The Income Tax Act, 2025 introduces a streamlined and modernized framework for Tax Deducted at Source (TDS) effective April 1, 2026, without altering existing rates or thresholds. The reform consolidates numerous scattered provisions into simplified sections, notably Section 392 for salary-related TDS and Section 393 for other payments like rent, commission, and professional fees. The applicability of the old or new law depends on the earlier of credit or payment date, ensuring clarity during the transition period. Filing compliance is also simplified with new forms—Form 138 for salary TDS, Form 140 for non-salary TDS, and a unified Form 141 replacing multiple challan-cum-statements. Businesses must update accounting systems, correctly reference new sections, and maintain clear records distinguishing between old and new tax regimes. Overall, the reform focuses on ease of compliance, improved structure, and continuity of tax principles, requiring taxpayers to prepare adequately for a smooth transition.
Arjuna (Fictional Character): Krishna, the Income Tax Act, 2025 is set to change the way we look at compliance starting April 1, 2026. Since TDS is something that affects every taxpayer, what are the most significant changes we need to prepare for?
Krishna (Fictional Character): Arjuna, as we know the transition to the new Act is aimed at modernization and transparency. For Tax Deducted at Source (TDS), the previous system of many separate, scattered sections has been reorganized into a clear, logical, and tabular format.
Arjuna (Fictional Character): Krishna, many are worried about the new section numbers. Will the rates also change?
Krishna (Fictional Character): Arjuna, here is the roadmap for the new TDS framework that every taxpayer should understand:
1. Structural Simplification: Section 392 & 393
- The numerous TDS sections of the 1961 Act (Sections 192 to 194T) have been consolidated. Now Section 393 consolidates all other payments like rent, commission, and professional fees into simplified tables.
- Instead of section 192B now Section 392 handles all TDS related to Salaries.
- Importantly, the TDS rates and monetary thresholds remain largely the same as the old Act; only the presentation has changed to make it more “reader-friendly”.
2. Which Act to Apply while making deduction of TDS?
- The TDS deduction depends on the “event earlier of credit or payment”.
- If the credit or payment happens on or before March 31, 2026, the 1961 Act
- If it happens on or after April 1, 2026, the 2025 Act and its new section numbers must be quoted.
- For example, a professional fee credited in March 2026 but paid in April 2026 must follow the 1961 Act.
3. Updated Filing Numbers
- Under the new framework, quarterly TDS return forms are replaced with simplified versions i.e.; Form 138 will now be used for Salary TDS, taking the place of the old Form 24Q, while Form 140 will be utilized for non-Salary TDS, replacing Form 26Q.
- Also, the forms for specific transactions have been consolidated; the various “Challan-cum-statement” forms previously known as 26QB (for property), 26QC (for rent), 26QD (for payments by individuals/HUFs), and 26QE (for virtual digital assets) are now merged into a single, unified Form No. 141.
4. Essential Compliance Steps
- Businesses must update their payroll and accounting systems to reflect the new section numbering (e.g., quoting Section 393 instead of 194C) from April 2026 to avoid system errors.
- Maintain clear records to distinguish between income/TDS for FY 2025-26 (Old Act) and Tax Year 2026-27 (New Act).
- The e-filing portal will support both Acts simultaneously; ensure the correct “Assessment Year” or “Tax Year” is selected during payment.
Arjuna (Fictional Character): Krishna, what should the taxpayers learn from all these changes?
Krishna (Fictional Character): Arjuna, the lesson is that “Modernity requires Preparation”. While the forms and section numbers are changing to be more logical, the fundamental tax rules remain same. By staying updated and ensuring your accounting systems reflect these new form numbers, taxpayers can ensure a seamless transition to the new law.
FAQs – TDS under the Income Tax Act, 2025: New Sections, Same Rates
Q1. Have TDS rates or threshold limits changed under the Income Tax Act, 2025?
Answer: No. The Income Tax Act, 2025 primarily restructures the TDS framework by introducing new section numbers and simplified provisions. The existing TDS rates, threshold limits, and underlying tax principles remain substantially unchanged.
Q2. Which sections now govern TDS under the Income Tax Act, 2025?
Answer: Section 392 governs TDS on salary-related payments, while Section 393 consolidates TDS provisions relating to other payments such as rent, commission, professional fees, interest, dividends, contractor payments, and other specified transactions that were previously spread across multiple sections.
Q3. Which law applies if a payment relates to both March and April 2026?
Answer: The applicable law depends on the earlier of the date of credit or payment. If the earlier event occurs on or before 31 March 2026, the Income-tax Act, 1961 applies. If it occurs on or after 1 April 2026, the Income Tax Act, 2025 and its new section numbers become applicable.
Q4. What are the new TDS return forms under the Income Tax Act, 2025?
Answer: From 1 April 2026, Form 138 replaces Form 24Q for salary TDS, Form 140 replaces Form 26Q for non-salary TDS, and Form 141 serves as a unified challan-cum-statement replacing Forms 26QB, 26QC, 26QD, and 26QE.
Q5. What should businesses do to ensure smooth compliance under the new TDS framework?
Answer: Businesses should update their payroll, accounting, and ERP systems to reflect the new section numbers and forms, maintain separate records for transactions governed by the old and new laws, and ensure the correct Assessment Year or Tax Year is selected while making TDS payments and filing returns.
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