every deductor who deducts TDS under any of the covered sections in a quarter must file Form 26Q for that quarter, even if the return is a NIL return (no deductions made). The return must be filed by the deductor's Tax Deduction Account Number (TAN).

Form 26Q vs Form 24Q vs Form 27Q

The four TDS forms divide TDS obligations by payee type and payment nature:

• Form 24Q: TDS on SALARY payments to RESIDENT employees (under Section 192). Filed quarterly; Q4 contains the complete salary and deduction details for Form 16 generation.
• Form 26Q: TDS on NON-SALARY payments to RESIDENT Indians (under all sections other than 192, 193 for debenture interest paid to non-residents, and 194E/195 for non-residents). This is the broadest TDS return by number of applicable sections.
• Form 27Q: TDS on payments to NON-RESIDENTS and foreign companies (under Section 195 and related sections). Covers all cross-border payments including royalties, FTS, interest, dividends to non-residents.
• Form 27EQ: TCS (Tax Collected at Source) on specified goods and services. Filed by sellers who collect TCS under Chapter XVII-BB.

Who Must File Form 26Q?

Every person who has a valid TAN and has deducted TDS under any of the covered provisions in a quarter is required to file Form 26Q for that quarter. This includes: all companies (private limited, public limited, OPCs); all LLPs and partnership firms; banks and NBFCs that deduct TDS on interest under Section 194A; insurance companies that deduct TDS on commission under Section 194D; individuals and HUFs that are required to deduct TDS (i.e., those subject to tax audit or those who deduct under the covered sections as non-specified persons); government entities deducting TDS on contractor payments; co-operative societies deducting TDS; and any other person with TAN obligations. See our TAN Registration page for the complete TAN requirement framework.

TDS Sections Covered in Form 26Q — Complete List

Form 26Q covers TDS under a comprehensive range of sections. The following are the primary sections that account for the majority of Form 26Q filings by businesses:

• Section 193: Interest on securities (debentures, government securities)
• Section 194: Dividends (by companies other than those paying under Section 194K)
• Section 194A: Interest from banks, post offices, co-operative banks, companies, firms, and other entities on deposits and loans
• Section 194B: Winnings from lotteries, crossword puzzles, and similar games above Rs. 10,000
• Section 194BB: Winnings from horse races above Rs. 10,000
• Section 194C: Payments to contractors and sub-contractors for carrying out work
• Section 194D: Insurance commission to agents
• Section 194DA: Payments under life insurance policies
• Section 194G: Commission on sale of lottery tickets
• Section 194H: Commission and brokerage payments
• Section 194-I: Rent on plant and machinery, land, building, and furniture/fittings
• Section 194J: Professional fees, technical service fees, royalties, director remuneration (non-salary), and non-compete fees
• Section 194K: Income distributed by mutual funds to unit holders
• Section 194LA: Compensation for compulsory acquisition of immovable property
• Section 194N: Cash withdrawals above Rs. 1 crore per year from bank/post office
• Section 194O: Payments by e-commerce operators to e-commerce participants
• Section 194Q: Payment for purchase of goods above Rs. 50 lakh per year (by buyers with turnover above Rs. 10 crore)
• Section 194R: Benefits or perquisites provided to a person in the course of their business or profession
• Section 194S: Transfer of Virtual Digital Assets (VDA / cryptocurrency) — for specified P2P and corporate deductors; exchanges file Form 26QF instead

Quarterly Due Dates for Form 26Q

Form 26Q must be filed within the prescribed time after the end of each quarter. The due dates are:

• Quarter 1 (April 1 to June 30): Due by 31 July of the same year
• Quarter 2 (July 1 to September 30): Due by 31 October of the same year
• Quarter 3 (October 1 to December 31): Due by 31 January of the next year
• Quarter 4 (January 1 to March 31): Due by 31 May of the next year

The Q4 due date of 31 May is later than the Q1/Q2/Q3 due dates, which are all one month after the quarter end. This extra time for Q4 accommodates the year-end accounting and TDS reconciliation activities. Note that the TDS return due date (31 May for Q4) is different from the income tax return due date (July 31 / October 31) — Form 26Q for the last quarter must be filed before many payees file their income tax returns, so that their TDS credits are available in Form 26AS when they file.

