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Presumptive Taxation under the Income-tax Act, 2025

Fri, 31 Jul 2026 18:43:51 +0530

RNR & COChartered Accountants

By CA Narasinga Rao Burada, FCA · Partner, RNR & CO · 8 min read

Presumptive taxation is the closest thing India's income tax law offers to a shortcut for small taxpayers — declare a fixed share of turnover or receipts as income, skip the detailed bookkeeping, and, within limits, skip the audit too. For nearly a decade, that shortcut lived across three separate provisions — Sections 44AD, 44ADA and 44AE. From this year, all three sit inside a single section of India's new Income-tax Act, 2025. The rules haven't changed much. The address has.

Finance Act, 2016

Professionals Brought In

Section 44ADA extends presumptive taxation to specified professionals; a five-year lock-in is added to Section 44AD.

Finance Act, 2017

Digital Rate Introduced

A reduced 6% rate is introduced under Section 44AD for turnover received through banking and digital channels.

Finance Acts, 2020 & 2021

Audit Threshold Raised

The tax-audit threshold for low-cash businesses is raised in stages, eventually reaching ₹10 crore.

Finance Act, 2023

Eligibility Thresholds Raised

₹2 cr → ₹3 cr for business, ₹50 lakh → ₹75 lakh for professionals, where cash receipts stay under 5%.

1 April 2026

Section 58 Arrives

The Income-tax Act, 2025 comes into force; Sections 44AD, 44ADA and 44AE are consolidated into a single Section 58.

The Three Schemes at a Glance

The substance of each scheme is unchanged — only the citation moves. Section 58 organises the three categories as a table with three serial numbers, rather than three standalone sections:

Category	Old Section (1961 Act)	New Section (2025 Act)	Threshold	Presumptive Income
Business	Sec. 44AD	Sec. 58, Sl. No. 1	≤ ₹2 cr (₹3 cr if cash ≤ 5%)	8% of turnover (6% for digital receipts)
Specified professionals	Sec. 44ADA	Sec. 58, Sl. No. 3	≤ ₹50 lakh (₹75 lakh if cash ≤ 5%)	50% of gross receipts
Goods carriage	Sec. 44AE	Sec. 58, Sl. No. 2	Up to 10 vehicles owned	₹1,000/tonne GVW/month (heavy) or ₹7,500/vehicle/month (other)

3 → 1

Three separate sections — 44AD, 44ADA and 44AE — now live inside one: Section 58 of the Income-tax Act, 2025.

One Year, Two Rulebooks

Here's the wrinkle worth flagging before anything else. Right now, in the middle of AY 2026-27 filing season, you're still working under the old numbers. Income earned in FY 2025-26 is assessed entirely under the Income-tax Act, 1961 — so your return will (correctly) cite Section 44AD, 44ADA or 44AE, not Section 58.

The Income-tax Act, 2025 came into force on 1 April 2026, but it governs income earned from FY 2026-27 onwards — what the new Act calls a "Tax Year" rather than a "Previous Year" or "Assessment Year". That means the business income you're earning right now already falls under the new Section 58 framework, even though the return you're about to file for last year still uses the familiar old sections. Two rulebooks, one overlapping year — worth keeping straight, especially if you're pencilling in next year's advance tax.

The Fine Print: When "Presumptive" Isn't Optional

Presumptive taxation isn't purely a taxpayer's choice once you're in it. If you declare profit below the deemed rate — say, a business with ₹90 lakh turnover reports only ₹4 lakh in actual profit, well under the 8% (₹7.2 lakh) presumptive figure — and your total income for the year, from all sources, exceeds the basic exemption limit (₹4 lakh under the new tax regime, ₹2.5 lakh under the old regime), the benefit of skipping books and audit disappears. Regular books of account and a tax audit under Section 63 (old Section 44AB) become mandatory instead. Many taxpayers assume opting in guarantees no audit, ever — it only guarantees no audit if you stick to, or beat, the deemed rate.

There's also a five-year lock-in to factor in. Once you use presumptive taxation for a business in a given year, declaring profit below the prescribed rate in any of the following five years costs you access to the scheme for that business for the five years after that — pushing you back onto books and audit for the lock-out period too, if income exceeds the exemption limit. It rewards consistency and can penalise a single bad year.

A Few Things Still Being Worked Out

As with any large-scale renumbering exercise, a handful of questions are still being debated among tax professionals. One recurring one: where a taxpayer runs more than one business, or carries a loss under another head of income, exactly how far the bar on setting off "other losses and deductions" against presumptive income extends isn't entirely settled. Until the department issues clearer guidance, this is exactly the kind of situation where a quick conversation with your CA before filing is worth more than a general rule of thumb.

Is It Right for You?

