What is TDS? Full Form, Meaning, Deduction Limits & How to Claim a Refund

TDS just means Tax Deducted at Source, the payer skims off a bit of tax before your money reaches you and hands that portion straight to the government. Starting Tax Year 2026-27, this whole system runs under Section 393 of the Income-tax Act, 2025, alongside the Income-tax Rules, 2026, swapping out the old 194-series framework from the 1961 Act.

Key Takeaways

• Section 393(1), Table Serial 5(ii) and 5(iii) splits interest into two lanes, bank, co-operative bank, and post office interest gets a ₹50,000 threshold for regular depositors and ₹1,00,000 for senior citizens, while interest from anyone else runs at a much lower ₹10,000 mark.
• Forget Form 15G and Form 15H, they're gone. The Income Tax Department's own Form 121 FAQ page confirms one unified Form No. 121 has taken over under Section 393(6), and Form 121 requires nil estimated tax liability. The additional income-ceiling condition does not apply to eligible resident senior citizens.

Got a salary, some FD interest, maybe a bit of freelance income, and you've almost certainly noticed TDS chipping away at what actually lands in your account. Question is, what's it actually deducting, and how much has this shifted under India's new tax code. This one's written for taxpayers across India who want the real picture of how TDS behaves from Tax Year 2026-27 onward, which threshold applies where, and how you'd actually get back anything deducted in excess.

What Is TDS?

Put simply, TDS is the payer holding back a portion of your income as tax, then forwarding that amount to the Central Government before you ever see it.

As of April 1, 2026, nearly all non-salary TDS rules live under a single section, Section 393 of the Income-tax Act, 2025, sitting inside Chapter XIX, and it's swallowed up more than 20 separate 194-series sections that used to exist under the 1961 Act. Salary based TDS still lives on its own, under Section 392. As the Income Tax Department itself explains, the basic logic hasn't shifted at all; tax still gets collected right at the source instead of waiting for your return. Only now, Section 393 consolidates non-salary TDS provisions into three principal tables, each one dedicated to a different kind of payment.

What Are the TDS Thresholds on Interest Income Under Section 393?

Interest income under Section 393(1) actually splits into two entirely separate categories, each running its own threshold, so there's really no single number that applies across the board.

Here's precisely how it breaks down, straight from Section 393(1), Table Serial 5(ii) and 5(iii):

• Interest coming from banking companies, co-operative banks, or post offices (that's Serial 5(ii)): stays TDS free as long as your total interest for the tax year doesn't cross ₹50,000, or ₹1,00,000 once you're 60 or older.
• Interest from any other specified payer (Serial 5(iii)), think a company paying you interest on a deposit or loan: TDS free up to ₹10,000 in a tax year, a number that jumped from ₹5,000 courtesy of the Finance Act, 2025, back on April 1, 2025, and it's carried through untouched into the new Act.

Cross whichever threshold applies to you, and TDS lands at 10% if your PAN's on file, jumping to 20% if it isn't, but that's specifically for interest sitting under Serial 5(ii) or 5(iii). It's not some universal rate stretching across everything Section 393 touches. Rent, commission, professional fees, contractor payments, they've each got their own separate thresholds and rates entirely, distinct from interest altogether.

Who Deducts TDS and When?

Whoever's actually paying you salary TDS is deducted at payment, while most non-salary TDS is deducted at credit or payment, whichever occurs earlier.

Nothing's really changed here moving into the new framework. Section 393(1) pins the deduction moment to whenever the income gets credited to your account, or actually paid out, cash, cheque, draft, doesn't matter the method, whichever happens sooner. If a branch hasn't switched over to core banking solutions, the threshold gets calculated purely off what that individual branch credited or paid, rather than looking at the whole institution together, a detail that's simply carried forward from the older law without any real change.

How Do You Avoid TDS Deduction Using Form No. 121?

Hand your payer Form No. 121, but only once you've genuinely cleared two separate conditions together, not just a rough sense that your income sits on the lower end.

Per the Income Tax Department's own Form 121 FAQ page, filing Form No. 121 requires both of these holding true simultaneously:

1. Your estimated tax liability for the tax year works out to nil, and
2. Your total specified income that TDS would otherwise apply to stays within the prescribed limit for your particular category, specifically, ₹4,00,000 for individuals below 60 years, and ₹12,00,000 for senior citizens aged 60 and above. This second condition doesn't apply to senior citizens at all, only the nil tax liability requirement does.

This form runs under Section 393(6) of the Income-tax Act, 2025, read together with Rule 211 of the Income-tax Rules, 2026, and it's the single replacement for both Form 15G and Form 15H, which previously sat under Section 197A(1), 197A(1A), and 197A(1C) of the 1961 Act. Companies and firms can't touch Form No. 121, non-residents are shut out too. Form 121 may be used by eligible resident individuals, HUFs and certain other eligible entities; companies, firms and non-residents cannot use it. That old age split, 15G for under 60, 15H for senior citizens, doesn't exist anymore, everyone fills out this same form regardless of age. You still need to clear that nil tax liability bar though, and if you're under 60, that ₹4,00,000 income ceiling too, before submitting anything. And PAN's non-negotiable, skip it and the whole declaration falls apart, meaning TDS gets pulled at the higher rate no matter what else checks out.

How Do You Claim a TDS Refund?

File your Income Tax Return, lay out your total income alongside whatever's already been deducted, and let the department figure out if you've paid too much, though which specific law actually governs your refund hinges on which tax year the income falls under.

Roughly, here's the sequence:

1. File your ITR for the applicable tax year.
2. Report your income, then check AIS for AY 2026-27 and Form No. 168 for Tax Year 2026-27 onward.
3. Work out what you actually owe in tax.
4. Excess TDS can be refunded through the ITR, while refund interest is payable only when the conditions under the applicable law are satisfied.

Income earned through Financial Year 2025-26, assessed under AY 2026-27, still falls under the Income-tax Act, 1961, including Section 244A, which pegs refund interest at 0.5% monthly, or 6% a year, on eligible amounts. But income earned from Tax Year 2026-27 onward, meaning anything arising after April 1, 2026, falls under the new Act's own equivalent provisions instead. Since the exact matching section number under the new Act may not line up with 244A, and transitional details can genuinely affect which rule applies to your specific case, checking the Income Tax Department's current guidance for your tax year beats assuming.

TDS on Bank Interest: General Depositors vs Senior Citizens vs Other Payers

Getting clear on which threshold actually belongs to your situation stops you from mistakenly applying one number across every kind of interest you earn.