What Information Goes Into Form 26Q?

Form 26Q is structured in three sections: deductor details, challan details, and deductee (payee) details. Every Form 26Q return must accurately complete all three:

Section 1 — Deductor Details

The deductor's own details:

• TAN of the deductor (mandatory — Form 26Q cannot be filed without a valid TAN)
• PAN of the deductor (mandatory for non-government deductors)
• Full name of the deductor as per TAN registration records
• Complete address of the deductor's principal place of business
• Category of deductor: Company / Government / Branch / Co-operative Society / Others
• Financial year and quarter for which the return is being filed
• Contact person's name, designation, phone number, and email

Section 2 — Challan Details

For every challan through which TDS was deposited during the quarter, Form 26Q requires:

• BSR Code (Bank Serial Return Code) of the bank branch where the challan was deposited — 7-digit code
• Date of deposit of the challan (not the date of TDS deduction, but the date the bank accepted the challan)
• Challan serial number — 5-digit number printed on the challan counterfoil
• Total TDS amount deposited through the challan
• Total interest paid (if any under Section 201(1A) for delayed deposit)
• Section under which TDS was deposited (though a single challan can cover multiple sections)

Section 3 — Deductee (Payee) Details

For every payee from whom TDS was deducted during the quarter, Form 26Q requires:

• PAN of the payee (mandatory — if PAN is not available, enter the prescribed code, but TDS must be at 20% or higher rate under Section 206AA)
• Full name of the payee as per PAN records
• Amount of payment made to the payee on which TDS was deducted
• TDS section under which the deduction was made (e.g., 194A, 194C, 194J)
• Date of deduction (date when TDS was deducted from the payee's payment)
• TDS amount deducted
• Whether the payee has furnished a lower/nil deduction certificate under Section 197 (and the certificate details if yes)
• Whether TDS was not deducted due to the payee's lower deduction certificate or the threshold not being met

Key TDS Rates Under Major Sections in Form 26Q

The TDS rate under each section determines how much is to be deducted and deposited. The following are the rates under the most commonly used sections in Form 26Q (base rates without surcharge and cess; note that for individuals and HUFs below the surcharge threshold, only 4% cess applies):

Section 194A — Interest Other Than Interest on Securities

Section 194A requires TDS on interest paid by banks, co-operative banks, NBFCs, companies, and other entities to Indian residents on deposits, savings accounts, fixed deposits, and other borrowings:

• Interest from banks and post offices: 10% (threshold: Rs. 40,000 per year per bank; Rs. 50,000 for senior citizens from AY 2019-20)
• Interest from companies and firms: 10% (threshold: Rs. 5,000 per year)
• Interest from co-operative societies: 10% (threshold: Rs. 40,000 per year)
• From AY 2024-25, all entities follow the common Rs. 40,000 threshold (Rs. 50,000 for senior citizens)

Section 194C — Payments to Contractors

Section 194C covers payments for carrying out any work (including supply of labour) under a contract between a contractor and a specified person:

• TDS rate: 1% where payee is an individual or HUF; 2% where payee is any other person (company, firm, etc.)
• Threshold: Rs. 30,000 per single payment or Rs. 1,00,000 in aggregate in a financial year
• Advertising contracts: Covered under 194C
• Catering contracts: Covered
• Transport contracts: Covered (with specific exemptions for transporters with GR number on the Section 194C return)
• Sub-contractors: Covered at the same rate as contractors

Section 194H — Commission and Brokerage

Section 194H applies to commission or brokerage paid to any resident person (other than insurance commission under Section 194D):

• TDS rate: 5%
• Threshold: Rs. 15,000 per year
• Covers: Commission on sales, brokerage on transactions, agency commission, referral fees structured as commission
• Does not cover: Salary commission (which is part of salary and goes in Form 24Q)

Section 194-I — Rent

Section 194-I covers rent paid to any resident for use of plant, machinery, equipment, land, building, and furniture or fittings:

