Written by the Senior CA & Tax Compliance Team, Rudra Capital — with over a decade of TDS compliance, payroll processing, and income tax advisory experience for companies and LLPs across Delhi NCR. We have been tracking the new Income Tax Act, 2025 since its introduction in February 2025.
Last reviewed: May 2026 | References: Income Tax Act 1961 (Sections 192–206) · Income Tax Act 2025 (Sections 392–396) · CBDT Notification 28/2025 · Finance Act 2025 · TRACES Portal Circular 2026 · Income Tax Department Form Restructuring Notification
Covers: Why the TDS architecture changed · Complete old-to-new section mapping · New Sections 392, 393 & 394 explained · New TDS return forms (Form 138) · New TDS certificates (Form 130) · Challan payment updates · Software transition checklist · Common mistakes · Effective date: April 1, 2026
What this means for your business right now: From April 1, 2026, every TDS deduction, TDS payment, TDS return, and TDS certificate that uses the old section numbers (194C, 194J, 194I, 192, etc.) is technically non-compliant under the new Income Tax Act 2025. The portal will raise validation errors. Your accounting software, payroll system, and TDS filing process must all be updated to the new section numbers, new payment codes, and new form numbers before the first TDS deduction of Tax Year 2026-27.
The Income Tax Act, 1961 governed India’s direct taxation for over six decades. During this time, TDS provisions grew organically — section by section, amendment by amendment — until the TDS chapter spanned over 40 separate sections, each with its own sub-sections, provisos, exceptions, and cross-references. A payroll professional processing salaries needed Section 192. A company paying contractor fees needed 194C. Rent payments needed 194I, 194IA, or 194IB depending on the payer. Professional fees needed 194J. E-commerce transactions needed 194O. Crypto transfers needed 194S.
The new Income Tax Act 2025 — effective from Tax Year 2026-27 (April 1, 2026) — tears down this sprawling structure and replaces it with an architecture that fits on three pages. But “simpler” does not mean “no transition work.” For tax professionals, payroll teams, and accounting software, the transition from old section numbers to new ones is the most operationally intensive compliance change since GST was introduced in 2017.
This guide explains exactly what changed, why it changed, and — most importantly — what your business must do before processing the first payroll and vendor payment of April 2026.
Why the Old TDS Framework Needed Complete Restructuring
The 1961 Act’s TDS chapter was not designed — it evolved. Consider what a finance manager had to navigate:
| Transaction Type | Old Section | TDS Rate | Threshold |
|---|---|---|---|
| Salary payments | 192 | Slab rates | Basic exemption |
| Interest on securities | 193 | 10% | ₹5,000 |
| Interest (bank/FD/others) | 194A | 10% | ₹40,000 / ₹50,000 |
| Contractor payments | 194C | 1% / 2% | ₹30,000 / ₹1,00,000 |
| Insurance commission | 194D | 5% | ₹15,000 |
| Commission / brokerage | 194H | 5% | ₹15,000 |
| Rent (plant, machinery, land, building) | 194I | 2% / 10% | ₹2,40,000/year |
| Purchase of immovable property | 194IA | 1% | ₹50 lakh |
| Rent by individual/HUF | 194IB | 5% | ₹50,000/month |
| Professional / technical fees | 194J | 2% / 10% | ₹30,000 |
| E-commerce participants | 194O | 1% | ₹5 lakh |
| Crypto / Virtual Digital Assets | 194S | 1% | ₹10,000 / ₹50,000 |
| Payments to non-residents | 195 | DTAA rates / 30%+ | Any chargeable sum |
That table covers only 13 of the 40+ old TDS sections. Beyond the section proliferation, the 1961 Act had compounded problems: overlapping language between adjacent sections (194C contractor vs 194J professional fees — one of the most litigated distinctions in all of tax law), different threshold structures for the same category in different sections, and inconsistent terminology for identical concepts. The new Act fixes all of this.
The New TDS Architecture Under the Income Tax Act, 2025
The Income Tax Act 2025 consolidates the entire TDS framework into three primary sections — Sections 392, 393, and 394 — supported by a comprehensive Schedule. Instead of searching through 40 sections with different thresholds, rates, and conditions, tax professionals now look up a single, well-organised table.
