The transition from the Income-tax Act, 1961 to the newly enacted Income-tax Act, 2025 represents one of the most significant structural overhauls of India's withholding tax framework in decades. Effective 1 April 2026, the scattered provisions spanning Sections 192 to 196D have been consolidated to simplify compliance and reduce interpretational disputes. The dual nomenclature of 'Previous Year' and 'Assessment Year' has been replaced by a single 'Tax Year'. The new framework governs withholding under Section 392 (salary), Section 393 (non-salary payments), and Section 394 (tax collected at source).
Key facts & figures
For Tax Year 2026-27 (1 April 2026 to 31 March 2027), deductors must apply the consolidated codes. The thresholds and rates below incorporate rationalisations from the Finance Act 2025 and Finance Act 2026.
| Nature of payment | Old section | New reference | Threshold (₹) | TDS rate |
|---|---|---|---|---|
| Salary (non-government) | 192 | 392 | Basic exemption limit | Slab rates |
| Premature EPF withdrawal | 192A | 392(7) | 50,000 | 10% |
| Interest on securities | 193 | 393(1) | 10,000 | 10% |
| Dividend to residents | 194 | 393(1) | 10,000 | 10% |
| Interest (bank / post office) | 194A | 393(1) | 50,000 (1,00,000 seniors) | 10% |
| Payment to contractors | 194C | 393(1) | 30,000 single / 1,00,000 aggregate | 1% Ind/HUF, 2% others |
| Insurance commission | 194D | 393(1) | 20,000 | 2% Ind/HUF, 10% others |
| Commission / brokerage | 194H | 393(1) | 20,000 | 2% |
| Rent (plant & machinery) | 194-I(a) | 393(1) | 50,000 | 2% |
| Rent (land & building) | 194-I(b) | 393(1) | 50,000 | 10% |
| Rent by individual / HUF | 194-IB | 393(1) | 50,000 per month | 2% |
| Professional / technical fees | 194J | 393(1) | 50,000 | 2% technical, 10% professional |
| Partner remuneration | 194T | 393(1) | 20,000 aggregate per partner | 10% |
| E-commerce participants | 194-O | 393 | 5,00,000 | 0.1% |
| Purchase of goods | 194Q | 393 | 50,00,000 | 0.1% |
| Virtual digital assets | 194S | 393 | 10,000 / 50,000 (specified) | 1% |
Payments to non-residents (formerly Section 195) now fall under Section 393(2) and are subject to the 'rates in force' plus applicable surcharge and the 4% health and education cess. Where the payee does not furnish a PAN, tax must be deducted at 20% or the applicable rate, whichever is higher, under the continuing framework of the old Section 206AA.
Recent changes
The Finance Acts 2025 and 2026 rationalised the withholding framework. The rent threshold (old 194-I) moved from an annual ₹2,40,000 to a monthly ₹50,000, while professional fees (old 194J) and insurance commission (old 194D) thresholds rose to ₹50,000 and ₹20,000 respectively — easing compliance on smaller transactions.
A major addition is the taxation of partner remuneration. Introduced in Budget 2024 and effective 1 April 2025, Section 194T (now integrated into Section 393) applies 10% TDS on salary, bonus, commission, or interest paid to partners of a firm or LLP once the aggregate crosses ₹20,000 in the year.
On TCS, the Finance Act 2026 flattened the Liberalised Remittance Scheme (LRS) rate for education and medical purposes and overseas tour packages to a uniform 2% under Section 394, removing the earlier 5% and 20% slabs. Forms were renumbered under the Income-tax Rules, 2026: Form 16 is now Form 130, Form 16A is Form 131, and quarterly returns 24Q and 26Q are Form 138 and Form 140. The new Act also makes CBDT TDS guidelines binding on deductors.
Common pitfalls
- Quoting legacy section numbers (e.g. 194C, 194J) in the new Form 140 quarterly return triggers validation failures on TRACES — the new FVU codes (1001–1067) must be used.
- Section 194T requires deduction at the time of credit to the partner's capital account or payment, whichever is earlier — not at year-end after profits are known. Missing TDS on mid-year credits or drawings invites interest.
- Applying the old 5% / 20% TCS slabs to overseas tour packages after 1 April 2026 causes excess collection and later mismatch grievances.
Frequently asked questions
What replaces Form 16 and Form 26Q in FY 2026-27?
Form 16 is replaced by Form 130 (salary TDS certificate) and Form 26Q by Form 140 (quarterly statement for non-salary payments) under the Income-tax Rules, 2026.
Does Section 194T override the Section 40(b) limits on partner remuneration?
No. The firm still computes the Section 40(b) deductibility limit for its own tax. But it must deduct 10% TDS on the amount actually paid or credited to the partner, regardless of how much is allowable as a business deduction.
What is the TDS rate if a non-resident seller of property has no PAN?
While resident buyers now deduct using their own PAN instead of obtaining a TAN, if the non-resident payee lacks a valid PAN, tax must be withheld at the higher 20% rate under the non-PAN provisions.
Is there a 'missing year' moving from AY 2026-27 to Tax Year 2026-27?
No. Income earned 1 April 2025–31 March 2026 is assessed in AY 2026-27 under the 1961 Act. Income from 1 April 2026 onwards is assessed for Tax Year 2026-27 under the 2025 Act.
Are manpower supply contracts subject to TDS?
Yes. Manpower supply services are covered under the contractor-payments section (equivalent to old 194C), requiring a 1% or 2% deduction.
This article is for general information only and reflects our understanding of the rules at the time of writing. Tax and regulatory provisions change frequently and some references may be subject to further notification. It is not professional advice — please verify against the latest provisions, or consult a professional, before acting.