New TDS/TCS Sections Under Income Tax Act, 2025 - Complete Guide for Tax Year 2026-27

Every senior accountant in India has the old TDS section numbers memorised — 194C for contracts, 194J for professionals, 194I for rent. The Income Tax Act, 2025, which came into force on April 1, 2026, has not merely renumbered these provisions — it has fundamentally restructured TDS law into two master sections, collapsing the entire 194-series into a single consolidated table. The transition is catching compliance teams off guard at the worst possible time: the very start of a new Tax Year. This guide covers every significant change to the TDS and TCS framework under the new Act — verified against the text of the Income Tax Act, 2025 and the Income Tax Rules, 2026 — so your April 2026 deductions are correctly booked from day one.

Tax Deducted at Source (TDS) — Governed under Chapter XIX-B of the Income Tax Act, 2025, TDS is the mechanism by which the payer of certain specified incomes deducts a prescribed percentage of the gross amount and remits it directly to the Central Government on behalf of the payee. In practice, this means a company paying consulting fees must deduct tax before releasing the payment to the consultant, regardless of whether that consultant later files a return.

Tax Collected at Source (TCS) — Governed under Section 394 of the Income Tax Act, 2025, TCS requires the seller of specified goods or services to collect a prescribed percentage of the sale consideration from the buyer and deposit it with the Central Government. TCS is the mirror-image of TDS — where TDS is deducted by the payer, TCS is collected by the seller.

Tax Year — Defined under Section 3 of the Income Tax Act, 2025, 'Tax Year' means the twelve-month period of the financial year commencing on April 1. This replaces the earlier dual concepts of 'Previous Year' and 'Assessment Year' under the 1961 Act. Tax Year 2026-27 refers to the period April 1, 2026 to March 31, 2027.

Section 393 Table — Section 393 is the single comprehensive TDS provision for all non-salary deductions under the Income Tax Act, 2025. All categories of TDS — contractors, rent, professional fees, interest, commission, dividends, immovable property, and more — are organised as numbered entries (Sl. Nos. 1 through 8) within a statutory table under Section 393.

Form 130 — The TDS certificate issued by an employer to an employee for salary income, replacing Form 16. Governed by Rule 215(1) Table Sl. No. 1 of the Income Tax Rules, 2026, it must be issued by June 15 of the financial year immediately following the Tax Year.

Form 131 — The TDS certificate for most non-salary deductions under Section 393(1) and Section 393(2) and (3), replacing Form 16A. Issued within 15 days from the due date of the quarterly TDS return per Rule 215 of the Income Tax Rules, 2026.

Tax Deduction Account Number (TAN) — Governed by Section 397 of the Income Tax Act, 2025 (previously Section 203A of the 1961 Act), TAN is the ten-character alphanumeric identifier required for every deductor or collector. All TANs issued under the 1961 Act are deemed valid under the new Act.

The short answer: the entire 194-series is gone. What replaced it is not a new numbering — it is a structural overhaul. Under the 1961 Act, each category of TDS had its own section: 194C for contractors, 194J for professionals, 194I for rent, 194A for interest, 194H for commission, 194D for insurance, 194N for cash withdrawals — over thirty separate sections added piecemeal over six decades. Every payment required identifying the right section. Every ERP master, every payment voucher, every TRACES filing was anchored to a section number.

Enacted to simplify and consolidate India's income tax law, the Income Tax Act, 2025 collapses all of this into two TDS sections: Section 392 (salary) and Section 393 (everything else). Section 393 works through a statutory table — Table Entries Sl. Nos. 1 through 8 — where each entry covers a category of payment, specifies the payer, rate, and threshold. What were thirty-plus sections in the 1961 Act is now eight numbered entries in one section's table. This is the most fundamental change in TDS law since the 1961 Act was enacted.

From Tax Year 2026-27, all TDS returns, payment challans, and certificates must reference the new law. Quoting Section 194J or 194C on a post-April 2026 document is citing a repealed statute. That error travels to the payee's Annual Information Statement, creates credit mismatches on TRACES, and generates correction filing obligations that take months to unwind.

Section 392 — TDS on Salary

Section 392 of the Income Tax Act, 2025 governs all TDS on income chargeable under the head 'Salaries.' This replaces Section 192 of the 1961 Act. The mechanism — deduction at average rate on estimated annual salary — is unchanged. The section also covers TDS on provident fund and superannuation fund accumulations paid to employees.