• TDS rate on rent of plant, machinery, and equipment: 2%
• TDS rate on rent of land, building, and furniture/fittings: 10%
• Threshold: Rs. 2,40,000 per year (Rs. 20,000 per month)
• Covers: All commercial property rents, equipment leases, machinery rentals
• Does NOT cover: Rent by individual/HUF tenant (that goes via Form 26QC under Section 194-IB) or property purchase payments (Form 26QB under Section 194-IA)

Section 194J — Fees for Professional and Technical Services

Section 194J is one of the most important sections for businesses that engage professionals and technical service providers:

• TDS rate on fees for technical services (FTS), royalties, or fees for sportsmen/entertainment/models: 2%
• TDS rate on all other professional services: 10%
• TDS rate on director's fees (non-salary): 10%
• Threshold: Rs. 30,000 per year for each category (technical services and professional services are counted separately)
• Covers: CA/lawyer/consultant fees, technical support fees, software royalties paid to Indian companies, management consulting, medical consultation, architectural services, and all other professional categories

Section 194Q — Deduction of Tax at Source on Payment for Purchase of Goods

Section 194Q was introduced by the Finance Act, 2021 effective 1 July 2021. It requires a buyer whose business turnover exceeds Rs. 10 crore in the preceding financial year to deduct TDS at 0.1% on payments to a seller for purchase of goods exceeding Rs. 50 lakh from that seller in the financial year:

• TDS rate: 0.1% (5% if seller's PAN is not available under Section 206AA)
• Threshold: Rs. 50 lakh per seller per financial year (cumulative)
• Buyer turnover threshold: Buyer's turnover must exceed Rs. 10 crore in the preceding year
• Only the buyer deducts — not the seller. If TCS under Section 206C(1H) was already collected by the seller on the same transaction, Section 194Q TDS does not apply again
• Goods are tangible goods; services are covered under other sections

Section 194R — TDS on Benefits and Perquisites

Section 194R, inserted by the Finance Act 2022, requires TDS at 10% on any benefit or perquisite provided to any resident person in connection with their business or profession if the aggregate value exceeds Rs. 20,000 per year:

• TDS rate: 10%
• Threshold: Rs. 20,000 in aggregate per financial year per person
• Covers: Free samples to doctors (above threshold), gifts to business associates, sponsored travel for distributors/dealers, cash discounts structured as perquisites, dealer incentives
• The deductor must deposit TDS in cash from own funds if the benefit is in kind (e.g., when giving a free car to a dealer, the company deposits 10% of the car's value as TDS from its own funds)

How to File Form 26Q — Step-by-Step Process

Form 26Q is filed electronically through the income tax portal at incometax.gov.in. The following is the complete filing process:

1. Compile All TDS Deductions for the Quarter — Gather all payment records for the quarter where TDS was deducted: contractor invoices, professional fee bills, rent agreements, bank interest statements, commission payments, and all other TDS-liable payments. For each payment, confirm: payee's name, PAN, payment amount, TDS section applicable, rate used, and TDS amount deducted.
2. Verify Payee PAN Data
3. Deposit TDS Through Challan ITNS 281
4. Prepare the Form 26Q Data File — Prepare the Form 26Q data in the prescribed format using the Return Preparation Utility (RPU) available for download from the TIN/NSDL or Protean website, or using accounting software that generates TDS return files directly. The data file must contain: deductor details, challan details (one row per challan), and deductee details (one row per payee per section per quarter). Large organisations with hundreds of payees prepare this in bulk using accounting software exports.
5. Validate the Data File Using File Validation Utility (FVU) — Before uploading Form 26Q, validate the data file using the File Validation Utility (FVU) — a free tool available from Protean/NSDL. The FVU checks for structural errors, missing mandatory fields, invalid PAN formats, amount mismatches between challan totals and deductee totals, and other common data issues. The FVU generates an error-free file (.fvu extension) only when all validation checks pass. Do not upload to the portal until the FVU shows no errors.
6. Upload and File on the Income Tax Portal
7. Verify Acceptance and TDS Credit in Form 26AS of Payees

