TDS Provisions, Rates & Procedures under Income-tax Act, 2025

TDS Under Income Tax Act, 2025
A Comprehensive Guide to the New Framework, Sections, Forms & Due Dates
Applicable w.e.f. Tax Year 2026-27 (i.e., on or after 01.04.2026)

1. Introduction

The Income Tax Act, 2025 (hereinafter ‘the New Act’ or ‘ITA 2025’) has replaced the Income Tax Act, 1961 with effect from 1st April 2026. The New Act, comprising 536 sections and 16 schedules (vis-à-vis 819 sections and 14 schedules of the old Act), has been drafted with the primary objective of simplification, modernisation, and rationalisation of India’s direct tax framework. The concept of ‘Previous Year’ and ‘Assessment Year’ has been replaced by a single unified concept of ‘Tax Year’, aligned with the Financial Year.

One of the most significant structural overhauls in ITA 2025 pertains to the Tax Deducted at Source (TDS) framework. Under the Income Tax Act, 1961, TDS provisions were spread across more than 40 separate sections — from Section 192 to Section 194T and beyond — each governing a different type of payment with its own rates, thresholds, exceptions, and procedural rules, making compliance needlessly complex.

The ITA 2025 has consolidated all these provisions into just three parent sections — Sections 392, 393, and 394 — presented in a tabular, code-based format for ease of reference and filing. Importantly, this restructuring is legislative simplification and does not introduce new taxes, alter TDS rates, or change thresholds (barring minor clarificatory updates).

2. Key Structural Changes under ITA 2025

2.1 Consolidation of TDS Provisions

Under ITA 1961, TDS was governed by 40+ separate sections. Under ITA 2025, the same provisions are now consolidated under three parent sections:

2.2 Table-Based Structure of Section 393

Section 393 is structured into three sub-sections and a set of tables:

• Section 393(1) — TDS on payments to Residents (domestic payments)
• Section 393(2) — TDS on payments to Non-Residents (including foreign companies)
• Section 393(3) — TDS applicable irrespective of whether payee is resident or non-resident (e.g., winnings, cash withdrawals)
• Section 393(4) — Exemptions from TDS deduction
• Section 393(5) — Persons not liable to TDS deduction
• Section 393(6) — Provisions for nil/lower TDS declaration by payee

2.3 Code-Based Reporting (Payment Codes 1001–1067)

Under ITA 2025, TDS challans and return filings use numeric Payment Codes from 1001 to 1067, corresponding to specific table entries in Section 393. Using old section numbers (e.g., 194C, 194J) in returns for payments made on or after 01.04.2026 will trigger system-level validation errors on the e-filing portal. Deductors must mandatorily quote the new Section reference and payment code.

2.4 Replacement of ‘Tax Year’ Concept

The terminology ‘Previous Year’ and ‘Assessment Year’ has been replaced by ‘Tax Year’ — aligning tax year with the financial year (01 April to 31 March). Thus, Tax Year 2026-27 corresponds to the period 01.04.2026 to 31.03.2027.

2.5 Manpower Supply Clarified as ‘Work’

A notable substantive change: under Section 393(1) [Sl. No. 6(i)] of ITA 2025, manpower supply / labour supply services are explicitly included within the definition of ‘work’, removing the earlier ambiguity that existed under Section 194C of ITA 1961. Deductors engaged in manpower deployment must ensure TDS compliance w.e.f. 01.04.2026.

2.6 MACT Interest — New Exemption

Interest awarded by the Motor Accident Claims Tribunal (MACT) to a natural person is now fully exempt from income tax under ITA 2025. No TDS is to be deducted on such interest, and the earlier ₹50,000 threshold no longer applies.

2.7 CBDT Guidelines — Binding Force

Under Section 400(2) of ITA 2025, CBDT guidelines — including those on perquisites and virtual digital assets — now carry mandatory compliance weight for both tax authorities and deductors. The earlier argument that ‘CBDT circulars are merely advisory’ no longer holds.

3. Transition Rules — Which Act Applies?

The governing principle is the ‘earlier of credit or payment’. The applicable law is determined as follows:

4. Master TDS Rate & Section Reference Chart — Tax Year 2026-27

The following table provides a comprehensive summary of all TDS provisions under ITA 2025, mapped from the old Act sections to new section references, along with applicable rates, thresholds, and payment codes:

Note: Surcharge and Health & Education Cess are applicable over and above the above rates in relevant cases. DTAA rates, where more beneficial, apply to non-resident payees on furnishing Tax Residency Certificate (TRC) and Form 10F. Always refer to the official ITA 2025 text and CBDT notifications for authoritative rates.