Section 393 — TDS on All Other Payments (The Consolidated Table)

Section 393 is the single statutory home for all non-salary TDS for payments to residents [Section 393(1)] and non-residents [Section 393(2)]. The key entries in the resident-payment table are:

The critical observation: professional services under Sl. No. 6(iii) continue to attract TDS at 10%, and technical services at 2%. The distinction between professional and technical services — a long-standing source of litigation under old Section 194J — is maintained in the new Act.

Section 394 — TCS (Tax Collected at Source)

Section 394 is the TCS provision — it is not a TDS section. It replaces Section 206C of the 1961 Act and consolidates all TCS obligations into a single table covering overseas tour packages, alcoholic liquor, tendu leaves, timber, scrap, minerals, motor vehicles, LRS remittances, and parking/toll/mine/quarry licences.

The deduction mechanics are unchanged. A deductor identifies the payment category, locates the applicable Table Entry in Section 393(1), applies the prescribed rate, deducts at source before or at the time of payment or credit (whichever is earlier), deposits with the government, and issues a certificate. What has changed is the reference point — it is now a Section 393 Table Entry, not a standalone section.

1.    Identify the Table Entry.  For contractor payments by a designated person: Section 393(1) Table Sl. No. 6(i). For professional fees by a specified person: Section 393(1) Table Sl. No. 6(iii). For rent: Section 393(1) Table Sl. No. 2.

2.    Apply the correct rate.  Professional fees under Sl. No. 6(iii): 10%. Technical services under the same entry: 2%. Rent on land/building under Sl. No. 2 (specified person): 10%. Rent on machinery: 2%. Always check the table — the rates vary by payer category and payment sub-type.

3.    Deposit within the correct due date.  For most deductions: 7th of the following month (April 30 for March). For deductions under Table Sl. Nos. 2(i), 3(i), 6(ii), and 8(vi): within 30 days from month-end, with challan-cum-statement in Form No. 141 under Rule 218(3) of the Income Tax Rules, 2026.

4.    File quarterly returns in new form numbers.  Salary TDS: Form 138 (replaces Form 24Q). Non-salary resident TDS: Form 140 (replaces Form 26Q). Non-resident TDS: Form 144. TCS: Form 143. Download updated RPU from the NSDL/Protean portal before the Q1 return due July 31, 2026.

5.    Issue the correct TDS certificate.  Salary: Form 130 by June 15 following the Tax Year. Most non-salary: Form 131 within 15 days of quarterly return due date. Specific categories (Table Sl. Nos. 2(i), 3(i), 6(ii), 8(vi)): Form 132 within 15 days of challan-cum-statement due date. TCS: Form 133.

Under Section 394(1) Table Sl. No. 8 of the Income Tax Act, 2025, TCS on overseas tour packages was structured at 5% for amounts up to ₹10 lakh and 20% for amounts exceeding ₹10 lakh. The Finance Act, 2026 has substituted this with a flat 2% TCS on all overseas tour package sales, effective Tax Year 2026-27, with no threshold-based distinction.

This is substantial relief for the travel industry. Tour operators had been managing differentiated TCS rates, customer refund requests for high-value bookings, and complaints about the 20% rate significantly impacting foreign exchange planning. The flat 2% eliminates both the threshold tracking and the rate complexity.

The Finance Act, 2026 has also revised TCS rates on alcoholic liquor (Sl. No. 1), tendu leaves (Sl. No. 2), scrap (Sl. No. 4), coal/lignite/iron ore (Sl. No. 5), and LRS remittances for education or medical purposes (Sl. No. 7) to 2%, representing a broader rationalisation of TCS rates across most categories under Section 394.

Mistake 1: Treating Section 393 like the old 194-series — one section per payment type.  The most dangerous misconception is that each payment category still has its own section number. Section 393 is a single section with an internal table. There is no separate section for rent, no separate section for interest — those entries are rows within Section 393's table.

Mistake 2: Filing TDS returns in Form 24Q and Form 26Q for Tax Year 2026-27.  These form designations belong to the 1961 Act. Under the Income Tax Rules, 2026, salary TDS returns are Form 138 and non-salary resident TDS returns are Form 140. An incorrect form number at TRACES will require correction filing.

