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:
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
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.
Updated Rules and Forms
Employee declaration of other income, HP loss, other TDS
Evidence for HRA, LTC, HP loss, Chapter VIII deductions
Senior citizen declaration for non-deduction by specified bank
Declaration for income without TDS
Buyer's declaration for NIL TCS
Application for lower TDS/TCS certificate
TDS certificate
TAN application
Salary TDS return
TDS return other than salary
TDS on non-resident payments
Information for payment to non-resident
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
Sl.5(ii)/(iii)
10%
Bank / Co-operative Bank / Post Office or any other Specified Person
₹1,00,000 (Senior Citizen)
₹50,000 (Others — Bank)
₹10,000 (Other Persons)
Interest to banking company, financial corporation, LIC, UTI, insurance company, co-operative society, Central Government interest and zero coupon bonds.
B. Rent
Specified Person [Sec 402(37)]
₹50,000 per month
2% — Plant / Machinery / Equipment
10% — Land / Building / Furniture
Rent paid to Business Trust REIT [Sec 393(4) Sl.2]
Individual / HUF other than Specified Person
₹50,000 per month
2%
Payer is Individual / HUF using property exclusively for personal purpose
C. Immovable Property Transfers
Any Person other than Sl.3(iii)
₹50,00,000 aggregate of all transferees
1% of consideration or SDV, whichever is higher
Award / compensation exempt u/s 96 of RFCTLARR Act 2013
Any Person
Nil
10%
Where both Sl.3(i) and Sl.3(ii) apply, deduction only under Sl.3(ii)
Any Person
₹5,00,000
10%
Award exempt u/s 96 of RFCTLARR Act 2013
D. Capital Market & Investment Income
Any Domestic Company
₹10,000
10%
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
Designated Person [Sec 402(11)]
₹30,000 / ₹1,00,000
1% / 2%
Personal contract by Individual / HUF; goods carriage owner with ≤10 vehicles [Sec 393(4) Sl.8]
Individual / HUF with Turnover < ₹1 Cr
₹50,00,000
2%
Payment for personal purposes by Individual / HUF
Specified Person [Sec 402(37)]
₹50,000
10% / 2%
Payment for personal purposes by Individual / HUF [Sec 393(4) Sl.9]
F. Commission & Brokerage
Specified Person [Sec 402(37)]
₹20,000
2%
Commission / brokerage by BSNL or MTNL to PCO franchisees [Sec 393(4) Sl.1]
G. Purchase of Goods & E-Commerce
Buyer with T.O. in preceding year > ₹10 Cr
₹50,00,000 per seller, aggregate
0.1%
No TDS if tax already deductible / collectible under any other provision
E-commerce Operator
Nil
0.1%
Individual / HUF participant with gross amount ≤ ₹5,00,000 [Sec 393(4) Sl.11]
H. Winnings, Gaming & Lottery
Any Person
₹10,000 per transaction
30%
Where winnings are partly in kind, payer must ensure tax is paid before releasing winnings.
Any Person
Net winnings in user account (year-end or at withdrawal)
30%
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)
Any Person
₹50,000 / ₹10,000
1%
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
Banking Company / Co-operative Bank / Post Office
₹1,00,00,000
₹3,00,00,000 for co-operative society
2%
Central / State Government; commission agent in notified agricultural produce market; ATM operators [Sec 393(4)].
K. Benefits & Perquisites from Business/Profession
Specified Person [Sec 402(37)]
₹20,000
10%
10% of aggregate value
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)
Specified Person [Sec 402(37)]
₹20,000
10%
10% of aggregate value
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
Any Person
₹1,00,000
2%
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.
