Introduction
Legal Shift to ITA 2025
Tax Year Introduction
New TDS Sections (392–394)
Payment Code Changes
New TDS/TCS Forms
Form 121 Update
Revised TCS Rates
TDS Rate Changes
Cash Withdrawal Rules
Automated TDS Certificates
CBDT Circular Impact
Salary TDS Transition
Correction Deadline
TDS Due Dates
Decriminalization Changes
Action Checklist
India’s income tax system enters a new legal era from 1 April 2026. The Income Tax Act, 1961, stands repealed and is replaced by the Income Tax Act, 2025. For tax professionals, deductors, and compliance teams, this is not a cosmetic change — it is a structural overhaul of how TDS and TCS obligations are classified, reported, and enforced and how TDS & TCS changes impact them.
In TDS changes 2026 India, tax rates and threshold limits remain unchanged. What changes is everything around them: new TDS sections 2026 references, form numbers, payment codes, correction windows, and select TCS rates.
This is in a way ironic because the latest TDS and TCS rates remain the same but everything else is changing.
Legal Architecture: From ITA 1961 to ITA 2025
The Income Tax Act, 1961 — an 819-section, 47-chapter statute — is replaced by a 536-section law with plain language, logical sequencing, and removal of redundant provisions. The Income Tax Rules, 1962 (with 500+ rules) are simultaneously replaced by the Income Tax Rules, 2026, reduced to just 333 rules.
The new Act aims to simplify taxation, ensure easier compliance, and reduce legal disputes. For most individual taxpayers, actual tax liability is unaffected. For professionals and businesses, the section numbering changes entirely — all software, forms, and advisories will need updating.
One important transition note: FY 2025–26 (AY 2026–27) returns are still filed under the old Income Tax Act, 1961. The first return under the new Income Tax Act, 2025 will be filed from July 2027 for Tax Year 2026–27.
Introduction of “Tax Year”
One of the most taxpayer-friendly changes is the replacement of two confusing terms — Previous Year and Assessment Year — with a single unified concept called Tax Year. Tax Year 2026–27 covers April 1, 2026 to March 31, 2027 — income earned and filed within this period. This eliminates the confusion of earning in one year and being assessed in another.
Practically, Form 16 will now show Tax Year 2026–27 instead of Assessment Year 2027–28. This will make a huge difference in the TDS & TCS changes.
| Feature | The Transition (As of 31st March 2026) | The New Law (Starting 1st April 2026) |
|---|---|---|
| Governing Law | Income Tax Act, 1961 | Income Tax Act, 2025 |
| Earning Period | FY 2025–26 (Finalized yesterday) | Tax Year 2026–27 (Commencing today) |
| Filing Nomenclature | Assessment Year (AY) 2026–27 | Tax Year (TY) 2026–27 |
| Declaration Form | Forms 15G / 15H (Now Expired) | Unified Form 121 (Active) |
| Next Filing Cycle | July / Oct 2026 (Final use of old Act) | July / Oct 2027 (First use of new Act) |
As of 1st April, 2026 morning, the Income Tax Act, 1961 is no longer the governing law for new transactions. Every salary credited today, every professional fee paid, and every contract signed now falls under the Income Tax Act, 2025.
Restructuring of New TDS Section 2026: Sections 392, 393, and 394
The most significant structural TDS changes 2026 in India for deductors is the complete elimination of the 194-series sections. Sections 392, 393, and 394 of the Income Tax Act, 2025 replace 194C, 194J, 194I, and all other TDS sections. new TDS sections 2026
The new structure is:
Section 392 — TDS on salary (Form 138 replaces Form 24Q as the quarterly return)
Section 393 — TDS on all non-salary payments to residents and non-residents
Section 394 — Residual/special category deductions
Payments are no longer identified by individual section numbers but by table references and serial numbers within these consolidated sections. The latest TDS and TCS rates and thresholds remain the same — only the referencing format changes.
Old vs. New Section Mapping (illustrative)
| Old Section (ITA 1961) | Description | New Reference (ITA 2025) |
|---|---|---|
| 194C | Contract payments | Section 392 – Table reference |
| 194J | Professional/technical fees | Section 392 – Table reference |
| 194H | Commission/brokerage | Section 392 – Table reference |
| 192 | Salary TDS | Section 392(1) |
Section 194LD has been deprecated entirely and will no longer be applicable after 31 March 2026.