Mistake 3: Issuing Form 16 or Form 16A for Tax Year 2026-27.  For salary TDS, the correct certificate is Form 130. For most non-salary TDS, it is Form 131. For deductions under Table Sl. Nos. 2(i), 3(i), 6(ii), and 8(vi), it is Form 132. Issuing old form numbers affects the payee's AIS tax credit.

Mistake 4: Applying the standard 7-day deposit rule to all deductions.  Deductions under Section 393(1) Table Sl. Nos. 2(i), 3(i), 6(ii), and 8(vi) have a 30-day deposit window, not 7 days. These also require challan-cum-statement in Form 141 — not the standard monthly TDS challan.

Horizon Advisory LLP engages a law firm for corporate regulatory advisory at ₹5,00,000 for Q1 of Tax Year 2026-27 (quarter ending June 30, 2026). Horizon Advisory is a 'specified person' as defined in the Act.

Before April 1, 2026, this payment would have been booked under Section 194J of the Income Tax Act, 1961 at 10%, deducting ₹50,000. Both the payment voucher and Form 26Q return would have cited Section 194J.

Under the Income Tax Act, 2025, the same transaction falls under Section 393(1), Table Sl. No. 6(iii) — professional fees paid by a specified person. The rate is 10% (professional services fall under clause (b), 'cases other than (a),' of that entry). The deduction is ₹50,000 — unchanged. The accounting entry must now reference Section 393, and the quarterly return must be filed in Form 140 (not Form 26Q) citing this table entry.

Net payment to the law firm: ₹4,50,000. TDS of ₹50,000 deposited by July 7, 2026. Form 131 issued to the law firm within 15 days of the Q1 return due date (July 31, 2026), i.e., by August 15, 2026. The law firm credits ₹50,000 in its AIS for Tax Year 2026-27 against its income tax liability.

6.    Update TDS classification in accounting or ERP software.  Map salary payments to Section 392. Map all other payments to the relevant Table Entry within Section 393(1). The old section-number-based master is invalid — your software vendor must provide a Section 393 table-entry-based update.

7.    File returns in new form numbers.  Form 138 replaces Form 24Q for salary TDS. Form 140 replaces Form 26Q for non-salary resident TDS. Download the updated Return Preparation Utility from the NSDL/Protean portal before filing Q1 Tax Year 2026-27 returns due July 31, 2026.

8.    Identify Form 141 transactions.  Check whether any deductions fall under Section 393(1) Table Sl. Nos. 2(i), 3(i), 6(ii), or 8(vi). These require 30-day deposit and challan-cum-statement in Form 141, not the standard monthly TDS challan.

9.    Issue correct TDS certificate forms.  Salary: Form 130 by June 15, 2027. General non-salary: Form 131 within 15 days of quarterly return due date. Specific Table entries (2(i), 3(i), 6(ii), 8(vi)): Form 132. TCS: Form 133.

10.  Advise employees about Form 130.  Salaried employees expecting 'Form 16' from HR should be told the equivalent is now Form 130. The content is identical; the form number has changed under the Income Tax Rules, 2026.

11.  Update TCS billing for overseas tour packages.  Apply flat 2% TCS under Section 394(1) Table Sl. No. 8, with no threshold distinction, replacing the prior 5%/20% rate structure effective Tax Year 2026-27.

12.  Plan for the dual-period transition window.  Form 24Q and Form 26Q for Q4 FY 2025-26 (due May 31, 2026) and Form 138 / Form 140 for Q1 Tax Year 2026-27 (due July 31, 2026) will both be live at TRACES between May and July 2026. Ensure your system distinguishes the two correctly.

Practically speaking, the most overlooked element in TDS transition planning is the shift from section numbers to table entries. Accounting teams comfortable with 'book under 194J' now need to identify whether the payment is Section 393(1) Table 6(i) (contractor, designated person), 6(ii) (contractor, individual/HUF payer), or 6(iii) (specified person, professional fees). Each row in the Section 393 table has different rates, payer definitions, and deposit mechanics. A one-line change in a software TDS master will not capture this granularity.

For businesses with long-term contracts entered before April 1, 2026, the new Act applies to all payments made on or after that date, regardless of when the underlying contract was signed. TDS liability attaches at the time of payment or credit — both occurring post-April 1, 2026 for continuing obligations — so the Income Tax Act, 2025 governs the deduction even if the underlying contract predates it.