§ 392
TDS on Resident Payments
All TDS deductions on payments/credits to resident payees. Replaces Sections 192 through 194S of the old Act.
§ 393
TDS on Non-Resident Payments
All TDS on payments/credits to non-resident payees. Replaces Sections 195, 196A, 196B, 196C, 196D of the old Act.
§ 394
TDS on Immovable Property
Dedicated section for TDS on purchase/transfer of immovable property. Replaces Sections 194IA, 194IB, 194IC of the old Act.
✓ The table-based payment code system — the biggest structural innovation: Under Section 392, every type of payment that attracts TDS is assigned a 3-digit numeric payment code (1001 through 1067). The rate, threshold, and conditions for each payment type are laid out in a single Schedule table. To deduct correct TDS, a deductor simply looks up the payment code, reads the rate and threshold from the Schedule, and applies it. No cross-referencing of multiple sections, no interpretation of overlapping language — just a clean table lookup.
Complete TDS Section Mapping: Old Act (1961) → New Act (2025)
This is the reference table every tax professional, payroll team, and accounting software developer needs. Every old section number has been mapped to its equivalent in the new Act. Using the old section numbers after April 1, 2026 for Tax Year 2026-27 transactions will cause validation failures on the Income Tax portal.
| Payment Type | Old Section (1961 Act) | New Section (2025 Act) | Payment Code | Rate (unchanged unless noted) |
|---|---|---|---|---|
| Salary | 192 | 392 | 1001 | Applicable slab rates |
| Interest on securities | 193 | 392 | 1002 | 10% |
| Dividends | 194 | 392 | 1003 | 10% |
| Interest (bank FD, company deposits, post office) | 194A | 392 | 1004 | 10% |
| Contractor payments (work contracts, sub-contracts) | 194C | 392 | 1006 | 1% (individual/HUF) / 2% (others) |
| Insurance commission | 194D | 392 | 1007 | 5% |
| Commission / brokerage | 194H | 392 | 1011 | 5% |
| Rent — plant and machinery | 194I(a) | 392 | 1012a | 2% |
| Rent — land, building, furniture | 194I(b) | 392 | 1012b | 10% |
| Professional fees / technical services | 194J | 392 | 1013 | 2% (technical) / 10% (professional) |
| Purchase of immovable property | 194IA | 394 | 3001 | 1% |
| Rent by individual/HUF (above ₹50K/month) | 194IB | 394 | 3002 | 2% ↓ reduced from 5% |
| E-commerce operator (194O) | 194O | 392 | 1023 | 1% |
| Virtual Digital Assets (Crypto) — 194S | 194S | 392 | 1027 | 1% |
| Payments to non-residents (all categories) | 195, 196A–196D | 393 | 2001–2067 | DTAA rates / rates per Schedule |
Rate change alert — 194IB: TDS on rent paid by individuals and HUFs on residential property exceeding ₹50,000 per month has been reduced from 5% to 2% under the new Act (Payment Code 3002). This is one of the few substantive rate changes in the new Act. Individuals paying rent should update their TDS deduction rate immediately for April 2026 onwards.
New TDS Return Forms Under the Income Tax Act, 2025
This is where the operational impact is most immediate. Every TDS return form has been renumbered under the new Act. Filing old form numbers for Tax Year 2026-27 transactions will generate validation errors on the TRACES/Income Tax portal.
| Purpose | Old Form (1961 Act) | New Form (2025 Act) | Filing frequency |
|---|---|---|---|
| Quarterly TDS return — Salary | Form 24Q | Form 138 | Quarterly (7th of month following quarter-end) |
| Quarterly TDS return — Non-salary (resident) | Form 26Q | Form 139 | Quarterly |
| Quarterly TDS return — Non-resident payee | Form 27Q | Form 140 | Quarterly |
| TDS certificate to employee (annual) | Form 16 | Form 130 | Annual (issued by May 31) |
| TDS certificate — non-salary deductions | Form 16A | Form 131 | Quarterly (within 15 days of return due date) |
| TDS certificate — sale of immovable property | Form 16B | Form 132 | Per transaction |
| TDS certificate — rent (individual/HUF) | Form 16C | Form 133 | Per payment period |
| Control chart / summary statement | Form 27A | Form 145 | Filed along with quarterly TDS return |
✓ Form 16 → Form 130 impact on employees: For Tax Year 2026-27, employees will receive Form 130 from their employers instead of the familiar Form 16. The content is essentially the same — it shows TDS deducted on salary, the section references (new section 392, payment code 1001 instead of Section 192), investment declarations, and net tax liability. Employees filing their ITR for Tax Year 2026-27 should not be alarmed by the new form number — the data is identical.