PAN-Related Issues in Form 26Q

Section 206AA — Higher TDS When PAN Is Not Available

Section 206AA of the Income Tax Act requires deductors to deduct TDS at the higher of: the applicable TDS rate; or 20% — when the payee does not furnish their PAN or furnishes an incorrect PAN. This means:

• A contractor who does not provide PAN: TDS at 20% instead of 1% or 2% under Section 194C
• A professional who does not provide PAN: TDS at 20% instead of 10% under Section 194J
• A landlord who does not provide PAN: TDS at 20% instead of 10% under Section 194-I

The higher TDS under Section 206AA is a strong incentive for payees to provide their PAN. In Form 26Q, payees without PAN must be indicated with prescribed codes: "PANNOTAVBL", "PANINVALD", or "PANAPPLD" depending on the situation. These entries correctly show in the Form 26Q data but result in the TDS credit not being attributable to any specific payee PAN.

PAN Validation Before Filing — Why It Matters

A PAN that is structurally valid (correct format) but whose name does not match the income tax database causes mismatches in Form 26Q processing. The TDS credit is not correctly attributed to the payee in their AIS — leading to the payee not seeing the credit and the deductor having to file a correction return through TRACES. The cost of a correction return — in time, administrative effort, and potential Section 234E fees if the correction constitutes a new filing — is far higher than the cost of verifying PAN data upfront. Our TDS Return Filing service validates all payee PANs through the income tax portal's bulk PAN verification facility before each quarterly return.

Lower Deduction Certificates Under Section 197 — How They Affect Form 26Q

Section 197 of the Income Tax Act allows a payee whose total income is below the taxable limit or who is entitled to a refund of TDS to apply to their Assessing Officer for a certificate authorising the deductor to deduct TDS at a lower rate (or NIL rate). This certificate is sometimes called a Section 197 certificate or a lower deduction certificate.

When a payee furnishes a valid Section 197 certificate to the deductor:

• The deductor deducts TDS at the lower rate (or NIL rate) specified in the certificate
• In Form 26Q, the lower deduction certificate number, the section under which it was issued, and the validity period must be entered in the deductee detail for that payee
• The rate of TDS in Form 26Q reflects the certificate rate, not the normal statutory rate
• The deductor must retain a copy of the certificate and must not apply the lower rate beyond the certificate's validity period

Correcting Form 26Q Errors Through TRACES

Errors in a filed Form 26Q — wrong payee PAN, incorrect payment amount, wrong section, omitted payee, or incorrect challan detail — must be corrected by filing a correction statement through the TRACES portal (tdscpc.gov.in). Common correction scenarios and the approach for each:

Wrong Payee PAN

If a payee's PAN was entered incorrectly in a filed Form 26Q return, file a correction to update the payee's PAN. Correction type: "Correction in challan" or "Correction in deductee details" depending on where the error occurred. After the correction is processed by TRACES, the TDS credit is reattributed to the correct PAN and appears in the payee's AIS.

Incorrect Payment Amount or TDS Amount

If the payment amount or TDS amount for a payee was incorrectly entered, file a correction to update the deductee detail. If the TDS amount was overstated and extra TDS was deposited, a refund of excess TDS can be claimed through TRACES. If TDS was understated (less than required was deducted and deposited), pay the shortfall with interest under Section 201(1A) and file a correction to update the return.

Challan Mismatch

If a challan detail was entered incorrectly (wrong BSR code, wrong serial number, or wrong amount), the challan will appear as unmatched in TRACES. File a correction to update the challan details. The correct BSR code and serial number are available on the challan counterfoil or from the bank through which the payment was made. Unmatched challans can delay TDS credit for payees even when TDS was correctly deducted and deposited.

Omitted Payee

If a payee was accidentally omitted from a filed Form 26Q return, file a correction to add the missing payee detail. If the correction involves adding a new challan (because TDS for the omitted payee was deposited separately), the new challan must also be added to the correction statement. If the TDS for the omitted payee was included in an existing challan, the existing challan amount can be redistributed to cover the new payee.