New Payment Code Structure (1001–1067)
As per TDS compliance changes 2026, now TDS challans and return filings will use a new numeric payment code system (codes 1001–1067) in place of section numbers. These codes are used across e-payment, challan generation, and return reporting. ERP systems and accounting software will need to map existing section references to the new codes before the first filing of FY 2026–27.
New TDS/TCS Forms from 1 April 2026
One of the most visible TDS & TCS changes is the complete renumbering of TDS and TCS forms to align with the new law.
| Purpose | New Form (from Apr 2026) | Earlier Form |
|---|---|---|
| Salary TDS Return | Form 138 | Form 24Q |
| Non-Salary TDS Return | Form 140 | Form 26Q |
| Non-Resident TDS Return | Form 144 | Form 27Q |
| TCS Return | Form 143 | Form 27EQ |
| Salary TDS Certificate | Form 130 | Form 16 |
| Non-Salary TDS Certificate | Form 131 | Form 16A |
The tax audit report Form 3CD is replaced by Form 26 under the new Act. TDS/TCS disclosures, which were previously consolidated under Clause 34 of Form 3CD, are now spread across Clauses 49, 50, and 51 with a dedicated schedule. Critically, the new equivalent of Clause 34(b) now requires the total number of TDS/TCS transactions reported, the exact count of transactions not reported (previously a simple Yes/No tick), and the monetary amount attributable to unreported transactions.
New Unified Form 121 Replacing 15G/15H
One of the most practical simplifications under Section 393(6) is the elimination of the age-based distinction for Nil-TDS declarations. The era of choosing between Form 15G (for those under 60) and Form 15H (for seniors) is over. Starting April 1, 2026, both are replaced by a single, unified Form 121.
This form is age-agnostic and follows a streamlined digital process. Payer entities will now allot a 26-character Unique Identification Number (UIN) to every Form 121 received, ensuring better tracking and reducing the instances of “missing” declarations during assessments.
Revised TCS Rates
As per new TCS provisions under ITA 2025, overseas tour packages are now taxed at a flat 2%, replacing the earlier structure of 5% up to ₹10 lakh and 20% beyond that. LRS remittances for education and medical purposes are reduced from 5% to 2%. Alcoholic liquor TCS is increased from 1% to 2%.
Also, in new TCS provisions under ITA 2025, TCS on scrap, minerals, tendu leaves, and coal is similarly consolidated at 2%.
Key TDS Rate and Threshold Changes
Let’s have a look at the latest TDS and TCS rates and threshholds here:
Professional Fees (194J equivalent): The TDS threshold on professional and technical fees is raised to ₹50,000, reducing the compliance burden for smaller engagements.
Manpower Supply: For years, businesses have litigated whether “Manpower Supply” should be taxed as a ‘Professional Service’ (higher rate) or ‘Contractual Work’ (lower rate). The Income-tax Act, 2025 settles this by explicitly including manpower supply under the definition of “Work” (Section 402(47)).
Consequently, TDS will now be deducted at the standard contractor rates: 1% for payments to individuals/HUFs and 2% for all other entities. This reclassification provides much-needed certainty for HR and procurement departments.
Life Insurance Payouts: TDS on certain life insurance proceeds is reduced to 2%.
NRI Property Purchases: Buyers purchasing immovable property from an NRI can now deduct TDS by obtaining a simple PAN-based challan, eliminating the earlier requirement to obtain a TAN registration.
Dividend Income: Earlier, taxpayers could deduct interest expenses up to 20% of dividend income while computing taxable dividend income. From 1 April 2026, this deduction is removed. Investors who have borrowed funds to purchase dividend-yielding shares will face higher taxable income.
Motor Accident Claims: Interest from Motor Accident Claims Tribunal awards is fully tax-exempt, with no TDS deducted.
Strict TDS on Cash Withdrawals: The Non-Filer Trap
The new Act tightens the screws on large cash transactions, particularly for those with a poor filing history. While the standard TDS on cash withdrawals (Section 194N equivalent) remains 2% for amounts exceeding ₹1 crore, a “Non-Filer” penalty now kicks in with automated precision:
- For Non-Filers: If a taxpayer hasn’t filed ITRs for the last 3 years, TDS triggers at 2% on withdrawals above ₹20 lakh and jumps to a steep 5% for amounts exceeding ₹1 crore.
- Banking Integration: Banks and Post Offices will now use an automated API linked to the tax department to verify a taxpayer’s filing status in real-time before dispensing large cash amounts.
Automated NIL/Lower TDS Certificate Processing
A new scheme for small taxpayers introduces a rule-based, automated process for obtaining lower or nil deduction certificates, replacing the current manual application process with the Assessing Officer. CBDT will provide automated and faster processing for these certificates, reducing delays and friction for eligible taxpayers.