Presumptive taxation tends to make the most sense when your actual margin runs close to or above the deemed rate, when you'd rather skip the cost of maintaining full books, or when a full audit would be disproportionate to the size of your operation. It's less attractive if your real margins run persistently thin — a business genuinely earning 3–4% on turnover ends up taxed on a notional 6–8% instead, unless it's willing to take on books and audit to declare the lower, real number. And since moving in and out isn't free, it's worth deciding with next year in mind, not just this one.

How This Plays Out in Practice

Scenario · Professional

A freelance designer, ₹32 lakh in receipts

Billed almost entirely by bank transfer. Under Section 44ADA (Section 58, Sl. No. 3 from FY 2026-27), she can declare ₹16 lakh (50%) as taxable income, with no books to maintain and no audit — provided she doesn't later declare a lower profit that trips the exemption-limit condition above.

Scenario · Business

A kirana store, ₹1.6 crore turnover

About 85% of sales settle through UPI, the rest in cash — cash stays under 5% of turnover, so the ₹3 crore threshold applies, not ₹2 crore. Digital sales are declared at 6%, the small cash portion at 8%, comfortably under Section 44AD (Section 58, Sl. No. 1), with no books or audit required.

Scenario · Goods Carriage

A transporter, four vehicles

Two heavy trucks at 14-tonne GVW, two smaller ones. Under Section 44AE (Section 58, Sl. No. 2), the heavy trucks are deemed to earn ₹14,000 each per month (₹1,000 × 14 tonnes), the smaller ones ₹7,500 each — a flat per-vehicle calculation that doesn't depend on turnover at all.

Conclusion

Presumptive taxation remains one of the simplest ways for small businesses, professionals and transport operators to stay compliant without the overhead of full bookkeeping — that hasn't changed under the Income-tax Act, 2025. What has changed is where the rules live: three familiar sections have become one, wrapped in new terminology, even as this year's filing still runs on the old numbers. If you're unsure which rulebook applies to your return, or whether presumptive taxation still suits your actual margins, RNR & CO can walk through the numbers with you before you file.

· · ·

Frequently Asked Questions

What is presumptive taxation, in simple terms?+

The Evolving Landscape of GST on Renting Residential Dwellings

Sun, 19 Jul 2026 17:54:51 +0530

The Evolving Landscape of GST on Renting Residential Dwellings | RNR & CO

The Goods and Services Tax (GST) framework in India, governed by the Central Goods and Services Tax (CGST) Act, 2017, provides for exemptions on certain supplies of goods and services in the public interest. One of the most pertinent exemptions, which affects a vast number of individuals and businesses, is related to the renting of residential properties. Initially conceived as a straightforward exemption to make housing affordable, its application and interpretation have undergone significant legislative changes and clarifications over the years. This article traces the evolution of this exemption, from its original form to the latest amendments, with a detailed look at its implications for landlords, tenants, and businesses in the accommodation sector.

1 Jul 2017

GST Launch

Exemption based purely on end-use; registration status of either party was immaterial.

18 Jul 2022

RCM Introduced

Exemption withdrawn for registered tenants; liability shifts to the tenant under RCM.

1 Jan 2023

Proprietor Relief

Personal-capacity renting by proprietors for their own residence remains exempt.

15 Jul 2024

Hostels & PGs Excluded

Hostel, PG and student-residence services excluded; new ₹20,000 threshold introduced.

The Original Exemption

A Focus on End-Use · Prior to 18 July 2022

From the inception of GST on 1st July 2017 until 17th July 2022, the governing provision was Entry No. 12 of Notification No. 12/2017-Central Tax (Rate). It exempted “services by way of renting of residential dwelling for use as residence”. The exemption was fundamentally activity-specific, hinging on two core conditions:

The property being rented had to be a ‘residential dwelling’.
The ultimate purpose of renting the property had to be for ‘use as residence’.

During this period, the registration status of the service provider (landlord) or the service recipient (tenant) was immaterial. As long as a residential property was used for residential purposes, the transaction remained outside the GST net. This broad scope led to interpretations where even commercial entities renting residential properties for their employees’ accommodation could avail of the exemption, provided the end-use was residential.

The Paradigm Shift

Amendment of 18 July 2022

A pivotal change occurred with effect from 18th July 2022, which fundamentally altered the nature of the exemption by introducing a recipient-based condition. The exemption entry was amended to read:

Amended Entry No. 12

“Services by way of renting of residential dwelling for use as a residence, except where the residential dwelling is rented to a registered person.”

This amendment significantly narrowed the scope of the exemption, with the following key implications:

Withdrawal of exemption for registered tenants: the exemption is no longer available if the tenant is a person registered under GST. This applies regardless of whether the registered tenant uses the property for their own residence or for commercial purposes.
Introduction of the Reverse Charge Mechanism (RCM): concurrently, Entry 5AA was inserted into the RCM notification (No. 13/2017-CT(R)), stipulating that for services by way of renting a residential dwelling to a registered person, the liability to pay GST shifts to the recipient. The registered tenant is now responsible for paying the GST directly to the government on the rent paid to the landlord — a move intended to bring such transactions into the tax net, since many landlords are unregistered and would otherwise not be liable to collect and pay GST.

