Quarterly TDS Returns Under New IT Act 2025: Filing Dates and Penalty Changes

The new Income Tax Act 2025, passed by Parliament and effective from 1 April 2026, fundamentally restructures how businesses handle TDS compliance in India. Over 40 scattered TDS provisions from the 1961 act have been consolidated into just two sections - Section 392 for salary and Section 393 for everything else. The daily late filing penalty under old Section 234E has been eliminated. Higher TDS rates for income tax return non-filers have been scrapped. New certificate forms replace Form 16 and Form 16A. For any business filing quarterly TDS returns in FY 2026-27 and beyond, understanding these structural changes is not optional - it determines whether your TDS compliance holds up under the new framework or triggers notices from CPC-TDS processing.

What Changed: TDS Under the Old Act vs New Income Tax Act 2025

The Income Tax Act 1961 had accumulated over 40 individual sections governing TDS - each with its own rate, threshold, and compliance quirks. Sections 192 through 206D each addressed a specific type of payment, creating a web of provisions that made compliance burdensome for companies of every size. The new act replaces this fragmented approach with a unified, table-based structure that is easier to reference, harder to misinterpret, and significantly simpler to implement in accounting software.

The consolidation is not merely cosmetic. By moving all TDS rules into a single table-based format, the new act eliminates ambiguity around which section applies to which payment type. For businesses using ERP systems and payroll software, this means fewer configuration points, fewer mapping errors, and a more predictable compliance experience from Q1 of FY 2026-27 onward.

New Section Numbers: Mapping Old TDS Sections to the 2025 Act

Every TDS challan, return, and certificate filed from 1 April 2026 must reference the new section numbers. Citing old sections will result in processing errors and potential return rejections. Here is the complete mapping for the most commonly used TDS provisions:

Quarterly TDS Return Due Dates for FY 2026-27

The quarterly filing structure for TDS returns continues under the new act. Every deductor must file returns for each quarter within the prescribed deadline. The forms (24Q, 26Q, 27Q, 27EQ) remain the same, but the section codes and certificate references within them must follow the new act.

The Q4 deadline of 30 May gives deductors an additional month compared to Q1-Q3 (which have approximately 30 days after the quarter ends). This extra time accounts for the year-end complexity of salary TDS computations in Form 24Q, where Annexure II requires full-year salary breakup, deduction declarations, and final tax computation for every employee.

TDS Return Forms Explained: 24Q, 26Q, 27Q, and 27EQ

Each TDS return form serves a specific category of deductions, and most businesses need to file at least two of these every quarter. Here is what each form covers and who must file it:

Form 24Q - Salary TDS: Filed by every employer who deducts tax from employee salaries under Section 392 (replacing old Section 192). The Q4 filing includes Annexure II with the complete salary breakup, deduction details under Chapter VI-A, HRA exemption computations, and the final tax computation for each employee. This data feeds directly into the employee's Form 130 (new Form 16).

Form 26Q - Non-Salary Resident TDS: Covers all TDS deducted on payments to resident Indians - contractor payments, rent, professional fees, interest, dividends, commission, and more under Section 393(1). This is typically the highest-volume return for companies making regular vendor payments.

Form 27Q - Non-Resident TDS: Filed when the company makes payments to non-residents or foreign companies subject to TDS under Section 393(2). This includes payments for software licenses, consulting fees, royalties, and interest to overseas entities. The TDS rate depends on the Double Taxation Avoidance Agreement (DTAA) with the recipient's country.

Form 27EQ - Tax Collected at Source (TCS): Filed by sellers or collectors who collect tax at source on specific transactions like sale of scrap, timber, minerals, motor vehicles above ₹10,00,000, and foreign remittances under the Liberalised Remittance Scheme (LRS). This form is less common for service-based companies but mandatory for manufacturers and traders dealing in specified goods.

Penalty Framework: What Changed and What Stayed

The penalty landscape for TDS non-compliance has undergone the most significant reform in the new act. The changes are overwhelmingly taxpayer-friendly - removing the most punitive provision that affected thousands of small businesses - while retaining serious consequences for deliberate non-compliance.

Removed: Daily Late Filing Penalty (Old Section 234E)

Under the old act, Section 234E imposed a mandatory fee of ₹200 per day for every day a TDS return was filed late, capped at the total TDS amount in the return. This provision was one of the most frequently litigated TDS issues, with thousands of small businesses and startups facing disproportionate penalties for minor delays - often exceeding the actual TDS amount for low-value returns. The new act eliminates this daily penalty entirely.

This does not mean late filing has no consequences. Interest on non-deposit continues to accrue regardless of return filing status, and the deductee's Form 26AS credit remains blocked until the return is filed. But the automatic, compounding daily fee that penalised procedural delays is gone.