TDS Challan Payment: Changes to ITNS 281 Under the New Act
TDS collected must be deposited with the government using Challan ITNS 281. The challan itself continues under the new Act — its format, the online payment process through the Income Tax portal or authorised banks, and the payment deadlines all remain the same. What changes are the section code references within the challan.
TDS Payment Due Dates — Unchanged Under New Act
| TDS Deductor Category | Month of Deduction | Payment Due Date |
|---|---|---|
| All deductors (except Government) | April to February | 7th of the following month |
| All deductors (except Government) | March (year-end) | 30th April |
| Government deductor (without challan) | Any month | Same day as deduction |
| Government deductor (with challan) | Any month | 7th of the following month |
What Changes in the Challan from April 1, 2026
When making TDS payments through ITNS 281 on the Income Tax portal or through NSDL/Protean for Tax Year 2026-27, the following challan fields must use new references:
The “Nature of Payment” dropdown in the challan will now show the new payment codes (1001, 1002, 1003… etc.) instead of old section numbers (192, 193, 194A…). Select the new payment code corresponding to the type of TDS being deposited. For software that auto-populates this field, ensure the mapping is updated — incorrect payment codes cause challan-return reconciliation failures on TRACES.
The challan uses the concept of “Tax Year” under the new Act instead of the old “Assessment Year.” For TDS on April 2026 income, the Tax Year is 2026-27 — not “AY 2027-28” as it would have been under the old Act. This terminology alignment prevents errors in challan-return matching.
Under the old Act, a single ITNS 281 challan could only carry one section’s TDS (e.g., one challan for 194C and a separate challan for 194J). Under the new Act’s streamlined structure, multiple payment codes under Section 392 can be combined in a single challan for the same deductor-TAN combination in the same month.
Critical for TDS software users: Tally Prime, Zoho Books, QuickBooks India, Busy Accounting, SAP, and other ERP systems used for TDS computation must be updated to the new section mapping before April 1, 2026. Most major software vendors released updates in Q1 2026. If your software has not been updated, every TDS return filed for Tax Year 2026-27 will carry wrong section codes — creating a compliance defect that requires correction returns and potential late filing notices.
TDS Return Filing Deadlines — Tax Year 2026-27 (Under New Act)
TDS return filing deadlines remain unchanged under the new Act. The due dates are:
| Quarter | Period | Form 138 / 139 / 140 Due Date | Form 130 / 131 Due Date |
|---|---|---|---|
| Q1 (TY 2026-27) | April – June 2026 | July 31, 2026 | Aug 15, 2026 (Form 131) / Annual (Form 130) |
| Q2 (TY 2026-27) | July – September 2026 | October 31, 2026 | Nov 15, 2026 |
| Q3 (TY 2026-27) | October – December 2026 | January 31, 2027 | Feb 15, 2027 |
| Q4 (TY 2026-27) | January – March 2027 | May 31, 2027 | June 15, 2027 (Form 131) / May 31, 2027 (Form 130 — annual) |
Late fee for TDS return non-filing — unchanged and severe: Under Section 234E (equivalent provision retained in new Act), late filing of TDS returns attracts ₹200 per day from the due date until the return is filed — with no upper cap. For Q1 return (Form 138) due July 31, 2026, filing on October 31 means 92 days × ₹200 = ₹18,400 in late fees for just one return. For a company with high-frequency payroll (Form 138), this accumulates rapidly.
Salary TDS Under the New Act — Section 392 vs Old Section 192
Salary TDS — the most common TDS obligation for any employer — undergoes important structural changes under the new Act, even though the underlying tax rates are set by the annual Finance Act and not by the Act itself.
