Introduction & Background

The Income Tax Act, 2025 has come into force, replacing the Income Tax Act, 1961 — a legislation that had governed India’s direct tax system for over six decades. While the new Act does not introduce any new taxes or alter TDS rates, the structural overhaul is immediate and operational.

The reform reduces the total number of sections from 819 to 536, replaces verbose narrative provisions with tables and formulas, and eliminates redundant clauses. The Income Tax Rules have similarly been reduced from 511 rules with 399 forms to 333 rules with 190 forms.

New TDS Framework at a Glance

Under the old Act, TDS provisions were scattered across more than 60 independent sections. The new Act consolidates all of these under Chapter 19 with just three sections:

The key structural shift is from a section-based regime to a table-driven, code-based reference system. Section 393 presents payment types, thresholds, and rates in a single comprehensive table — eliminating the need to navigate 40+ separate sections.

Section 392 — TDS on Salary

Section 392 is the direct replacement of Section 192. The salary TDS mechanism is broadly unchanged — the reform here is primarily a renaming and renumbering exercise.

• Employers continue to deduct TDS on estimated annual salary at applicable slab rates.
• The new tax regime remains the default regime under Section 202 of the 2025 Act.
• Perquisite valuation rules continue under the new Act; however, CBDT circulars on perquisites are now binding.
• The annual TDS certificate for employees — Form 16 is now Form 130.

Section 393 — TDS on Non-Salary Payments

This is the centrepiece of the reform. Section 393 is the unified framework for all non-salary TDS, replacing 40+ fragmented sections with a single, table-driven provision.

Key Payment Categories & Rates

Priority Rules

Section 393 includes built-in priority rules to prevent double deduction when multiple TDS provisions could apply to a single payment — reducing litigation risk for deductors.

Section 394 — Tax Collected at Source (TCS)

The most significant TCS change is the simplification of rates for LRS remittances and overseas tour packages:

Key Rate & Threshold Changes

As a general rule, TDS rates are unchanged. However, there are specific exceptions worth noting:

• Senior Citizens — Interest: Threshold doubled from ₹50,000 to ₹1,00,000
• Life Insurance Maturity: Rate reduced from 5% to 2%
• Rent (Individual/HUF): Rate reduced from 5% to 2%
• Contractor/Professional payments (Indiv/HUF): Rate reduced from 5% to 2%
• E-Commerce: Rate reduced from 1% to 0.1%
• MACT Interest: Fully exempt — no TDS
• Section 194LD: Deprecated — not applicable from 1st April 2026

New Forms & Certificates

Transition Rules — Old Act vs. New Act

The governing principle is “the earlier of credit or payment.”

CBDT Circulars — Now Binding

Under Section 400(2) of the new Act, CBDT circulars on TDS and TCS are now mandatory compliance for all deductors and tax authorities — not merely advisory.

This specifically covers circulars on perquisites (equivalent to old Section 194R) and virtual digital assets (equivalent to old Section 194S). The argument that “CBDT circulars are advisory only” is no longer tenable from 1st April 2026.

New & Clarified Provisions

Manpower Supply — Now Explicitly Covered

Earlier, whether deploying contract workers or labour supply services constituted a “works contract” under Section 194C was ambiguous and frequently disputed. The 2025 Act has explicitly included manpower supply as “work” under Section 393. TDS at 2% (corporate) or 1% (individual) is now mandatory from 1st April 2026.

MACT Interest — Fully Exempt

Interest awarded by a Motor Accident Claims Tribunal (MACT) to a natural person is now fully exempt from income tax. No TDS is to be deducted. The earlier ₹50,000 ceiling is removed. Insurers and legal payors must update their payment systems accordingly.

Automated Lower Deduction Certificates

The process for obtaining lower/nil deduction certificates (equivalent to Form 13 under Section 197) is being automated — predefined eligibility rules apply, and certificates can be granted without manual officer intervention. This will significantly reduce processing time for high-volume deductors.

Senior Citizens — Enhanced Interest Threshold

The TDS threshold on interest income for senior citizens has been increased from ₹50,000 to ₹1,00,000 per annum. Banks must update systems to apply the revised threshold.

Compliance & Process Changes

TDS Payment Due Dates

Deposit timelines are unchanged (Rule 30 → Rule 218 of IT Rules 2026):

• General: 7th of the month following deduction
• TDS deducted in March: Due by 30th April (non-government deductors)
• Government deductors by challan: 7th of following month

TDS Returns

TDS return formats are aligned with new section numbering. Systems must be updated before filing Q1 returns for Tax Year 2026–27 (due July 2026). Failure to update results in validation errors and mismatches in payees’ Form 26AS.

TAN Continuity

Existing Tax Deduction Account Numbers (TAN) continue unchanged. No new TAN registration is required.

Consequences of Non-Compliance

Action Checklist for Deductors

We recommend completing the following actions at the earliest:

1. Update accounting software / ERP to reflect new TDS section codes (Section 393 table items)
   Immediate
2. Update TCS rates in system — flat 2% for LRS / overseas tour packages
   Immediate
3. Renew Form 15G/15H declarations from eligible payees using new Form 121
   Before 1st payment TY 2026-27
4. Verify validity of all existing Section 197 lower deduction certificates
   Immediate
5. Begin TDS deduction on manpower supply / labour contractor payments at 2%/1%
   From 1 Apr 2026
6. Update senior citizen interest TDS threshold to ₹1,00,000
   From 1 Apr 2026
7. Deposit TDS for March 2026 under old Act rules
   By 30 Apr 2026
8. Issue Form 16A (old format) for FY 2025–26 → switch to Form 131 from TY 2026–27
   As per due dates
9. Review CBDT circulars on perquisites and VDA — now binding
   Immediate
10. Stop TDS deduction on MACT interest payments
    From 1 Apr 2026
11. Remove Section 194LD from TDS system — deprecated under new Act
    From 1 Apr 2026
12. Update payroll / HR systems to issue Form 130 instead of Form 16 from TY 2026–27
    Before Jun 2027