This change had a significant impact on businesses that rent residential properties for their employees, directors, or as guesthouses. These businesses, being registered entities, became liable to pay GST under RCM on such rentals.

A Necessary Clarification for Proprietors

Effective 1 January 2023

The amendment of July 2022 created ambiguity for proprietors of proprietorship concerns. A proprietor is a registered person under GST in their business capacity, but they also have a personal capacity. To address the question of whether GST under RCM would apply if a proprietor rents a house for their personal residence, an explanation was inserted with effect from 1st January 2023.

This explanation clarified that the exemption for renting a residential dwelling remains available if the following two cumulative conditions are met:

The registered person is a proprietor of a proprietorship concern and rents the residential dwelling in their personal capacity for use as their own residence.
The renting is on their own personal account, and not on account of the proprietorship concern.

This provided much-needed relief to individual business owners, ensuring that their personal rental transactions were not inadvertently brought under the tax net on account of their business’s GST registration.

The Decisive Amendment of 2024

Excluding Hostels and PGs · 15 July 2024

While the judiciary had in the past taken a view that long-term hostel accommodation could qualify as a ‘residential dwelling’ for residential use, a further amendment effective from 15th July 2024, via Notification No. 04/2024-CT(R), decisively settled this issue from a legislative standpoint. Two significant changes were made to Entry 12:

Insertion of Explanation 2: a new explanation was added, explicitly stating that the exemption for ‘renting of residential dwelling’ does not cover services such as:
- Accommodation services for students in student residences.
- Accommodation services provided by hostels, camps, paying guest (PG) accommodations, and the like.
Removal of Heading 9963: the scope of the entry, which previously covered services under Heading 9963 (accommodation, food and beverage services) and Heading 9972 (real estate services), was amended to remove Heading 9963.

These changes effectively mean that services provided by hostels, PGs, and co-living spaces can no longer claim exemption under the ‘renting of residential dwelling’ category. This legislative action supersedes previous judicial interpretations and brings clarity, albeit by making such services taxable. It is, however, important to note that a new threshold-based exemption has been introduced under a separate entry.

₹20,000

per person, per month — the new threshold exemption under Entry Sl. No. 12A, for long-term stays of 90 days or more in hostels, PGs, and similar accommodation.

Summary of GST Implications

The current GST liability on the renting of a residential dwelling can be summarised as follows, reflecting the rules post the amendments:

Tenant’s Registration Status	End Use by Tenant	Taxability	GST Payment Liability
Unregistered Person	For Residence	Exempt	Not Applicable
Unregistered Person	For Commercial Purposes	Taxable	Supplier (Landlord) under Forward Charge
Registered Person	For Residence or Commercial Use	Taxable	Recipient (Tenant) under Reverse Charge Mechanism (RCM)
Registered Person (Proprietor)	For Own Residence (personal capacity)	Exempt	Not Applicable

Analysis of Practical Scenarios

To better understand the application of these rules, consider the following practical scenarios:

Scenario 1

Renting to Co-living / Space-Living Companies

When a property owner rents a residential dwelling to a co-living company (which is registered under GST), the company is liable to pay GST under RCM on the rent it pays to the owner. When this company, in turn, provides accommodation to students or professionals (who are typically unregistered), that subsequent supply may be exempt or taxable based on other specific notifications, such as the new threshold-based exemption for long-term stays. The co-living company would not be able to claim Input Tax Credit (ITC) for the GST paid under RCM if its output supply is exempt.

Scenario 2

Mixed Use by a Registered Professional

If a registered professional, such as a Chartered Accountant, rents a residential dwelling and uses it partly for residence and partly as a professional office, the entire transaction becomes taxable. Since the tenant is a registered person, they would be liable to pay GST under RCM on the total rent amount — the supply is treated as a mixed supply, attracting the tax treatment of the supply with the highest tax rate.

Scenario 3

Renting to a Person Registered in Another State

If a residential dwelling in Delhi is rented to a person who is registered under GST in Uttar Pradesh but not in Delhi, GST under RCM would not be payable. The liability under RCM is tied to the registration status within the context of the specific supply’s location.

· · ·

Conclusion

The GST exemption on the renting of residential dwellings has transformed from a simple, use-based exemption into a nuanced rule-set that depends critically on the tenant’s GST registration status and the specific nature of the accommodation. The amendments effective from 18th July 2022, which introduced the reverse charge mechanism for registered tenants, and the more recent changes from 15th July 2024, which explicitly excluded hostels and PG accommodations from this exemption, reflect a clear legislative intent to plug revenue leakages and bring greater clarity. Taxpayers — including landlords, tenants, and operators of accommodation services — must now carefully evaluate each rental transaction against these evolved parameters to ensure correct GST compliance.

