TDS Changes

Understanding the TDS Changes Effective 1st April 2026
Introduction
With the commencement of the financial year 2026–27, the Income Tax Act, 2025 has come into effect, replacing the Income Tax Act, 1961 for all new transactions. This transition marks a significant shift in India’s tax compliance framework.
While the rates and thresholds remain largely unchanged, there is a complete restructuring of section numbers, payment codes, and forms. This is not merely a cosmetic change—professionals, businesses, and taxpayers must immediately adapt their payroll systems, ERP configurations, and compliance processes.

Key Changes in TDS from 1st April 2026
Nature of Payment Old Section New Section (2025 Act) Threshold TDS Rate
Salary (Slab Rates) 192 392(1) As per slabs Slab-based
Premature EPF Withdrawal 192A 392(7) ₹50,000 10%
Interest on Securities 193 393(1)(5)(i) ₹10,000 10%
Dividends 194 393(1)(7) No threshold 10%
Bank/Post Office Interest 194A 393(1)(5)(ii) ₹40,000 (₹1,00,000 for senior citizens) 10%
Contractor Payments 194C 392(3) ₹30,000 (single) / ₹1,00,000 (aggregate) 1% / 2%
Professional Fees 194J 392(5) ₹30,000 10%
Rent 194I 392(4) ₹2,40,000 10% (land/building), 2% (plant/machinery)

Compliance Updates
• New Forms:
The annual TDS certificate for salaried employees is now Form 130, replacing Form 16.
• Payment Codes:
Each transaction category has been assigned a new payment code. Payroll and ERP systems must be updated accordingly.
• PAN vs TAN (NRI Transactions):
In property transactions involving NRIs, the buyer’s PAN is now to be used instead of TAN, simplifying compliance.
• System Validation Changes:
Use of old section references (such as 194C or 194J) in filings after April 2026 will result in portal validation errors.

Practical Implications for Businesses
• Payroll Teams:
Must align salary TDS deductions with the new Section 392 framework.
• Accounts Departments:
Need to update ERP systems and compliance software to incorporate revised section codes and formats.
• Tax Advisors:
Should proactively guide clients regarding new forms, section mappings, and filing procedures.
• NRIs & Property Transactions:
PAN-based compliance simplifies processes but requires careful documentation and due diligence.

Conclusion
The TDS changes effective 1st April 2026 do not significantly alter tax rates, but they fundamentally restructure the compliance framework. This transition should be treated as a system overhaul rather than a minor update.
For PACS clients and associates, timely adaptation is essential to avoid compliance lapses and penalties. Staying updated and implementing changes proactively will ensure a smooth transition into the new tax regime.