Retained: Non-Filing and Incorrect Filing Penalty (Clause 461)

Clause 461 of the new act retains penalties for complete non-filing of TDS returns and for filing returns with incorrect or incomplete information. The penalty ranges from ₹10,000 to ₹1,00,000, applied at the discretion of the Assessing Officer based on the severity and duration of non-compliance. Relief may be granted if the deductor demonstrates that all TDS has been deposited and any applicable fees have been paid.

Retained: Interest on Late Deduction and Deposit

The interest framework remains unchanged:

• Non-deduction of TDS: Interest at 1% per month (or part of a month) from the date TDS was deductible to the date of actual deduction
• Non-deposit of TDS: Interest at 1.5% per month (or part of a month) from the date of deduction to the date of actual deposit

Interest is calculated on a monthly basis - even a one-day delay counts as a full month. For ₹2,00,000 in TDS deposited 3 months late, the interest amounts to ₹9,000 (₹2,00,000 x 1.5% x 3). This interest is not waivable by any authority.

Retained: Prosecution for Wilful Non-Deposit

The most severe consequence - criminal prosecution with imprisonment up to 7 years - continues under the new act for wilful non-deposit of TDS that has already been deducted. The government's position is clear: once TDS is deducted from a payment, it is held in trust for the government, and failure to deposit constitutes misappropriation. This provision is invoked in cases of repeated, deliberate non-compliance rather than isolated delays.

Elimination of Higher TDS for Non-Filers: Sections 206AA and 206AB Scrapped

Under old Sections 206AA and 206AB, deductors had to apply double the standard TDS rate or a minimum of 5% when the deductee had not filed their income tax return for the preceding two years and their aggregate TDS/TCS exceeded ₹50,000 in each year. This created an enormous compliance burden - companies had to verify the filing status of every vendor before each payment using the Income Tax portal's compliance check functionality.

The new Income Tax Act 2025 eliminates Sections 206AA and 206AB entirely. From FY 2026-27, deductors apply the standard TDS rate regardless of the deductee's ITR filing status. This removes the need for quarterly vendor compliance verification, eliminates short-deduction demands from incorrect non-filer classification, reduces TDS processing time for companies with large vendor networks, and ends the disproportionate impact on small vendors and freelancers who faced excessive deductions.

Companies that built internal processes or purchased software modules for 206AB compliance checks can decommission these from April 2026.

TDS Deposit Rules and Timeline Under the New Act

The TDS deposit mechanism - the actual transfer of deducted tax to the government - remains substantively unchanged under the new act. The rules are straightforward but carry severe consequences for non-compliance:

• Monthly deadline: TDS deducted in any month must be deposited by the 7th of the following month
• March exception: TDS deducted in March must be deposited by 30 April of that year
• Government deductors: Must deposit TDS on the same day as deduction
• Payment mode: Electronic deposit using Challan ITNS 281 through authorized bank portals or the Income Tax e-payment facility

The challan requires accurate entry of TAN, assessment year, nature of payment, new section code (392 or 393 with applicable table reference), and the amount. A mismatch between the challan section code and the TDS return section code creates processing errors that delay return acceptance and Form 26AS credit for deductees.

Maintain a monthly challan register that records: date of deduction, date of deposit, BSR code, challan serial number, amount, and section code. Reconcile this register against your TDS return file before submission each quarter. Most TDS return preparation software (like TRACES RPU) flags mismatches automatically - but only if the challan data is entered correctly in the return.

TDS Rate Chart for FY 2026-27 Under the New Act

While the structural changes are significant, TDS rates themselves have remained largely unchanged from the old act. The new act standardises thresholds and presents all rates in a consolidated table format under Section 393. Below are the rates most commonly applicable to businesses:

Salary TDS (Section 392): Deducted at applicable income tax slab rates based on the employee's estimated annual income after considering declarations under Chapter VI-A deductions, HRA exemption, standard deduction of ₹75,000, and rebate under Section 87A equivalent provisions. The employer must compute average rate of tax on total estimated salary for the financial year.

Key non-salary TDS rates under Section 393(1):

• Contractor payments: 1% (Individual/HUF) / 2% (Others) - threshold ₹30,000 single or ₹1,00,000 aggregate
• Professional fees: 10% - threshold ₹50,000 per payee per FY
• Technical services / Royalty: 2% - threshold ₹50,000 per payee per FY
• Rent (land/building/furniture): 10% - threshold ₹50,000 per month
• Rent (plant/machinery): 2% - threshold ₹50,000 per month
• Interest (bank deposits - general): 10% - threshold ₹50,000
• Interest (senior citizens - bank/PO): 10% - threshold ₹1,00,000
• Dividends: 10% - no threshold
• Insurance commission: 2% - threshold ₹20,000
• Immovable property purchase: 1% - threshold ₹50,00,000
• E-commerce participants: 0.1% - threshold ₹5,00,000 (Individual/HUF)

Special payments under Section 393(3):

• Lottery / Crossword puzzle winnings: 30% - threshold ₹10,000
• Online gaming winnings: 30% - no threshold (net winnings at withdrawal)
• Horse race winnings: 30% - threshold ₹10,000
• Cash withdrawal above ₹1 crore: 2% on amount exceeding ₹1 crore

How to File Quarterly TDS Returns Under the New Act

The TDS return filing process under the new act follows the same workflow through the TRACES and e-filing portals, with updated section references. The key steps are: compile deduction data with new section codes, reconcile challans (ITNS 281) against deductions ensuring BSR codes and amounts match, prepare the return file using the TRACES Return Preparation Utility (RPU) or approved third-party software, validate through the File Validation Utility (FVU), and upload via the e-filing portal with digital signature or EVC authentication.