About the Author

CA Narasinga Rao Burada, FCA

Partner at RNR & CO, Chartered Accountants, Hyderabad. He advises clients on GST, income tax, audit and regulatory compliance matters. For queries on this article, reach out at info@rnrandco.in.

Income Tax Changes from 1st April 2026: What Every Taxpayer Must Know

Fri, 26 Jun 2026 18:09:48 +0530

India's tax landscape has undergone one of its most sweeping overhauls in over six decades. From 1st April 2026, the Income Tax Act, 2025 has replaced the Income Tax Act, 1961, bringing with it a new set of rules, revised compliance requirements, and updated rates. Whether you are a salaried employee, a business owner, or an investor, these changes affect how you report income, file returns, and plan your taxes for Tax Year 2026-27.

A New Law for a New Era

The Income Tax Act, 2025, which came into force on 1st April 2026, is a landmark reform in India's direct tax framework. It replaces the 64-year-old Income Tax Act, 1961 — which had grown to 819 sections across 47 chapters — with a leaner, more readable statute of 536 sections. The goal is straightforward: simplify taxation, ease compliance, and reduce legal disputes by removing redundant provisions and rewriting complex language in plain terms.

Alongside the Act, the Income Tax Rules 2026 have also come into effect, replacing the decades-old Income Tax Rules, 1962. Notified by the CBDT on 20th March 2026, these rules align with the new Act and introduce updated deduction limits, revised PAN requirements, and redesigned reporting forms.

"Tax Year" Replaces Financial Year and Assessment Year

One of the most structurally significant changes under the new Act is the abolition of the dual system of Financial Year (FY) and Assessment Year (AY). In their place, the Act introduces a single, unified concept: the "Tax Year". Income earned from 1st April 2026 onwards will now be reported under the Tax Year in which it is earned — no more confusion between FY 2026-27 and AY 2027-28. This change simplifies ITR filing, assessments, and compliance tracking for all categories of taxpayers.

Higher Allowance Limits Under Income Tax Rules 2026

One area where taxpayers — especially salaried employees — will notice immediate relief is in allowance and perquisite limits, which have been revised to reflect today's cost of living. The following table captures the key revisions:

ALLOWANCE COMPARISON

Old vs New Perquisite & Allowance Limits

The table below compares the exemption limits prescribed under the 1962 Rules with the revised limits introduced under the 2026 Rules.

Item	Old Limit (1962 Rules)	New Limit (2026 Rules)
Children's Education Allowance	₹100/month per child	₹3,000/month per child
Hostel Allowance	₹300/month per child	₹9,000/month per child
Free Meals (Perquisite)	₹50 per meal	₹200 per meal
Non-cash Gifts	₹5,000 per year	₹15,000 per year
Car Perquisite (up to 1.6L engine)	₹1,800 + ₹900 (driver)	₹5,000 + ₹3,000 (driver)
Car Perquisite (above 1.6L engine)	₹2,400 + ₹900 (driver)	₹7,000 + ₹3,000 (driver)
Overseas Medical Treatment Tax-free Limit	Up to ₹2 lakh income	Up to ₹8 lakh income

Tax Slabs for Tax Year 2026-27: No Change

Despite the sweeping structural reforms, the income tax slabs under the new tax regime remain unchanged for Tax Year 2026-27. The applicable slab rates are: cleartax

INCOME TAX

Income Tax Slabs

The following table outlines the applicable tax rates based on different income ranges under the revised tax regime.

Income Range	Tax Rate
Up to ₹4 lakh	Nil
₹4 lakh – ₹8 lakh	5%
₹8 lakh – ₹12 lakh	10%
₹12 lakh – ₹16 lakh	15%
₹16 lakh – ₹20 lakh	20%
₹20 lakh – ₹24 lakh	25%
Above ₹24 lakh	30%

Taxpayers opting for the new regime continue to benefit from a tax rebate of up to ₹60,000 under Section 156 (equivalent to erstwhile Section 87A), effectively making income up to ₹12 lakh tax-free.

Key HRA Changes: More Cities, Stricter Compliance

Two important changes affect House Rent Allowance (HRA) claimants under the old tax regime. First, the list of "metro cities" eligible for the 50% HRA exemption has been expanded to include eight cities: Mumbai, Delhi, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, and Ahmedabad — with the last four being newly added. This is a long-overdue recognition of rising urban rental costs.

Second, compliance requirements have been tightened. Employees must now provide their landlord's PAN, proof of rent payments, and disclose their relationship with the landlord when claiming HRA exemption. Under Schedule III (11) of the new rules, the residential accommodation must not be owned by the assessee, and actual rent expenses must be incurred. These changes are aimed at eliminating fraudulent HRA claims.