5. TDS Forms under ITA 2025 — Summary with Due Dates

All TDS return forms, certificates, and declarations have been renumbered under ITA 2025. The following table provides a complete reference:

6. TDS Deposit Due Dates

The deposit (challan payment) due dates under ITA 2025 / Income Tax Rules, 2026 (Rule 218, corresponding to Rule 30 of old Rules) remain unchanged:

7. TDS Return Filing Due Dates — Quarterly

Quarterly TDS returns under ITA 2025 (Forms 138, 140, 143, 144) follow the same familiar quarterly due dates:

8. Consequences of Non-Compliance

Non-compliance with TDS provisions under ITA 2025 attracts the following consequences:

• Deductor treated as ‘assessee in default’ under Section 398 — liable for recovery of TDS amount plus interest
• Interest for late deduction: 1% per month from date on which TDS was deductible to date of deduction
• Interest for late deposit: 1.5% per month from date of deduction to date of deposit
• 30% disallowance of expenditure under Section 35(b) of ITA 2025 (corresponding to old Section 40(a)(ia)) where TDS not deducted or not deposited before due date of filing ITR
• Late filing fee of ₹200 per day under Section 427 for delay in filing TDS returns
• Penalty for non-deduction or non-payment as applicable under Chapter XXI of ITA 2025
• Prosecution proceedings under ITA 2025 where TDS is deducted but not deposited within prescribed time

9. Key Practical Action Points for Deductors

• Update all accounting software / ERP systems to reference new section numbers (e.g., Sec 393(1) [Sl. No. 6(i)]) and payment codes (1001–1067) for TDS deduction from 01.04.2026 onwards
• Do NOT quote old section numbers (194C, 194J, 194-I etc.) for transactions on or after 01.04.2026 — this will cause validation errors in TDS returns
• File Q1 TY 2026-27 returns (Form 138/140/144) using new form formats by 31 July 2026
• Maintain dual-code records: old section codes for FY 2025-26 transactions and new Section 393 codes for TY 2026-27 transactions
• Ensure TDS is now deducted on manpower supply / labour contracts under Sec 393(1) [Sl. No. 6(i)]
• Issue TDS certificates in new Forms 130/131/132/133 (replacing Forms 16/16A/16B/16C) for transactions from TY 2026-27 onwards
• Lower deduction certificates (Form 128, equivalent to old Form 13) under Section 395 should be obtained before payment for eligible cases
• For foreign remittances, use Form 145 (Form 15CA equivalent) and Form 146 (Form 15CB equivalent)
• Review CBDT circulars and notifications periodically — they now carry mandatory compliance weight under Section 400(2)

10. Form Mapping — Old vs New (Quick Reference)

11. Conclusion

The Income Tax Act, 2025 represents the most significant structural overhaul of India’s direct tax regime since 1961. The consolidation of 40+ TDS sections into Sections 392, 393, and 394 — presented in a clean, tabular, and code-based format — is a landmark step towards reducing compliance complexity, minimising errors, and making tax administration more transparent and accessible.

While the underlying tax rates and thresholds remain largely unchanged, the new section numbering, payment codes (1001–1067), and form numbers (138, 140, 141, 144, etc.) require every deductor, CA firm, and finance professional to update their systems, processes, and templates before filing returns for Tax Year 2026-27.

The transition is structural, not financial — the law has been simplified, not tightened. Proactive preparation and system updates will ensure seamless, penalty-free compliance under the new regime.

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Disclaimer & Sources: This article has been prepared based on: (i) Income Tax Act, 2025 (as published on www.incometaxindia.gov.in); (ii) Official FAQs and transition guidance published by the Income Tax Department on www.incometax.gov.in; (iii) ICAI publication on the Income Tax Act, 2025; (iv) Income Tax Rules, 2026 (Rule 218 – TDS deposit timelines); and (v) CBDT Notifications and Circulars issued thereunder. While due care has been taken to ensure accuracy, this article is intended for informational and educational purposes only. Readers are advised to refer to the official text of the Act, Rules, and CBDT notifications for definitive guidance. The author or the firm shall not be liable for any errors, omissions, or consequences arising from reliance on this article without professional consultation.

CA Ashish Jain | Partner | M/s Ashish Akhilesh Jain & Associates, Chartered Accountants | Agra