“Additionally, single window filing with depositories for Form 121 is now available for taxpayers holding securities in multiple companies.”
FAST-DS: Algorithmic “Nil-TDS” Certificates
To reduce the “Officer-Taxpayer” interface, the CBDT has launched the FAST-DS (Fast Automated System for Tax Deduction Statements). For small taxpayers and routine transactions, the process of obtaining a Lower/Nil TDS certificate is now algorithmic.
Instead of the old Form 13, taxpayers will apply via Form 128. If the applicant has a clean 4-year tax history and the projected tax liability matches the department’s data, the FAST-DS system will issue an automated certificate without requiring manual intervention from an Assessing Officer.
CBDT Circulars Now Binding
Section 400(2) of the Income Tax Act, 2025 restores the binding nature of CBDT guidelines on both tax authorities and deductors. From 1 April 2026, CBDT circulars on TDS and TCS changes— including those on perquisites and virtual digital assets — carry mandatory compliance weight. “The argument that CBDT circulars are only advisory no longer holds under Section 400(2).”
Salary TDS: Transition Rule
The date of salary payment — not the month of accrual — determines which Act governs TDS. Salary paid up to March 2026 is governed by Section 192 of the old Act. Salary paid from April 2026 onwards falls under Section 392(1) of the new Act.
Investment declarations for Tax Year 2026–27 must reference the new law. For instance, deductions under Section 80C of the old Act are now referenced as Schedule XV read with Section 123 of the Income Tax Act, 2025. Payroll systems must be updated to reflect the new section numbering from April 2026.
Correction Deadline: Hard Stop at 31 March 2026
This is the most time-critical compliance point. The TDS portal has a hard deadline: all correction statements for FY 2018–19 Q4 through FY 2023–24 Q3 must be filed before 31 March 2026. From 1 April 2026, corrections for these years are permanently time-barred — no exception exists, even for genuine errors.
Under the new Act (Section 397(3)), corrections for future years will be allowed only within two years from the end of the relevant Tax Year.
Note: This is a TRACES portal lockout. Many professionals assume they can file a manual petition later—clarifying that this is a “permanent time-bar”.
TDS Payment and Return Due Dates — FY 2026–27
Monthly TDS Payment: TDS deducted in any month must be deposited by the 7th of the following month using Challan ITNS 281. TDS deducted in March 2027 must be deposited by 30 April 2027.
Quarterly TDS Return Deadlines:
| Quarter | Period | Return Due Date |
|---|---|---|
| Q1 | Apr–Jun 2026 | 31 July 2026 |
| Q2 | Jul–Sep 2026 | 31 Oct 2026 |
| Q3 | Oct–Dec 2026 | 31 Jan 2027 |
| Q4 | Jan–Mar 2027 | 31 May 2027 |
ITR Filing Due Dates (Tax Year 2026–27):
The due date for ITR-3 and ITR-4 for non-audit taxpayers has been extended to 31 August. ITR-1 and ITR-2 for salaried individuals remain due by 31 July. The tax audit deadline remains 31 October.
Decriminalization: Moving from Jail to Just Fines
In a significant shift toward “Trust-Based Taxation,” the 2025 Act decriminalizes several procedural TDS defaults. Minor technical errors or the failure to produce documents that don’t involve actual tax evasion are no longer prosecutable as criminal offenses. These have been converted into monetary penalties, ensuring that honest businesses aren’t threatened with litigation for simple clerical or administrative lapses.
Action Checklist for Deductors and Tax Teams
Before the tax professionals start navigating the TDS & TCS changes, it would be beneficial to do the following:
- File all pending TDS/TCS correction statements for FY 2018–19 Q4 to FY 2023–24 Q3 before 31 March 2026
- Update ERP and accounting software with new section references (Sections 392, 393, 394) and payment codes (1001–1067)
- Map existing vendor and payroll TDS configurations to the new section numbering
- Update payroll systems for salary TDS under Section 392(1) from April 2026
- Reissue investment declaration forms referencing new section numbers
- Review manpower supply contracts — TDS applicability is now explicit under the new framework
- Verify Form 121 filing processes under the new single-window mechanism
- Note the deprecated Section 194LD and update any affected transactions accordingly
The transition from ITA 1961 to ITA 2025 is the most significant structural change to India’s income tax framework in over six decades. For tax professionals and finance teams, the window to act on historical corrections has closed. The focus must now shift entirely to FY 2026–27 compliance under the new architecture.
