TDS under the Income-tax Act, 2025
TDS under the Income-tax Act, 2025 — A Practical Guide for Deductors
New section references, nature codes, challan payment and TDS return forms — everything you need for smooth compliance from 1 April 2026.
The Income-tax Act, 2025 and Income-tax Rules, 2026 came into force on 1 April 2026. The most common concern among deductors is whether TDS provisions have substantially changed — or whether only the section references have shifted.
The short answer: the core TDS mechanism remains familiar. What has changed is the numbering of sections, the return form names, the reporting codes used on TRACES, and the replacement of the "Financial Year / Assessment Year" dual-year system with a single Tax Year reference. For most businesses, the transition is a matter of updating references rather than learning an entirely new regime.
Who Is Required to Deduct TDS?
Companies & LLPs
Companies and Limited Liability Partnerships must comply with applicable TDS provisions from the date of incorporation itself — wherever a covered payment is made. There is no relaxation for low turnover.
Partnership Firms, Individuals and HUFs
These entities must examine the applicability conditions prescribed under each provision. Certain provisions are triggered by the turnover or gross receipts of the preceding Tax Year, while others apply regardless of turnover.
What Has — and Has Not — Changed?
| Compliance Element | Position under IT Act, 2025 |
|---|---|
| TDS deduction mechanism | ✓ Broadly similar |
| Deposit of TDS | ✓ Broadly similar |
| Quarterly TDS returns | ✓ Continue (renumbered forms) |
| Interest for delay | ✓ Continue |
| Late filing fee | ✓ Continue |
| Correction statements | ✓ Continue |
| TDS certificates | ✓ Continue (renumbered forms) |
| TDS rates & threshold limits | ✓ Largely unchanged |
Principal Changes for Deductors
- New section references have replaced the 192 / 194-series of the old Act. Non-salary TDS is now consolidated under Section 393; salary TDS under Section 392.
- New quarterly return form numbers have been prescribed under the Income-tax Rules, 2026.
- Reporting on TRACES is now code-oriented — 4-digit numeric nature codes replace old section citations when depositing challans and filing statements.
- The "Financial Year / Assessment Year" terminology is replaced by Tax Year across all documentation, certificates, and returns.
- Certain threshold limits have undergone changes in selected cases — deductors should verify the applicable threshold for each nature of payment.
Important Changes under the Income-tax Act, 2025
While the substantive TDS machinery is broadly preserved, deductors should note the following specific changes under the new law:
- Section 392(1) governs TDS on regular salary payments to employees — this is the provision relevant to all employers for payroll compliance.
- Section 392(1) is a separate and distinct sub-section. It applies specifically to TDS on accumulated provident fund balances paid to employees by trustees of a recognised PF scheme — not to regular salary. This distinction is important when selecting the correct payment code on TRACES.
- Section 393 consolidates all non-salary TDS provisions — contractor payments, professional fees, rent, interest, commission, and similar payments.
- The due dates for deposit and quarterly filing continue broadly on similar lines. Deductors should refer to applicable CBDT notifications and instructions for precise dates.
Nature Code-wise Practical Reference Table
From 1 April 2026, transactions on TRACES are identified by 4-digit numeric payment codes. The following are the most commonly used codes in day-to-day business compliance:
| Nature of Payment | Old Section (Act, 1961) | New Section (Act, 2025) | Table & Sr. No. | Code | TDS Rate | Threshold Limit |
|---|---|---|---|---|---|---|
| Payment to employees — salary (regular) | 192 | 392(1) | — | 1002 | Slab rate | Nil |
| Accumulated PF balance paid to employee | 192A | 392(1) | — | 1004 | 10% | ₹50,000 |
| Commission / Brokerage — Insurance (Non-Corporate) | 194D | 393(1) | 1(i) | 1005 | 2% | ₹20,000 |
| Commission / Brokerage — Insurance (Corporate) | 194D | 393(1) | 1(i) | 1005 | 10% | ₹20,000 |
| Commission / Brokerage — Others | 194H | 393(1) | 1(ii) | 1006 | 2% | ₹20,000 |
| Rent on Machinery | 194I(a) | 393(1) | 2(ii)(D)(a) | 1008 | 2% | ₹50,000 per month |
| Rent other than Machinery (land, building, furniture) | 194I(b) | 393(1) | 2(ii)(D)(b) | 1009 | 10% | ₹50,000 per month |
| Interest other than interest on securities | 194A | 393(1) | 5(iii) | 1022 | 10% | ₹10,000 |
| Payment to Contractors — Individual / HUF | 194C | 393(1) | 6(i)(D)(a) | 1023 | 1% | ₹30,000/txn or ₹1,00,000 aggregate |
| Payment to Contractors — Corporate / Others | 194C | 393(1) | 6(i)(D)(b) | 1024 | 2% | ₹30,000/txn or ₹1,00,000 aggregate |
| Fees for Technical Services / Royalty / Call Centre | 194J(a) | 393(1) | 6(iii)(D)(a) | 1026 | 2% | ₹50,000 |
| Fees for Professional Services | 194J(b) | 393(1) | 6(iii)(D)(b) | 1027 | 10% | ₹50,000 |
| Payment to Directors (other than salary) | 194J | 393(1) | 6(iii)(D)(b) | 1028 | 10% | Nil |
| Purchase of Goods | 194Q | 393(1) | 8(ii) | 1031 | 0.1% | ₹50 lakh |
| Benefit or Perquisite from Business / Profession | 194R | 393(1) | 8(iv) | 1033 | 10% | ₹20,000 |
| Payment to Partners of Firms | 194T | 393(3) | 7 | 1067 | 10% | ₹20,000 |
ⓘ Note: The rate for contractor payments (Code 1023) is 1% where the payee is an Individual or HUF and 2% in other cases. Nature codes and section references should be verified from official CBDT notifications or updated TDS software before filing returns.
TDS Return Forms — Old Law vs New Law
Every quarterly TDS return form has been renumbered under the Income-tax Rules, 2026. The structure and quarterly filing pattern remain familiar — only the form numbers and internal section references have changed.
| Sr. | Type of Return | Form No. (Old Law) | Form No. (New Law) |
|---|---|---|---|
| 1 | Return of TDS from Salary Payments | 24Q | Form 138 |
| 2 | Return of TDS from Resident Payments (other than Salary) | 26Q | Form 140 |
| 3 | Return of TDS from Non-Resident Payments | 27Q | Form 144 |
| 4 | Return of TCS | 27EQ | Form 143 |
Invalid or Inoperative PAN — Compliance Check
Before deducting tax, deductors should verify that the PAN of the deductee is valid and operative. Failure to do so may result in deduction at a higher rate as prescribed under the law — typically 20% where PAN is absent or invalid.
The Income-tax Department provides a bulk PAN verification facility on TRACES. Using this as part of regular vendor onboarding and periodic compliance review will help avoid short-deduction defaults and consequential interest exposure.
Due Dates
From a practical perspective, due dates for deposit of TDS and filing of quarterly TDS statements continue broadly on similar lines under the new law. Deductors should refer to applicable notifications, rules and official instructions issued from time to time for precise dates.
Conclusion
For most businesses, the transition to the Income-tax Act, 2025 is more a matter of understanding new section references, return forms, and reporting codes than learning an entirely new TDS regime. Familiarity with the commonly used nature codes and their corresponding provisions — particularly the distinction between Sections 392(1) and 392(1) for salary-related payments — will help ensure smooth challan payment, accurate TDS reporting, and timely compliance under the new law.
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