Consequences of Late Filing or Non-Filing of Form 26Q

Section 234E — Mandatory Rs. 200/Day Late Fee

Section 234E of the Income Tax Act levies a mandatory fee of Rs. 200 per day for every day after the prescribed due date that Form 26Q has not been filed, up to a maximum of the TDS amount for the quarter. This fee is collected by the income tax portal at the time of filing the late return — the portal will not accept the return unless the Section 234E fee is paid first. The fee cannot be waived or reduced. For a company with significant TDS deductions, a 30-day delay in filing Form 26Q can result in a Section 234E fee of Rs. 6,000 (30 days × Rs. 200/day). If the TDS amount for the quarter is less than Rs. 6,000, the fee is capped at the TDS amount.

Section 271H — Additional Penalty for Non-Filing or Incorrect Return

Section 271H provides for an additional penalty of Rs. 10,000 to Rs. 1,00,000 for failure to file Form 26Q within one year of the prescribed due date, or for filing an incorrect return. This penalty is over and above the Section 234E late fee and is levied by the Assessing Officer after providing an opportunity to be heard. Section 271H penalty can be avoided if: the TDS has been deposited to the government; the fee under Section 234E has been paid; and the return is filed within one year of the due date.

Impact on Payees — Missing TDS Credits

When Form 26Q is filed late, payees whose TDS credits are in that return cannot see their credits in AIS or Form 26AS until the return is processed. Payees who file their income tax returns before the deductor files Form 26Q may not be able to claim the TDS credit in time, leading to a demand notice for unclaimed TDS or the need to file a revised return after the deductor eventually files. This creates a chain of compliance failures: the deductor's late Form 26Q causes the payee to receive Section 143(1)(a) prima facie adjustment notices for unclaimed TDS credits.

Section 40(a)(ia) Disallowance in Deductor's Income Tax Return

Where TDS was required to be deducted under a covered section but was not deducted (or was deducted but not deposited by the TDS return due date), 30% of the corresponding payment amount is disallowed as a business deduction in the deductor's income tax return under Section 40(a)(ia). This disallowance increases the deductor's own taxable income for the year — a direct financial consequence beyond the TDS liability itself. Our Income Tax Audit service specifically reviews Form 26Q compliance and flags Section 40(a)(ia) disallowances in the Form 3CD report.

Why Choose N D Savla & Associates for Form 26Q Filing?

Form 26Q appears straightforward but consistently generates errors — wrong PAN, wrong section, challan mismatches, missed payees — that require costly correction statements and create compliance headaches for both deductors and payees. N D Savla & Associates delivers accurate, on-time Form 26Q filing every quarter.

Complete Quarterly TDS Compliance Cycle

We manage the complete quarterly TDS cycle: TDS computation for every payment category, challan deposit by the 7th of each month, payee PAN verification, data file preparation and FVU validation, timely Form 26Q filing by the due date, and post-filing TDS credit verification. See our TDS Return Filing page for the complete TDS compliance service framework.

Section-by-Section TDS Rate Accuracy

The most common Form 26Q error is applying the wrong TDS rate for a section — particularly the 10% vs 2% distinction under Section 194J (professional services vs technical services), and the 1% vs 2% under Section 194C (individual vs company contractor). We verify the applicable rate for every payment category before the TDS is deducted, reducing the frequency of under-deduction (which creates Section 40(a)(ia) disallowances) and over-deduction (which creates refund claims for payees and administrative burden).

Integration With Business Tax Return

Form 26Q data feeds directly into the deductor's income tax return and tax audit report. Our Business Tax Filing engagement includes a reconciliation of all Form 26Q TDS deductions against the payments claimed as deductible business expenses — ensuring that every payment above the TDS threshold has a corresponding TDS deduction and that no Section 40(a)(ia) disallowance has been missed in the income computation. Our Virtual CFO service maintains the TDS deduction register throughout the year, making the quarterly Form 26Q preparation a quick, accurate exercise rather than a last-minute scramble.

Frequently Asked Questions About Form 26Q