New Income Tax Forms: Know the Revised Numbers

The CBDT has overhauled income tax forms under the Income Tax Rules 2026. Issuing documents under old form numbers for Tax Year 2026-27 will render them technically non- compliant. The key renaming changes are:

• Form 16 → Form 130 (TDS certificate for salary, pension, and senior citizen interest income)

• Form 16A → Form 131 (TDS certificate for non-salary payments)

• Form 12BB → Form 124 (Investment declaration by employee)

• Form 26AS → Form 168 (Annual information statement)

Form 130 is issued under Rule 215(1) of the Income Tax Rules 2026. It contains Part A (basic details — Name, Address, PAN, TAN, contact information), Part B (summary of income paid and TDS deducted), and Part C with two annexures — one for salaried employees under Section 392 and one for specified senior citizens under Section 393(1). All TDS certificates must be generated and downloaded from the web portal specified by the Director General of Income Tax (Systems).

Revised ITR Filing Due Dates

A significant relief for business owners and professionals is the extension of the due date for filing ITR-3 and ITR-4 (non-audit cases) from 31st July to 31st August. Notably, this extended deadline applies even for FY 2025-26 (AY 2026-27) — returns filed under the old Act. However:

• ITR-1 and ITR-2 due date remains 31st July

• Tax Audit due date remains 31st October

• Revised Return due date extended to 31st March (12 months from the end of the Tax Year, up from the previous 9 months)

Taxpayers filing revised returns after 31st December will be required to pay a late fee — ₹1,000 if income is up to ₹5 lakh, and ₹5,000 if income exceeds ₹5 lakh. An identical late fee applies to belated filings under Section 428 of the new Act (previously Section 234F).

TCS Rationalisation: Simplified Flat Rates

The Finance Act, 2026 has rationalised Tax Collected at Source (TCS) rates, aiming to reduce compliance burden and refund delays. Effective 1st April 2026:

TCS RATES

TCS Rate Changes Effective from 1st April 2026

The table below compares the Tax Collected at Source (TCS) rates applicable before and from 1st April 2026.

Item	Rate Before 1st April 2026	Rate from 1st April 2026
Sale of alcoholic liquor for human consumption	1%	2%
Sale of tendu leaves	5%	2%
Sale of scrap	1%	2%
Sale of coal, lignite, or iron ore	1%	2%
LRS remittance for education / medical treatment	5%	2%
LRS remittance for overseas tour packages	5% (up to ₹10 lakh) 20% (above ₹10 lakh)	Flat 2% (No threshold)

The overarching theme is a uniform 2% rate across most TCS categories, removing the complexity of differential thresholds.

TDS Change: No More TAN for Property Purchase from NRI

Under Section 393 of the Income Tax Act, 2025 (equivalent to Section 194-IA of the 1961 Act), buyers purchasing immovable property from a resident or an NRI can now deduct TDS using a PAN-based challan — eliminating the earlier requirement to obtain a separate TAN registration. This significantly reduces the compliance burden on homebuyers.

Capital Gains on Buybacks and Sovereign Gold Bonds

Two notable changes in capital gains taxation take effect from 1st April 2026: Share Buybacks: Until 31st March 2026, amounts received from a company's share buyback were treated as deemed dividends and taxed at applicable slab rates. From 1st April 2026, such receipts will be taxed as capital gains — at an effective rate of 30% for individual promoters and 22% for promoter companies. Sovereign Gold Bonds (SGBs): The capital gains exemption on maturity redemption of SGBs will now apply only to investors who subscribed during the initial issue. Investors who purchased SGBs from the secondary market will no longer enjoy this exemption and will instead have gains taxed as regular capital gains.

Interest Deduction on Dividends Withdrawn

Previously, taxpayers could claim a deduction for interest expenses incurred to earn dividend income or income from mutual fund units. This deduction has been discontinued from 1st April 2026. Investors who fund their equity or mutual fund portfolios through borrowings should factor this change into their tax planning.

Helpful Tool from the Income Tax Department

For taxpayers and professionals navigating the transition, the Income Tax Department has released a utility tool that maps every section of the Income Tax Act, 1961 to its corresponding provision in the Income Tax Act, 2025. This cross-reference tool is available on the official income tax portal and will be invaluable for advisors, auditors, and taxpayers handling matters spanning both Acts.

Planning Ahead for Tax Year 2026-27

Tax Year 2026-27 marks a genuine turning point in India's direct tax history. The changes are not merely cosmetic — they require active updates to payroll software, TDS systems, form libraries, and compliance workflows. As a taxpayer, the time to act is now: review your allowance claims, update your investment declarations in the new Form 124, ensure your employer issues Form 130 instead of Form 16, and plan your capital gains strategy in light of the revised buyback and SGB rules.

This article is prepared by RNR & CO, Chartered Accountants. For personalised tax

planning and compliance assistance, reach out to our team.

