TDS Tips for Businesses: A Sector-Specific Guide for Agro Enterprises & Startups

Tax Deducted at Source (TDS) might seem like just another compliance box to check—but TDS for start-ups and agro-businesses, can have far-reaching consequences. TDS is a way for the government to ensure steady tax collection throughout the year and also to maintain a legal obligation that affects your cash flow, vendor relationships, and credibility with banks or investors.

While TDS rules are uniform in principle, their practical application differs greatly based on the nature of your business. A tech start-up paying consultants and renting co-working spaces has very different TDS obligations compared to an agro-processing company dealing with farmers, mandis, or cold storage units.

This blog will help you decode TDS compliance from a sector-specific lens—with practical tips, exemptions available to agro entities, and common traps start-ups often fall into.

Understanding TDS Basics for Startups & Agro Sector

Before diving into sector-specific rules, here’s a quick recap of what TDS entails:

What is TDS?

TDS is a system where a specified percentage of tax is deducted by the payer (you, the business) at the time of making certain payments like salaries, rent, interest, contract fees, or professional services. This deducted tax is deposited with the government on behalf of the payee (employee, vendor, consultant, etc.).

Key TDS Compliance Responsibilities

1. Deduct TDS at the correct rate during each applicable payment.

2. Deposit TDS with the Income Tax Department by the 7th of the following month.

3. File Quarterly Returns (Form 24Q for salaries, 26Q for others).

4. Issue TDS Certificates (Form 16 for employees, 16A for vendors).

Failing at any of these stages can attract penalties, interest charges, or even disallowances in your income tax return.

Example Scenarios:

• If you're a startup paying ₹50,000/month to a freelance UI/UX designer, you must deduct 10% TDS under Section 194J.
• If you're an agro-processor hiring a contractor to transport goods from the field to your warehouse, Section 194C applies, and you may need to deduct 1–2%.

This brings us to the real question: what’s different for agro businesses and early-stage startups? Let’s explore.

TDS for Agro Business: Sector-Specific Exemptions & Considerations

Agro businesses are uniquely positioned within India’s tax framework. Since agriculture is constitutionally a state subject, the Income Tax Act provides special exemptions—especially when dealing with farmers, agricultural produce, and rural land.

1. No TDS on Purchases from Farmers

This is perhaps the most important exemption. If you're directly purchasing produce (grains, vegetables, pulses, etc.) from individual farmers or HUFs, no TDS is required under Section 194Q. This is because:

• Farmers' income is generally tax-exempt under Section 10(1).
• They are often not required to have a PAN or GST registration.
• The law recognizes their status as agricultural producers, not traders.

However, traders who operate in mandis or aggregators who buy and resell produce are not exempt, and TDS under Section 194Q or 194C may apply.

2. How to Prove TDS Exemption for Farmer Payments

• Obtain a self-declaration from the farmer mentioning PAN (if available), land details, and confirmation that the income is agricultural.
• Maintain purchase bills clearly marked with farmer details.
• If payments are made via bank, retain transaction records.

3. No TDS on Sale of Agricultural Land

If the land is classified as agricultural and located in a non-urban area (outside specified municipal limits), then:

• No TDS is applicable on the transaction.
• No capital gains tax is charged to the seller.

However, if the agricultural land is sold within urban limits or converted for non-agricultural use, TDS under Section 194-IA (1% of sale value if it exceeds ₹50 lakhs) may apply.

4. TDS on Rent for Warehouses/Cold Storages

While direct farmer dealings may be exempt, agro companies often rent:

• Cold storage units
• Warehouse facilities
• Transport hubs

These attract TDS under Section 194I:

• 10% for land/building
• 2% for plant and machinery

TDS must be deducted if the annual rent exceeds ₹2.4 lakhs.

TDS for Startups: Specific Scenarios to Watch Out For

Start-ups may operate lean, but that doesn't exempt them from the complexities of TDS. In fact, compliance often gets overlooked due to limited financial bandwidth or lack of internal expertise. But ignoring it can result in penalties that cost more than the original deduction.

Here are the most common TDS scenarios every startup founder or finance head should track:

1. Professional Fees (Section 194J)

Startups often hire freelance consultants, software developers, legal advisors, and marketing agencies. These are covered under Section 194J, which mandates:

• 10% TDS on payments exceeding ₹30,000/year per consultant
• Even if the professional operates under a firm or LLP, TDS still applies

Example:

If your startup pays ₹50,000 for UI design services, deduct ₹5,000 as TDS and deposit it before the 7th of the following month.