Are existing TAN numbers still valid under the Income Tax Act, 2025?

All TANs issued under Section 203A of the Income Tax Act, 1961 are deemed valid under the Income Tax Act, 2025, which governs TAN through Section 397. Deductors are not required to apply for a new TAN. The registration and surrender process continues through the NSDL/Protean portal without any change, and the ten-character alphanumeric format is retained.

What does Section 393 of the Income Tax Act, 2025 actually cover?

Section 393 is the single consolidated TDS provision for all non-salary payments, replacing the entire 194-series of the 1961 Act. Contractor payments, professional fees, rent, interest, commission, dividends, immovable property transfers, and virtual digital asset transfers are all governed by specific Table Entries (Sl. Nos. 1 through 8) within Section 393(1) for resident payees.

Is Form 16 still valid for Tax Year 2026-27 salary TDS?

Form 16 is a designation under the Income Tax Act, 1961 and is no longer used. Under the Income Tax Rules, 2026, the TDS certificate for salary income is Form 130, issued by June 15 of the financial year immediately following the Tax Year. The content and structure of Form 130 are equivalent to the old Form 16; only the form designation has changed.

What is the correct TDS return form for non-salary TDS from Tax Year 2026-27?

Under Rule 219 of the Income Tax Rules, 2026, the quarterly TDS return for non-salary TDS on resident payees must be filed in Form 140, replacing the old Form 26Q. Salary TDS returns are now filed in Form 138 (replacing Form 24Q). Non-resident TDS returns use Form 144. TCS returns use Form 143.

What is the new TCS rate on overseas tour packages under the Income Tax Act, 2025?

Section 394(1) Table Sl. No. 8 of the Income Tax Act, 2025, as amended by the Finance Act, 2026 with effect from April 1, 2026, prescribes a flat TCS rate of 2% on the sale of overseas tour programme packages. This replaces the prior rate of 5% (up to ₹10 lakh) and 20% (above ₹10 lakh) applicable before Tax Year 2026-27.

What is the TDS rate on professional fees versus technical fees under the new Act?

Under Section 393(1) Table Sl. No. 6(iii) of the Income Tax Act, 2025, a 'specified person' paying fees for professional services must deduct TDS at 10%. Fees for technical services (not being professional services), royalty for cinematographic film distribution, and payments to call centre operators attract TDS at 2%. This distinction is maintained in the new Act, consistent with the approach under old Section 194J.

Do deductions under all entries of Section 393 follow the standard 7-day deposit rule?

No. Most deductions under Section 393(1) must be deposited by the 7th of the following month (April 30 for March). However, deductions under Table Sl. Nos. 2(i), 3(i), 6(ii), and 8(vi) must be deposited within 30 days from the end of the month of deduction, along with a challan-cum-statement in Form No. 141 under Rule 218(3) of the Income Tax Rules, 2026.

What happens if a deductor uses old TDS section numbers for Tax Year 2026-27 transactions?

Filing a TDS return citing repealed sections from the Income Tax Act, 1961 for post-April 2026 transactions will cause TRACES mismatches. The payee's Form 26AS and Annual Information Statement will not correctly reflect the TDS credit, potentially delaying refunds and triggering mismatch notices. The deductor will need to file correction returns via TRACES — a process involving revised statements, reconciliation, and follow-up with the payee.

The consolidation of thirty-plus TDS sections into Section 392 (salary) and Section 393 (all other payments) does not alter the economic substance of TDS — deduction rates, deposit obligations, and the policy of prepaid taxation are largely carried forward. What changes is the frame of reference: from a section-per-payment-type model to a table-entry-within-one-section model. Compliance teams must move from 'identify the section' to 'identify the table entry and the payer category within Section 393.'

Risk for Tax Year 2026-27 is not legal — it is operational. Accounting systems mapped to old section numbers, return preparation utilities not updated to new form numbers, and TDS certificates issued in old form designations will generate a cascade of TRACES mismatches and correction obligations. Businesses and practitioners who complete their Section 393 table-entry audit before July 31, 2026 will file the Q1 return without incident.

India's most comprehensive restructuring of income tax law in over sixty years, the Income Tax Act, 2025 makes TDS structurally simpler even while demanding a short-term investment in transition. The deductors who make that investment in April and May will find themselves better equipped for every quarter that follows.