TDS Under the Income-tax Act, 2025 — A Practical Guide for Businesses and Professionals

Thu, 07 May 2026 13:14:07 +0530

The Income-tax Act, 2025, has replaced the Income-tax Act, 1961, with effect from 1st April 2026. While the headline changes around Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are widely discussed, the real shift is structural. Understanding this structural shift is what will determine how efficiently you handle compliance going forward.

This guide walks you through everything you need to know: what has changed, how the new framework is organised, and how to apply it correctly in practice.

What Has Actually Changed?

The TDS and TCS provisions under the new Act are not just a renumbering exercise. The architecture of the law has been genuinely redesigned.

Under the old law, you identified the correct section — 194C for contracts, 194J for professional fees, 206C for TCS, and so on. Under the new law, the focus has shifted to identifying the correct entry in a table.

This may appear to be a minor change, but in practice, it is meaningful. You no longer need to remember dozens of section numbers. Instead, you need to understand the structure of a table and then match the nature of the transaction with the correct row.

What has not changed is the substantive law. Rates, thresholds, and the overall scope of TDS and TCS remain largely the same. The intent is clearly to simplify structure, not to increase the tax burden.

For professionals, this means your existing knowledge is still valid — you just need to re- map it into the new framework.

The New Section-wise Structure at a Glance

The new Act dedicates 11 sections (Sections 392 to 402) to TDS and TCS. Here is a quick reference:

TDS / TCS Overview

Sections and What They Cover

Section	What It Covers
392	TDS on Salary
393	Core TDS provision — table-based, covering payments to residents, non-residents, any person, and exceptions
394	Collection at Source (TCS) — table-based
395	Lower/NIL TDS or TCS certificate
396	TDS treated as income received (corresponds to old Section 198)
397	TAN application, PAN requirements, higher TDS for non-PAN cases, return filing
398	Consequences of failure to deduct, collect, or deposit
399	Processing of TDS/TCS statements
400	Central Government's power to relax provisions
401	Bar against direct demand (corresponds to old Section 205)
402	Definitions — buyer, commission, designated person, specified person, professional services, rent, scrap, seller, etc.

This structured approach allows step-by-step analysis: first check whether TDS applies, then check for exceptions, then ensure compliance is completed correctly.

Section 392 — TDS on Salary

Salary TDS provisions have been carried forward without material changes. The employer continues to estimate the total income of the employee for the year and deduct tax accordingly — taking into account deductions, exemptions, and income from previous employment.

The flexibility to make adjustments during the year where salary or deductions change has been retained. The employee's choice between old and new tax regimes continues to govern the calculation. For most employers, existing systems and processes will continue to work with minor updates to section references, rule numbers, and form names.

Section 393 — The New Core TDS Framework

Section 393 is the centrepiece of the new TDS law. It replaces the entire 194-series of sections with a single consolidated provision organised in tables.

The table is divided by type of payee:

Section 393(1) — Payments to Residents
•Section 393(2) — Payments to Non-Residents
•Section 393(3) — Payments to Any Person
•Section 393(4) — Payments where no TDS is required
•Section 393(6) — Declaration for non-deduction of TDS

Each table entry specifies the nature of payment, who is responsible to deduct, and the threshold limit. One important point: the table does not always specify the rate. Instead, it uses the term "rate in force," which requires reference to the Finance Act. This makes the law more flexible — rates can be amended through the Finance Act without touching the main provisions.

In practice, the most important skill will be the correct classification of the payment. Whether a payment is for a contract or professional services, for example, can affect the rate. Getting the table entry right is therefore critical.

Section 394 — TCS Consolidated

Section 394 replaces Section 206C of the old Act. Like Section 393, it uses a single table- based format instead of multiple sub-sections. The table specifies the nature of the transaction, who is responsible to collect, and the applicable rate. This is significantly cleaner than the earlier structure and easier to read in practice.

Section 395 — Lower or NIL Deduction Certificates

Section 395 allows a person to apply to the Assessing Officer for deduction or collection of tax at a lower rate or NIL. This application is typically made by the payee. In cases of payment to non-residents, the payer may also apply. Once the certificate is issued, the payer must deduct at the rate specified in the certificate.

Section 397 — Compliance and Reporting

Section 397 is the compliance backbone of the TDS/TCS framework. It covers:

Application for TAN and requirement to quote TAN

Furnishing of PAN and consequences of non-furnishing (higher TDS/TCS)

Time and mode of payment of TDS/TCS to the government

Filing of TDS/TCS returns and correction statements

Proper compliance under this section is essential for ensuring correct credit flow to the deductee.

Section 398 — Consequences of Non-Compliance

Section 398 applies where there is:

Failure to deduct or collect tax
Failure to deposit tax deducted/collected
Delay in deposit

n such cases, the person responsible is treated as an assesse in default, which can trigger recovery proceedings. Interest is levied for failure to deduct/collect or delay in deposit. Importantly, the section also provides relief where the tax has already been paid by the recipient — a practical provision frequently relied upon in assessments and audits.