2. Office or Co-working Rent (Section 194I)

Most early-stage startups use rented premises—be it a small office, a warehouse, or a co-working space. If the annual rent exceeds ₹2.4 lakhs:

• Deduct 10% TDS for property rent
• Deduct 2% if you're renting machinery or servers

Tip: Always verify the PAN of the landlord, else you’ll be forced to deduct at 20% TDS!

3. Contractor Payments (Section 194C)

If you're paying agencies or individuals for:

• App development
• Ad production
• Events or printing
• Delivery services

Then Section 194C applies:

• Deduct 1% TDS for individuals/HUFs and 2% for others
• Applicable if payment exceeds ₹30,000 per contract or ₹1 lakh annually

4. Commission or Brokerage (Section 194H)

Startups working with sales agents, influencers, or affiliate marketers must deduct 5% TDS on commissions exceeding ₹15,000 per year. This often gets missed, especially with small affiliate or referral commissions.

5. Purchase of Goods Above ₹50 Lakhs (Section 194Q)

Introduced recently, Section 194Q mandates:

• 0.1% TDS if your total purchases from a single vendor exceed ₹50 lakhs annually
• Applies even to inventory purchases for resale or manufacturing

This is critical for scaling startups—especially those in D2C, FMCG, or hardware products.

Common Errors & How to Avoid Them: TDS for Startups and Agro Business

Whether you’re a bootstrapped founder or an agripreneur running a processing plant, mistakes in TDS compliance can snowball into legal trouble, financial losses, and strained vendor relationships. Here are the most common errors made in TDS for Agro Business and startups—along with how to avoid them.

1. Not Verifying PAN Before Payment

If you fail to collect and verify a vendor’s PAN:

• TDS must be deducted at 20%, even if the applicable rate was 1% or 5%
• You may also risk disallowance of that expense in your ITR

Fix: Always collect PAN and validate using government portals or accounting software.

2. Ignoring TDS on Non-Salary Payments

Startups often think TDS is only for salaries. But rent, professional fees, and contracts are just as liable. Similarly, agro businesses forget TDS applies when dealing with mandi traders or cold storage facilities—not just with farmers.

Fix: Maintain a checklist of TDS-applicable expenses beyond salaries.

3. Misclassifying a Vendor (e.g., Trader vs. Farmer)

Many agro startups don’t verify if they’re actually buying from a farmer (TDS exempt) or a trader (TDS applicable under 194Q or 194C).

Fix: Get self-declarations from farmers. If the supplier has a GSTIN and doesn’t grow the produce, TDS likely applies.

4. Delayed Deposit or Return Filing

Late TDS deposit attracts interest at 1–1.5% per month and a ₹200/day penalty for late return filing.

Fix: Use calendar reminders, accounting software, or outsource to a CA firm.

5. Not Issuing TDS Certificates

Startups often forget to provide Form 16/16A to employees and vendors, which is a legal requirement.

Fix: Schedule a quarterly process to download and distribute TDS certificates on time.

Best Practices & Tips for Compliance: TDS for Startups and Agro Businesses

Whether you’re a founder managing spreadsheets or a CFO automating operations, efficient TDS compliance boils down to three things: awareness, structure, and timely action. Here are some sector-specific best practices tailored to simplify TDS for Startups and TDS for Agro Business:

1.Maintain a Clear Vendor Classification System

Tag vendors as: Farmer, Trader, Contractor, Professional, Landlord, Commission Agent. Use this to check applicability of Section 194Q, 194C, 194J, etc.

2. Collect Vendor Declarations & PANs

For farmers, obtain self-declaration certificates confirming that they are agricultural producers. For others, get PAN copies and GST details at the time of onboarding

3. Document Everything

Farmer declarations, invoices, contracts, PAN records, rent agreements, and emails should be stored for at least 6 years. This helps defend against scrutiny during audits

4. Reconcile Regularly with Form 26AS

Every deducted and deposited TDS amount must match the recipient’s Form 26AS. If mismatched, your vendor might be denied tax credit, affecting business trust.

Key Sections: TDS for Agro Business & Startup Must Know

Here’s a sector-specific reference table to simplify decision-making:

Note: No TDS under Section 194Q if buying directly from individual farmers.