TDS / Tax Deducted at Source

Tax Deducted at Source (TDS) is a system of advance tax collection under the Indian Income Tax Act, 1961. The payer of certain specified payments — such as commission, brokerage, rent, professional fees, or contractual work — is required to deduct tax at the applicable rate before making the payment and deposit the deducted amount with the government. In the distribution context, TDS most commonly applies to commissions paid to C&F agents, super-stockists, and logistics service providers.

For instance, if a brand pays Rs 1,00,000 as commission to a C&F agent, it must deduct TDS at 5% (Section 194H) and pay only Rs 95,000 to the agent. The Rs 5,000 is deposited with the government, and the agent gets credit for it in their annual income tax return. Non-compliance — failing to deduct, deducting at the wrong rate, or late deposit — attracts interest at 1-1.5% per month and penalties under Sections 234E and 271C.

In a billing and accounting system, TDS calculations are automated based on the nature of payment and the payee's PAN status. The system generates TDS certificates (Form 16A), files quarterly TDS returns (Form 26Q), and reconciles deductions against the TRACES portal — tasks that are extremely error-prone when handled manually across hundreds of distributor and vendor payments.