Understanding India’s New Tabular TDS Framework Under Income-Tax Act 2025

The intent of this article is to explain the new TDS framework under Section 393 of the Income-tax Act, 2025, and to provide clarity on its tabular structure, scope, and practical implications, particularly the shift from section-based to table and section-code-based compliance.

Introduction

Tax Deduction at Source (TDS) is a mechanism for collection of tax whereby tax is deducted by the payer at the time of making specified payments to the payee. This mechanism is based on the principle of “Pay As You Earn” (PAYE), under which tax is collected at the point where income arises, rather than waiting until the final assessment of the payee.

The primary objective of TDS is to ensure early and continuous flow of revenue to the Government. It also acts as an important tool to prevent tax evasion or avoidance, as it creates a reporting and tracking mechanism of income earned by the payee.

Under the Income-tax Act, 1961, the provisions relating to TDS and TCS were contained in Chapter XVII – Collection and Recovery of Tax, covering sections 190 to 234H, comprising a large number of independent provisions governing different types of payments.

Under the proposed Income-tax Act, 2025, these provisions have been rationalised and consolidated under Chapter XIX – Collection and Recovery of Tax, covering sections 390 to 430. While the Chapter contains multiple provisions dealing with deduction, collection, recovery, and related procedures, the core TDS charging provisions themselves have been consolidated into a single principal section, namely Section 393, presented in a structured tabular format.

Structural Framework under the Act

The whole of TDS has been covered under one section i.e., section 393. It is designed in a tabular format to make the TDS mechanism clearer, systematic and easier to comprehend. It contains three separate Tables, classified on the basis of the category of payee:

1. Table I – Payments to Residents

2. Table II – Payments to Non-residents

3. Table III – Payments to Any Person

1. Table 1- Payments to Residents

Table 1 under Section 393 lays down the provisions for deduction of tax at source (TDS) on specified payments made to resident persons. The table enables the deductor to identify the nature of payment, the person responsible for deduction, the applicable rate, and the threshold limit in a systematic manner.

The applicability of this table is restricted to payments made to persons who qualify as residents under the Act, and the obligation to deduct tax arises at the time of credit or payment of the specified income, whichever is earlier, subject to the prescribed threshold limits.

Structural Framework of Table 1

Table 1 is arranged in a columnar format consisting of four key columns:

• Column A – Serial Number: Provides the reference number for each category of payment.
• Column B – Nature of Income or Sum: Specifies the type of income or payment liable for deduction of tax at source.
• Column C – Payer: Identifies the person responsible for deducting tax.
• Column D – Rate and Threshold Limit: Prescribes the applicable rate of deduction and the minimum threshold beyond which TDS becomes applicable.

In addition, specific Notes are provided under certain entries to clarify the method of deduction, computation of threshold, precedence of provisions, and special compliance requirements.

Eight Broad Categories Covered in Table 1

Table 1 classifies payments to residents into eight major categories, each covering a distinct class of income:

1. Commission or Brokerage-This category covers:

• Insurance commission paid for soliciting or procuring insurance business; and
• Other commission or brokerage payments.

The obligation to deduct tax arises when the payment exceeds the prescribed threshold of Rs. 20,000, and the applicable rate varies depending on the nature of commission and the status of the payer.

2. Rent- This category covers payments made for the use of:

• Land, building, machinery, plant, equipment, furniture, or fittings.

The rate of deduction varies depending on whether the payer is a specified person or other person, and also on the nature of asset rented. The threshold limit is Rs. 50,000 per month or part thereof.

3. Payments on Transfer of Certain Immovable Property-This category covers:

• Consideration for transfer of immovable property (other than agricultural land);
• Compensation or enhanced compensation on compulsory acquisition; and
• Certain specified property-related payments.

Tax is deducted primarily at 1% or 10%, depending on the nature of transaction, and applies where the consideration exceeds Rs. 50 lakh or other specified limits.

4. Income from Capital Market-This category includes income arising from:

• Units of mutual funds,
• Units of business trusts,
• Investment funds, and
• Securitization trusts.

The prescribed rate is generally 10%, and in certain cases no threshold limit applies.

5. Interest Income-This category covers:

• Interest on securities; and
• Interest other than interest on securities, such as bank deposits and other financial instruments.

The applicable threshold varies depending on the nature of payer and the status of the payee, such as Rs. 50,000 or Rs. 1,00,000 in case of senior citizens.

6. Payments to Contractors, Professional Fees, Technical Fees, Royalty, etc.-This is a wide category covering:

• Contract payments,
• Professional fees,
• Technical fees,
• Royalty,
• Director remuneration, and other specified payments.

The rate varies between 1%, 2%, and 10%, depending on the nature of payment and the status of the recipient and payer.

7. Dividend-This category covers dividend declared by domestic companies.

Tax is required to be deducted at the rate of 10% at the time of payment or distribution of dividend.

8. Other Cases-This category covers various special transactions including:

• Payments under life insurance policies,
• Purchase of goods exceeding specified limits,
• Benefits or perquisites arising from business or profession,
• E-commerce transactions,
• Transfer of virtual digital assets, and
• Special provisions relating to specified senior citizens.

These provisions are designed to widen the tax base and improve reporting and compliance in emerging and high-value transaction areas. This categorization ensures that the deductor can directly refer to the relevant table depending on the residential status or classification of the payee.

2. Table 2 – Payments to Non-Residents

Table 2 under Section 393 provides the provisions relating to deduction of tax at source (TDS) on payments made to non-residents, including foreign companies and other specified non-resident persons.

The obligation under this table arises where any income or sum specified in the table is credited or paid during the tax year by the person specified in Column D to a non-resident specified in Column C, and tax is required to be deducted at the rate specified in Column E at the time of credit or payment, whichever is earlier, subject to the other applicable provisions of the Act.

