The proposed amendments to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions aim to simplify compliance and rationalise rates. For resident buyers purchasing immovable property from non-residents, obtaining a TAN and filing Form 27Q will no longer be mandatory. TDS can instead be deposited using a PAN-based challan, aligning the mechanism with resident transactions. Manpower supply services are now expressly classified as works contracts under Section 194C, removing disputes between Sections 194C and 194J. The TDS rate is fixed at 1% for individuals/HUFs and 2% for others. From 1 April 2026, lower or nil TDS certificates will be issued through a rule-based automated system based on objective parameters, replacing the manual approval process. On the TCS front, overseas tour packages and foreign remittances for education/medical are reduced to a flat 2%, while liquor, scrap, minerals, and tendu leaves are standardised at 2%, reflecting rationalisation and simplification efforts.
Proposed changes to Tax Deducted at Source (TDS) provisions
1. Ease of complaince where a resident purchases immovable property from Non-Residents:
| Sr No. | Current Position | Proposed Position |
| 1. | The buyer was mandatorily required to obtain a Tax Deduction and Collection Account Number (TAN) and file Form 27Q | TAN is no longer mandatory for the buyer purchasing immovable property from a non-resident. |
| 2. | TDS payment had to be made only through a TAN-based challan. | TDS can be deposited using a PAN-based challan, similar to the mechanism already applicable for purchases from resident sellers. Relevant forms will be notified to report the transaction. |
2. Clarity on reduced rate of TDS for Manpower Supply Services:
| Sr No. | Particulars | Current Position | Proposed Position |
| 1. | Nature of Service | It was disputed in nature. 194C vs 194J (eastwhile Act 1961) | It is now expressedly covered as Works Contract under section 194C of the earstwhile Act and relevant section under the new 2025 act |
| 2. | TDS rate (Individual/ HUF) | It was often charged at 10% / 2% | It is fixed at 1% |
| 3. | TDS rate (Others) | It was often charged at 10% / 2% | It is fixed at 2% |
3. Automated Lower/Non-Deduction TDS Certificate for small tax payers with effect from 1st April 2026:
Under the earlier framework, tax was deducted at source even when a taxpayer’s income was below the taxable limit, unless a lower or nil TDS certificate was manually obtained from the Assessing Officer via making an online application. This officer-driven process involved extensive documentation and prolonged follow-ups. Budget 2026 replaces this with a rule-based, automated electronic mechanism for issuing lower or nil TDS certificates. The new system relies on objective parameters such as income level and compliance history, ensuring faster, transparent, and taxpayer-friendly relief.
Proposed changes to Tax Collected at Source (TCS) provisions
Reduction and Rationalisation in TCS rate on following items:
| Sr No. | Nature of Service | Current rate | Proposed rate |
| 1. | Overseas tour packages | 5% upto ₹ 10 Lakh
20% above ₹ 10 Lakh |
Flat 2% for all amounts |
| 2. | Foreign Remittance for Educational/ Medical | 5% above ₹ 10 Lakh
|
Reduced to 2% |
| 3. | Sale of alcoholic liquor for human consumption | 1%
|
2% |
| 4. | Sale of Tendu Leaves | 5% | 2% |
| 5. | Sale of Scrap | 1% | 2% |
| 6. | Sale of minerals, being coal or lignite or iron ore | 1% | 2% |
Conclusion:
The proposed amendments to TDS and TCS provisions reflect the government’s intent to simplify tax compliance, reduce administrative bottlenecks, and provide clarity in interpretation. By leveraging automation and rationalising rates, these measures are expected to improve ease of doing business while ensuring efficient tax collection.
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Disclaimer: The above information is intended for academic guidance and is to be used for informative purpose only. The said information is not to be considered as an opinion or advice. The aforesaid information is proprietary and privileged and is not to be used, reproduced and disclosed without consent. It is advisable to check with a subject matter expert before concluding on applicability or non-applicability of any compliance under any legislature. The views expressed are strictly personal.
The above article is written by Yashika Gurav and CA Shravan Suratwala. The authors can be reached at contact@smsuratwala.com or shravan.suratwala@outlook.com.
Yashika Gurav is currently pursuing her Chartered Accountancy course and is currently completing internship with S.M. Suratwala & Co., Chartered Accountants, Pune. Shravan Suratwala is a Partner at S.M. Suratwala & Co., Chartered Accountants. Shravan has 10+ years of post-qualification professional experience in advisory, litigation and compliance areas of Corporate and International taxation and Assurance. He has also worked three plus years in the field of Internal and Process Audit while pursuing chartered accountancy course.
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