India’s income-tax framework has undergone an important structural change from 1 April 2026 with the implementation of the Income Tax Act, 2025.
One area businesses need to understand carefully is Tax Deducted at Source (TDS). While the TDS framework has been reorganised under the new Act, the Income Tax Department has clarified that the applicable TDS rates and monetary thresholds have largely been retained.
For businesses, the important point is not simply that the section numbers have changed. Accounting and compliance teams also need to use the applicable provisions and forms for payments or credits made from 1 April 2026 onwards.
What Changed From 1 April 2026?
The Income Tax Department states that TDS obligations depend on the financial year in which the payment or credit takes place.
Payments or credits made on or before 31 March 2026 continue to be governed by the Income Tax Act, 1961.
For payments or credits made on or after 1 April 2026, the corresponding provisions of the Income Tax Act, 2025 apply.
This makes the transition date particularly important for businesses handling regular payments to employees, contractors, professionals, vendors and other parties.
TDS Sections Have Been Consolidated
Under the previous Income Tax Act, TDS provisions were spread across several sections.
Under the Income Tax Act, 2025, the TDS provisions have been consolidated mainly into Section 392 for salary-related TDS and Section 393 for other specified payments.
Section 393 uses tables covering different categories of payees and specifies the nature of payment, threshold and applicable TDS provisions.
The Income Tax Department has clarified that this is primarily a restructuring and simplification of the provisions rather than a broad change in TDS policy.
Have TDS Rates Changed?
One of the important points for businesses is that the TDS rates and monetary thresholds have been retained under the new framework for the relevant categories of payments.
Therefore, businesses should not assume that every TDS rate has changed simply because the section numbers have been reorganised.
However, the correct provision and reporting details still need to be used when processing payments from the new tax year.
Why Should Businesses Pay Attention to the New Section Numbers?
Accounting systems, ERP software, spreadsheets and internal compliance processes often use section numbers when recording TDS transactions.
If a business continues using an old section reference for a payment made after 1 April 2026, it could create problems during TDS return processing.
The Income Tax Department specifically notes that quoting an old section number for a payment governed by the new Act may lead to processing errors and could require a correction statement.
This makes it important for finance and accounting teams to update their internal TDS processes.
Example: Contractor Payment
Consider a company that has a regular contractor.
If a payment or credit relating to the transaction occurred on 28 March 2026, the applicable TDS provisions would be those under the Income Tax Act, 1961.
If a corresponding payment or credit occurs after 1 April 2026, the applicable TDS provision would come under the Income Tax Act, 2025.
The Income Tax Department gives a similar example and confirms that the applicable law depends on when the payment or credit occurs.
What About TDS Payment Due Dates?
The transition to the Income Tax Act, 2025 does not mean that businesses should ignore their existing TDS payment schedules.
The Income Tax Department states that the general timeline for depositing TDS continues to be prescribed through the applicable rules. The Income Tax Rules, 2026 retain the general payment timelines without a policy change.
Businesses should therefore continue maintaining a proper monthly TDS compliance calendar.
New Form 141 for Certain Transactions
Another important development concerns challan-cum-statement reporting.
For certain specified transactions, the new framework provides Form 141 for challan-cum-statement of TDS under Section 393(1).
The Income Tax Department explains that Form 141 is available under the Income Tax Act, 2025 and covers specified categories including property transfers, rent payments, payments to contractors or professionals and transfers of virtual digital assets, subject to the applicable provisions.
Businesses and other deductors should therefore check whether a particular payment falls under the relevant challan-cum-statement mechanism.
What Should Businesses Do Now?
Businesses can review their TDS processes and make sure their accounting and compliance systems are aligned with the new framework.
Some practical steps include:
1. Review TDS Section Mapping
Check whether the TDS sections used in accounting software, ERP systems and spreadsheets have been updated for transactions covered by the Income Tax Act, 2025.
2. Review Vendor Payments
Identify regular payments to:
- Contractors
- Professionals
- Consultants
- Rent recipients
- Commission agents
- Other applicable payees
Then verify the relevant TDS treatment.
3. Update Internal Checklists
Finance teams should update their TDS checklists to reflect the new provisions and forms applicable from 1 April 2026.
4. Check TDS Returns
Businesses should ensure that TDS statements are prepared using the applicable provisions and reporting requirements for the relevant period.
5. Coordinate With the Finance and Tax Team
Companies with a large number of transactions may benefit from regular review of their TDS processes rather than waiting until the end of the financial year.
How Can Better Financial Management Help?
TDS is only one part of a company’s overall financial management process.
Growing businesses may also need regular monitoring of cash flow, budgets, profitability, working capital, MIS reports and statutory compliance.
Businesses that need management-level financial planning may also consider Virtual CFO services in India, depending on their size, financial complexity and reporting requirements.
A structured finance function can help management maintain better visibility over financial obligations and make more informed business decisions.
Common Mistakes Businesses Should Avoid
Some common areas that require attention during the transition include:
Using old section numbers automatically:
A previous section reference may not be appropriate for a payment governed by the new Act.
Ignoring the payment or credit date:
The applicable TDS provisions depend on when the payment or credit occurs.
Assuming every TDS rate has changed:
The Income Tax Department has clarified that TDS rates and monetary thresholds have largely been retained.
Not updating accounting systems:
Old TDS mappings in software can create reporting problems.
Waiting until the end of the year:
Regular reconciliation and review can help identify issues earlier.
Final Takeaway
The Income Tax Act, 2025 has reorganised the TDS framework applicable from 1 April 2026.
For businesses, the key requirement is to understand which law applies to a transaction, use the applicable provisions and maintain accurate TDS reporting.
The change in section numbering does not by itself mean that TDS rates have broadly changed. However, finance teams should update their accounting systems, compliance checklists and reporting processes to reflect the new framework.
Businesses dealing with regular vendor, contractor, professional or other TDS payments should review their processes with their tax or accounting professional to ensure that the correct provisions are being applied.
Disclaimer: This article is provided for general informational purposes and should not be treated as professional tax, legal or financial advice. Tax rules and compliance requirements may change, so businesses should verify the applicable provisions for their specific circumstances.