Structural Framework of Table 2

Table 2 is organized into a column-based format containing the following components:

• Column A – Serial Number: Provides the reference number for each category of income.
• Column B – Nature of Income or Sum: Specifies the type of income on which tax is required to be deducted.
• Column C – Payee: Identifies the category of non-resident recipient.
• Column D – Payer: Specifies the person responsible for deducting tax at source.
• Column E – Rate: Prescribes the applicable rate of tax deduction.

Certain entries are also supplemented by Notes, which clarify the applicability of treaty rates, special timing rules, and scope of deduction.

Seventeen Broad Categories Covered in Table 2

Table 2 classifies payments to non-residents into seventeen distinct categories, covering various forms of cross-border income.

Serial Nos. 1 to 16 cover specific categories of income such as interest on foreign borrowings, income from investment funds, securities, bonds, and other specified financial instruments. These entries provide specific rates and conditions for those defined categories.

Serial No. 17, however, operates as a general and residuary provision, covering all other taxable payments not expressly covered under Serial Nos. 1 to 16, including royalty, FTS, and similar cross-border payments.

Serial No. 17 – Residuary Provision for Royalty, Fees for Technical Services (FTS), and Other Taxable Payments to Non-Residents

Serial No. 17 of Table 2 provides a comprehensive residuary mechanism for deduction of tax at source on payments made to non-residents. It covers:

“Any interest (not being interest referred to in serial numbers 2, 3, 4 and 5) or any other sum chargeable under the provisions of this Act, not being income chargeable under the head ‘Salaries’.”

The scope of this provision is wide and includes all taxable payments not specifically covered elsewhere in the Table. In particular, it covers payments such as:

• Royalty;
• Fees for Technical Services (FTS);
• Fees for included services;
• Interest not covered under Serial Nos. 2 to 5; and
• Any other sum chargeable to tax under the provisions of the Act, excluding salary.

The use of the expression “any other sum chargeable under the provisions of this Act” is deliberate and significant. It ensures that the withholding obligation applies to all payments which are chargeable to tax in India under the charging provisions of the Act, irrespective of whether such payments are specifically enumerated in the Table. Thus, the applicability of tax deduction under this provision is determined by the chargeability of income in India, and not by the specific classification of income in the Table.

Tax under this entry is required to be deducted at the “rates in force,” which includes the rate prescribed under the Act or the rate specified under an applicable Double Taxation Avoidance Agreement (DTAA), whichever is more beneficial to the non-resident payee.

This provision substantially corresponds to the scope and function of Section 195 of the Income-tax Act, 1961, and serves as its successor under the new Act. It ensures a comprehensive withholding framework for cross-border payments, particularly in respect of royalty, fees for technical services, and other taxable sums payable to non-residents, thereby preventing tax leakage and ensuring effective tax collection at source.

3. Table 3 – Payments to Any Person

Table 3 provides for deduction of tax at source on specified payments made to any person, irrespective of residential status. This table covers certain special categories of income where the obligation to deduct tax arises based on the nature of the transaction, and not on whether the payee is a resident or non-resident.

The table is structured in a columnar format containing:

• Column A – Serial Number: Identifies the category of payment.
• Column B – Nature of Income or Sum: Specifies the type of income liable for TDS.
• Column C – Payer: Specifies the person responsible for deducting tax.
• Column D – Rate and Threshold Limit: Prescribes the applicable rate of deduction and the minimum threshold for applicability.

Categories Covered in Table 3-It covers seven specific categories of payments, namely:

1. Winnings from lottery, crossword puzzles, card games, gambling, or betting.

2. Winnings from online games, where tax is deducted on net winnings as prescribed.

3. Winnings from horse races paid by bookmakers or licensed persons.

4. Commission, remuneration, or prize relating to lottery tickets.

5. Cash withdrawals exceeding specified limits from banks, co-operative banks, or post offices.

6. Payments under the National Savings Scheme referred to in section 80CCA(2)(a) of the Income-tax Act, 1961.

7. Salary, remuneration, commission, bonus, or interest paid by a firm to its partners.

The provisions of this table ensure deduction of tax at source on certain transaction-specific incomes, particularly winnings, cash withdrawals, and partner payments, where tax collection at source is necessary to ensure compliance and proper reporting. The tax is required to be deducted at the specified rate, at the time of payment or as otherwise provided, subject to the prescribed threshold limits.

Sub-sections (4), (5), and (6) of Section 393 provide the cases where tax is not required to be deducted at source. Sub-section (4) specifies, in tabular form, certain incomes and conditions where TDS is not applicable, such as exempt compensation, specified interest, dividend, and payments below prescribed limits. Sub-section (5) excludes payments made to specified exempt entities, including the Government, Reserve Bank of India, and notified mutual funds. Sub-section (6) permits eligible persons to furnish a prescribed declaration stating that their estimated income is nil, in which case no tax is required to be deducted. These provisions ensure that TDS is not applied where the income is exempt or not chargeable to tax.

Practical Challenge – Accounting and Ledger Classification

One of the key practical challenge under the new framework is the shift from section-based to table and section-code-based classification of TDS. Under the Income-tax Act, 1961, deductors commonly maintained TDS ledgers using specific section references such as sections 194C, 194J, and 195, which also aligned with TDS return reporting.  However, under the new Act, all TDS provisions are consolidated under Section 393 and identified through tables, serial numbers, and corresponding section codes as reflected in the new TDS return Forms. Accordingly, deductors will need to modify their chart of accounts and accounting systems to classify and record TDS based on the relevant Section 393 table and section codes.