Key Changes in Salary TDS from April 1, 2026
1. New Tax Year concept replaces Financial Year / Assessment Year
Employers must restart TDS computation from April 1, 2026 referencing “Tax Year 2026-27” instead of “FY 2026-27 / AY 2027-28.” Investment declarations from employees for Tax Year 2026-27 must reference new Act deduction provisions. HR software and payroll systems must be updated to generate Form 138 instead of Form 24Q.
2. Deduction section references in Form 138 use new Act references
Form 138 (salary TDS return) references deductions under the new Act’s section numbering — for example, Section 80C deductions are now referenced as Schedule XV read with Section 123 instead of old Section 80C. Payroll software must correctly map all declared deductions to new Act references when computing TDS.
3. Employee NPS contribution — new section reference for 80CCD(1B) equivalent
The additional NPS deduction (previously Section 80CCD(1B), ₹50,000) is now under an equivalent Schedule provision in the new Act. Payroll teams must ensure the mapping is correct in Form 138 — otherwise employees who declared NPS contributions may not get the deduction benefit in their TDS computation.
4. Employer NPS contribution under Section 80CCD(2) equivalent — still available in new regime
The employer’s NPS contribution (up to 10% of basic salary for private sector) remains available as a deduction even under the new default tax regime — an important planning tool for salary structuring. Its equivalent provision in the new Act must be correctly referenced in Form 138 filings.
5. Standard deduction of ₹75,000 — unchanged, correctly mapped
The ₹75,000 standard deduction for salaried employees (available in both old and new income tax regimes) continues under the new Act. Payroll software must apply this deduction in Tax Year 2026-27 TDS computation under its new Act reference — failure to do so results in excess TDS deduction from employees.
The Old 194C vs 194J Confusion — How the New Act Resolves It
If you have ever been involved in a TDS audit or noticed vendor payment disputes, you know that the distinction between Section 194C (contractor payments at 1–2%) and Section 194J (professional/technical services at 2–10%) was one of the most litigated questions in Indian tax law.
The ambiguity arose because the old Act used terms like “work,” “technical services,” and “professional services” without exhaustive definitions, and the boundary between a “contractor doing technical work” and a “professional rendering technical services” was genuinely unclear. Courts had to resolve hundreds of disputes on this single distinction.
The New Act’s Resolution
Under the new Act, the Schedule attached to Section 392 explicitly lists and defines every category of payment with specific payment codes. The Schedule addresses the contractor vs professional ambiguity directly:
- Payment Code 1006 (contractor/sub-contractor, equivalent to old 194C): applies to contracts for carrying out any work — including labour supply and manpower, which was previously a contested area
- Payment Code 1013 (professional/technical services, equivalent to old 194J): defined by specific reference to the nature of the service rather than vague terminology
- Where services have characteristics of both categories, the Schedule provides a default rule that prevents a deductor from being penalised for choosing one over the other in good faith
The explicit codification significantly reduces the scope for dispute — which means fewer 26AS mismatches, fewer notices, and fewer correction returns for businesses that were previously guessing between 194C and 194J on borderline transactions.
Transition Checklist: What Every Business Must Do Before April 1, 2026
Based on our advisory work with companies across Delhi NCR, here is the complete transition action list every business must execute before processing the first April 2026 payment:
Step 1 — Update accounting and payroll software
Contact your Tally/Zoho/QuickBooks/Busy/SAP vendor to confirm the Tax Year 2026-27 update includes new section codes (1001–1067), new form numbers (Form 138, 139, 140, 130, 131), and new challan payment codes. Do not process a single April 2026 payment before this update is confirmed and tested.
Step 2 — Update vendor master TDS code mapping
Every vendor in your ERP with a TDS section assigned needs to have that section updated to the new payment code. Vendor “ABC Contractors” mapped to 194C needs to be remapped to Payment Code 1006 under Section 392. This is a one-time data migration — do it in bulk before April 1.
Step 3 — Restart payroll TDS computation for Tax Year 2026-27
Collect fresh investment declarations from all employees. Restart the cumulative TDS computation from zero for Tax Year 2026-27 (April 2026). Confirm the payroll software generates Form 138 output — not old Form 24Q.