Section 399 — Processing of TDS/TCS Statements

Once a TDS/TCS return is filed, it is processed by the system in a manner similar to income- tax return processing. During processing:

Arithmetical errors are corrected
Applicable rates are verified
Interest for delay in deduction or payment is computed

The section also provides for the determination of the amount payable or refundable after processing. Short deduction or delay triggers an automatic demand; excess deposits may result in a refund. This makes timely and accurate return filing even more important under the new law.

Section 402 — Definitions

All key definitions used in the TDS/TCS chapter are now consolidated in Section 402. Terms defined include: Buyer, Commission, Designated Person, Specified Person, Person Responsible for Payment, Professional Services, Rent, Scrap, Seller, and others.

Earlier, these definitions were scattered across individual sections. Having them in one place removes ambiguity and ensures uniform interpretation across all TDS/TCS provisions.

Quick Reference

Updated Rules and Forms

204

Form 12B→Form 122

Purpose

Employee declaration of other income, HP loss, other TDS

205

Form 12BB→Form 124

Purpose

Evidence for HRA, LTC, HP loss, Chapter VIII deductions

208

Form 12BBA→Form 125

Purpose

Senior citizen declaration for non-deduction by specified bank

211

Form 15G/15H→Form 121

Purpose

Declaration for income without TDS

212

Form 27C→Form 127

Purpose

Buyer's declaration for NIL TCS

213

Form 13→Form 128

Purpose

Application for lower TDS/TCS certificate

215

Form 16/16A→Form 130/131

Purpose

TDS certificate

216

Form 49B→Form 135

Purpose

TAN application

219

Form 24Q→Form 138

Purpose

Salary TDS return

219

Form 26Q→Form 140

Purpose

TDS return other than salary

219

Form 27Q→Form 144

Purpose

TDS on non-resident payments

220

Form 15CA→Form 145

Purpose

Information for payment to non-resident

220

Form 15CB→Form 146

Purpose

CA certificate for foreign payment

TDS Ready Reckoner — Section 393 (Payments to Residents & Any Person) Old section references mapped to the new table entries, along with thresholds, rates, and key non-deduction conditions.

A. Interest

Old Section

194A

New Provision→Sec 393(1)

Provision

Sl.5(ii)/(iii)

Rate

10%

Payer

Bank / Co-operative Bank / Post Office or any other Specified Person

Threshold

₹1,00,000 (Senior Citizen)
₹50,000 (Others — Bank)
₹10,000 (Other Persons)

Key Non-Deduction Condition

Interest to banking company, financial corporation, LIC, UTI, insurance company, co-operative society, Central Government interest and zero coupon bonds.

B. Rent

Old Section

194I

New ProvisionSec 393(1) — Sl.2(ii)

Payer

Specified Person [Sec 402(37)]

Threshold

₹50,000 per month

Rate

2% — Plant / Machinery / Equipment
10% — Land / Building / Furniture

Key Non-Deduction Condition

Rent paid to Business Trust REIT [Sec 393(4) Sl.2]

Old Section

194IB

New ProvisionSec 393(1) — Sl.2(i)

Payer

Individual / HUF other than Specified Person

Threshold

₹50,000 per month

Rate

Key Non-Deduction Condition

Payer is Individual / HUF using property exclusively for personal purpose

C. Immovable Property Transfers

Old Section

194IA

New ProvisionSec 393(1) — Sl.3(i)

Payer

Any Person other than Sl.3(iii)

Threshold

₹50,00,000 aggregate of all transferees

Rate

1% of consideration or SDV, whichever is higher

Key Non-Deduction Condition

Award / compensation exempt u/s 96 of RFCTLARR Act 2013

Old Section

194IC

New ProvisionSec 393(1) — Sl.3(ii)

Payer

Any Person

Threshold

Nil

Rate

10%

Key Non-Deduction Condition

Where both Sl.3(i) and Sl.3(ii) apply, deduction only under Sl.3(ii)

Old Section

194LA

New ProvisionSec 393(1) — Sl.3(iii)

Payer

Any Person

Threshold

₹5,00,000

Rate

10%

Key Non-Deduction Condition

Award exempt u/s 96 of RFCTLARR Act 2013

D. Capital Market & Investment Income

Old Section

194

New ProvisionSec 393(1) — Sl.7

Payer

Any Domestic Company

Threshold

₹10,000

Rate

10%

Key Non-Deduction Condition

Dividend to LIC / GIC / other insurers; dividend to Business Trust by SPV; dividend to individual ≤ ₹10,000 paid by non-cash mode.

