What is TDS?
TDS, or Tax Deducted at Source, is the Indian form of withholding tax. When an Indian business pays salaries, rent, contractor charges, professional or technical fees and many other payments above set limits, it must deduct a specified percentage and deposit it with the government. The recipient then sees this tax credit against their PAN and adjusts it against their final income-tax liability when they file their return.
TDS rules, section numbers and rates are set by the income-tax law. The Income-tax Act, 2025 took effect from 1 April 2026 and renumbered many provisions, so older section references you may know have changed. Check the current rates and thresholds with your CA.
Why it matters for exporters
Foreign clients without an Indian presence generally do not deduct Indian TDS, because they are not part of the Indian system. What they may deduct is their own country's withholding tax, which is a different thing and is claimed in India through the foreign tax credit process. So for a pure export, you will usually not see Indian TDS at all.
You will see TDS on any domestic clients you serve, and that matters for your books. Keep domestic receipts with TDS and export receipts without it clearly separated. Your EDF covers only the export side: each export invoice, its currency and amount. It does not change your income-tax or TDS position, and TDS certificates are not part of the EDF.
Example
Kiran Sharma runs a consulting LLP in Hyderabad. An Indian client pays a ₹1,00,000 invoice after deducting TDS, so ₹90,000 arrives and ₹10,000 shows against the LLP's PAN (rate shown for illustration only). A London client pays a GBP 4,000 invoice in full, with no Indian TDS. Only the London invoice goes on the LLP's monthly EDF.
Common confusion
People often call foreign withholding "TDS". It is not. Foreign tax withheld is credited through Form 67, not through your Form 26AS-style TDS credit. Read income tax on foreign income for the bigger picture. This is general information, not tax advice.