Step 4 — Verify TRACES portal compatibility with new forms
Log in to TRACES (tdscpc.gov.in) and confirm the portal accepts Form 138, 139, and 140 submissions for Tax Year 2026-27. TRACES has been updated but verify this specifically for your deductor TAN before Q1 filing time.
Step 5 — Train payroll, accounts payable, and HR teams
Anyone who processes vendor payments, runs payroll, or files TDS returns needs to know the new section references. A 2-hour internal training covering the mapping table, new form numbers, and challan process eliminates the most common errors from day one.
Step 6 — File all FY 2025-26 TDS returns (old Act) before July 31, 2026
TDS returns for Q4 FY 2025-26 (January–March 2026) must be filed under the old Act using old form numbers (24Q, 26Q) and old section references. Do not mix old-Act filings with new-Act filings. Q4 FY 2025-26 return due date: May 31, 2026 — file before this date using old forms.
7 Most Common TDS Transition Mistakes Businesses Are Making
Mistake 1 — Using old section numbers for April 2026 transactions
Any payment made on or after April 1, 2026 that uses Section 194C, 194J, 192, etc. in the TDS computation or challan will generate a portal validation error when the Q1 Form 138/139 is filed. The correction process is time-consuming and triggers TRACES notices.
Mistake 2 — Filing Form 24Q for Q1 Tax Year 2026-27 salary TDS
The Q1 (April–June 2026) salary TDS return must be filed as Form 138 under the new Act. Filing Form 24Q for this period is technically non-compliant. The portal may accept it (during a transition grace period) but it creates long-term reconciliation issues in employee TDS records and Form 130 generation.
Mistake 3 — Issuing Form 16 instead of Form 130 for Tax Year 2026-27
Employees need Form 130 for their Tax Year 2026-27 ITR filing. If an employer issues old Form 16 certificates with old section references, employees using ITR auto-fill features may encounter mismatches with portal-generated prefill data that uses new Act references.
Mistake 4 — Not updating ITNS 281 challan payment codes
Depositing TDS under old section codes in the challan means the TRACES system cannot correctly credit the amount to the deductee’s 26AS/AIS. The deductee’s Form 131 (TDS certificate) will not be generated correctly — creating a credit mismatch that causes problems for the deductee’s ITR.
Mistake 5 — Mixing FY 2025-26 (old Act) and TY 2026-27 (new Act) in the same return
Some businesses process March-end vendor invoices in April. Ensure that payments for services rendered before March 31, 2026 but paid in April 2026 are correctly allocated. The date of payment (not the invoice date) determines which Act’s provisions apply for TDS.
Mistake 6 — Not updating the 194IB rent TDS rate from 5% to 2%
Individuals and HUFs paying rent above ₹50,000/month must deduct TDS at the new rate of 2% (Payment Code 3002) under Section 394 from April 2026 — reduced from the old 5% under Section 194IB. Continuing to deduct at 5% results in excess TDS, which creates refund claims for the landlord and reconciliation complexity.
Mistake 7 — Assuming old Act-filed TDS automatically migrates
Quarterly TDS returns filed under the old Act (Forms 24Q, 26Q for FY 2025-26) remain valid and are not required to be refiled. They are assessed under the old Act’s provisions. Only transactions from April 1, 2026 (Tax Year 2026-27) onwards require new Act forms. The two coexist — old Act data is not overwritten.
Is your business ready for TDS under the new Income Tax Act, 2025?
The transition from old to new Act TDS compliance is operational, not conceptual — it requires updating your software, retraining your team, and ensuring the first April 2026 payment carries the correct payment code. Businesses that start late face validation errors, correction return penalties, and employee Form 130 disputes.
Rudra Capital’s CA team provides: TDS transition audit (identifying all old-Act codes in your system) · payroll restart for Tax Year 2026-27 · Form 138/139/140 quarterly filing · TDS certificate (Form 130/131) generation · TRACES reconciliation and correction returns.
FAQs — TDS Under the Income Tax Act, 2025
Related reading: Income Tax Act, 2025 — Complete Guide · New vs Old Tax Regime 2025-26 · Income Tax Pain Points 2026 · TDS Return Filing Services