E. Contractors & Professional/Technical Services

Old Section

194C

New ProvisionSec 393(1) — Sl.6(i)

Payer

Designated Person [Sec 402(11)]

Threshold

₹30,000 / ₹1,00,000

Rate

1% / 2%

Key Non-Deduction Condition

Personal contract by Individual / HUF; goods carriage owner with ≤10 vehicles [Sec 393(4) Sl.8]

Old Section

194M

New ProvisionSec 393(1) — Sl.6(ii)

Payer

Individual / HUF with Turnover < ₹1 Cr

Threshold

₹50,00,000

Rate

Key Non-Deduction Condition

Payment for personal purposes by Individual / HUF

Old Section

194J

New ProvisionSec 393(1) — Sl.6(iii)

Payer

Specified Person [Sec 402(37)]

Threshold

₹50,000

Rate

10% / 2%

Key Non-Deduction Condition

Payment for personal purposes by Individual / HUF [Sec 393(4) Sl.9]

F. Commission & Brokerage

Old Section

194H

New ProvisionSec 393(1) — Sl.1(ii)

Payer

Specified Person [Sec 402(37)]

Threshold

₹20,000

Rate

Key Non-Deduction Condition

Commission / brokerage by BSNL or MTNL to PCO franchisees [Sec 393(4) Sl.1]

G. Purchase of Goods & E-Commerce

Old Section

194Q

New ProvisionSec 393(1) — Sl.8(ii)

Payer

Buyer with T.O. in preceding year > ₹10 Cr

Threshold

₹50,00,000 per seller, aggregate

Rate

0.1%

Key Non-Deduction Condition

No TDS if tax already deductible / collectible under any other provision

Old Section

194O

New ProvisionSec 393(1) — Sl.8(v)

Payer

E-commerce Operator

Threshold

Nil

Rate

0.1%

Key Non-Deduction Condition

Individual / HUF participant with gross amount ≤ ₹5,00,000 [Sec 393(4) Sl.11]

H. Winnings, Gaming & Lottery

Old Section

194B

New ProvisionSec 393(3) — Sl.1

Payer

Any Person

Threshold

₹10,000 per transaction

Rate

30%

Key Non-Deduction Condition

Where winnings are partly in kind, payer must ensure tax is paid before releasing winnings.

Old Section

194BA

New ProvisionSec 393(3) — Sl.2

Payer

Any Person

Threshold

Net winnings in user account (year-end or at withdrawal)

Rate

30%

Key Non-Deduction Condition

TDS applies at year-end and at the time of each withdrawal on net winnings comprised in that withdrawal.

I. Virtual Digital Assets (VDA / Crypto)

Old Section

194S

New ProvisionSec 393(1) — Sl.8(vi)

Payer

Any Person

Threshold

₹50,000 / ₹10,000

Rate

Key Non-Deduction Condition

Where consideration is partly in kind and cash is insufficient, payer must ensure tax is paid before releasing the consideration [Sec 393(4) Sl.12]

J. Cash Withdrawals

Old Section

194N

New ProvisionSec 393(3) — Sl.5

Payer

Banking Company / Co-operative Bank / Post Office

Threshold

₹1,00,00,000
₹3,00,00,000 for co-operative society

Rate

Key Non-Deduction Condition

Central / State Government; commission agent in notified agricultural produce market; ATM operators [Sec 393(4)].

K. Benefits & Perquisites from Business/Profession

Old Section

194R

New ProvisionSec 393(1) — Sl.8(iv)

Payer

Specified Person [Sec 402(37)]

Threshold

₹20,000

Rate

10%

Basis

10% of aggregate value

Key Non-Deduction Condition

Tax must be deducted or paid before providing benefit. Where benefit is wholly or partly in kind, payer must ensure tax is paid before release [Note 2 to Sec 393(1) Sl.8].

L. Payments to Partners by Firm (New in the 2025 Act)

Old Section

194R

New ProvisionSec 393(1) — Sl.8(iv)

Payer

Specified Person [Sec 402(37)]

Threshold

₹20,000

Rate

10%

Basis

10% of aggregate value

Key Non-Deduction Condition

Tax must be deducted or paid before providing benefit. Where benefit is wholly or partly in kind, payer must ensure tax is paid before release [Note 2 to Sec 393(1) Sl.8].

M. Life Insurance Policy Maturity Proceeds

Old Section

194DA

New ProvisionSec 393(1) — Sl.8(i)

Payer

Any Person

Threshold

₹1,00,000

Rate

Key Non-Deduction Condition

Amounts exempt as per Schedule II Sl.2

Conclusion

The TDS and TCS framework under the Income-tax Act, 2025 is structurally cleaner and more organised than the earlier law. The key shift — from section-based to table-based compliance — requires a slight change in how you approach any transaction, but rewards that effort with greater consistency and reduced ambiguity. For professionals, the practical focus should be on three things: correctly identifying the nature of the transaction, applying the right table entry, and completing all compliance steps properly.

Disclaimer: The contents of this article are based on the author's interpretation of the law and are intended solely for informational purposes. It is not a substitute for professional advice.