Summary: 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.
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