How to Configure and Record TDS in Tally Prime (2026)

If your business makes payments that fall under Tax Deducted at Source (TDS) — rent, professional fees, contractor payments, and several other categories — you need to deduct tax at the time of payment or credit, whichever is earlier, and deposit it with the government on time. Tally Prime can automate the deduction calculation and generate the reports you need for filing, once it’s set up correctly.

This guide covers enabling TDS, recording deduction entries, and generating the reports you’ll need for TDS returns.

What You Need Before You Start

• Tally Prime installed, with your company already created
• Your business’s TAN (Tax Deduction and Collection Account Number)
• A clear list of the parties you regularly pay who fall under TDS — contractors, professionals, landlords, etc.
• Current TDS sections and rates for the categories of payments you make, since rates and thresholds are revised periodically

Step 1: Enable TDS in Tally Prime

1. Gateway of Tally, then F11 (Features), then F3 (Statutory & Taxation)
2. Set Enable Tax Deducted at Source (TDS) to Yes
3. Enter your TAN and other deductor details as prompted
4. Press Ctrl+A to save

Step 2: Set Up TDS Nature of Payment and Rates

Tally Prime comes with common TDS sections pre-configured, but it’s worth verifying them against current rates before you start:

1. Gateway of Tally, then Create, then search for TDS Nature of Payment (or find it under Statutory Masters depending on your release)
2. Review the sections you’ll actually use — for example, payments to contractors, professional fees, or rent — and confirm the rate matches the current rate for that section
3. Update or create entries as needed if a rate has changed since your Tally Prime release was last updated

Step 3: Mark Party Ledgers as TDS Deductees

1. Open the ledger for each party you’ll be deducting TDS from (contractors, vendors, professionals, etc.)
2. Set Is TDS Deductable to Yes
3. Select the applicable Deductee Type (Company, Individual, etc.) and the default Nature of Payment, if most transactions with this party fall under one section
4. Enter their PAN — this matters a lot, since payments to parties without a valid PAN are typically subject to a higher TDS rate
5. Save the ledger

Step 4: Record a Payment with TDS Deduction

1. Gateway of Tally, then Vouchers, then F5 (Payment) or the relevant expense/purchase voucher, depending on how you’re recording the transaction
2. Enter the full expense or payment amount
3. Add the TDS ledger (for example, TDS on Professional Fees) as a deduction line — Tally Prime calculates the TDS amount automatically based on the rate configured for that party and nature of payment
4. The net amount paid to the party reflects the original amount minus TDS deducted
5. Press Ctrl+A to save

Example: You pay a consultant ₹50,000 for professional services, with TDS applicable at 10%. Tally Prime calculates ₹5,000 as TDS, so the consultant receives ₹45,000, and the ₹5,000 is tracked separately as TDS payable to the government.

Step 5: Generate TDS Reports

1. Gateway of Tally, then Display More Reports, then Statutory Reports, then TDS Reports
2. Review reports such as TDS Outstanding, Challan Reconciliation, and Form 26Q (or the relevant form for your deduction categories)
3. Use these reports to confirm the TDS amounts deducted, deposited, and any pending challan reconciliation before filing your TDS return

Step 6: Deposit TDS and File Your Return

Tally Prime helps you calculate and track TDS, but the actual deposit and quarterly return filing happens through the income tax department’s systems:

1. Deposit the deducted TDS using the appropriate challan within the due date for the month
2. Record the challan payment details back in Tally Prime so your Challan Reconciliation report stays accurate
3. File your quarterly TDS return (Form 24Q, 26Q, or others depending on payment type) through the income tax e-filing portal or your usual filing method
4. Issue TDS certificates (Form 16/16A) to the parties you deducted from, as required

Common Mistakes to Avoid

• Not updating PAN details for deductees, which can trigger a higher TDS rate than necessary
• Using outdated TDS sections or rates without checking for revisions, since these change periodically
• Forgetting to record the challan payment back in Tally Prime, leaving your Challan Reconciliation report inaccurate
• Mixing up deductee types (Company vs Individual), since rates can differ between categories for the same nature of payment
• Missing the monthly deposit deadline, which attracts interest, or the quarterly return deadline, which attracts late filing fees

FAQs

Does Tally Prime file my TDS return automatically? No. Tally Prime calculates deductions and generates reports to support your filing, but the actual quarterly return is filed through the income tax department’s e-filing system.

What happens if a deductee doesn’t provide their PAN? TDS is typically deducted at a higher rate when a valid PAN isn’t available. Always collect and verify PAN details before making payments where TDS applies.

Can Tally Prime handle TDS on both payments and receipts (TCS)? Tally Prime supports TDS configuration for payments you make. Tax Collected at Source (TCS), where applicable to your business, is generally configured separately — check your release’s specific TCS setup options.

How do I correct a TDS entry after it’s been recorded? Open the voucher from the relevant report or Day Book, make your correction, and save again. If the TDS has already been deposited and reported, further correction may need to go through a revised TDS return — consult your tax advisor for that process.

Where do I find the current TDS rates and thresholds for different payment categories? Always check the official income tax department resources or your tax advisor for current rates, since these are revised from time to time and shouldn’t be assumed from an older reference.