After processing (typically 3-7 days), download the provisional receipt from TRACES and generate TDS certificates: Form 130 (replacing old Form 16) for salary deductees and Form 131 (replacing old Form 16A) for non-salary deductees. Employers must issue Form 130 by 15 June after filing the Q4 return, while Form 131 must be issued within 15 days of the quarterly return due date. Both are generated through the TRACES portal - only digitally generated certificates carry legal validity for deductees claiming TDS credit.

Common TDS Compliance Mistakes During the Transition

The transition to the new Income Tax Act creates specific risk areas. Companies should watch for these common mistakes during FY 2026-27:

1. Using old section codes in challans and returns: Deductors who continue citing Section 194C instead of Section 393(1) [Sl. 6(i)] will face processing rejections. Update all master data and software configurations before April 2026.

2. Assuming no penalty means no consequences for late filing: While the ₹200/day fee is removed, late filing still blocks Form 26AS credits, triggers interest on unpaid TDS, and repeated late filing attracts discretionary penalties under Clause 461.

3. Continuing 206AB compliance checks: Some vendors may request higher TDS certificates based on old act requirements. Inform them that Sections 206AA and 206AB are eliminated from April 2026 and standard rates apply uniformly.

4. Misclassifying payment types in the new table structure: Section 393(1) uses a table format with serial numbers. Misclassifying a professional fee payment (Sl. 6(iii) at 10%) as a technical service payment (Sl. 6(iii) at 2%) results in short deduction, triggering interest demands.

5. Missing the expanded rent definition: The new act broadens rent to include digital infrastructure, cloud hosting, and co-location services. Companies paying for server hosting or cloud computing must evaluate TDS applicability under the expanded provisions.

FY 2026-27 is the first year under the new act, and the tax department is likely to process returns with enhanced scrutiny. Build a quality review process into your TDS compliance workflow - have a second person review every return before filing, especially during Q1 and Q2.

TDS on Salary Under Section 392: What Employers Must Know

Salary TDS under the new act's Section 392 carries forward old Section 192 principles with procedural updates. Employers compute TDS on a projected annual basis, deducting equal monthly amounts, and adjusting when employees submit investment proof. Key provisions include: standard deduction of ₹75,000 for all salaried employees, the new tax regime applying by default if no regime declaration is made, perquisites valuation included in salary for TDS computation, and Section 392(7) applying 10% TDS on premature EPF withdrawal above ₹50,000.

The Q4 Form 24Q return must include Annexure II with detailed salary breakup for every employee - gross salary, exemptions, deductions, and final tax computation. Payroll software must be updated to reference Section 392 and generate Form 24Q data files and Form 130 certificates under the new numbering. If your company is newly incorporated, ensure your company registration is complete and TAN obtained before processing the first salary payment.

Impact on Startups and Small Businesses

The new act's TDS changes disproportionately benefit startups and small businesses - the entities that suffered most under the old regime. The elimination of ₹200/day penalties means a startup that filed a return 30 days late on ₹50,000 TDS no longer pays a ₹6,000 automatic fee. The removal of vendor compliance verification under Sections 206AA/206AB eliminates an administrative process impractical for lean finance teams. And the consolidated section references (two sections instead of 40+) reduce errors in challan payments and return preparation.

Companies eligible for the Section 140 startup tax holiday (replacing old Section 80-IAC) still deduct TDS on payments to vendors and employees. Vendors can apply for lower TDS certificates if their overall liability is reduced. For startups building compliance from scratch, IncorpX supports the complete journey from company registration through ongoing compliance management including TDS, GST, and annual filings.

Preparing for the Transition: Action Checklist for Businesses

With the new act effective from 1 April 2026, use this checklist for a smooth transition:

Before March 2026: Create a section mapping document (old to new), contact ERP and payroll vendors for update timelines, update TDS master data in accounting systems, train accounts payable staff on new numbering, and review vendor master records with correct TDS categories.

April 2026 (first month under new act): Verify first TDS challans use new section codes, confirm payroll deducts under Section 392, decommission 206AB compliance check tools, and communicate changes to vendors and employees.

July 2026 (first return under new act): File Q1 FY 2026-27 returns with new section codes, validate all codes before FVU processing, reconcile challans against return data, and generate first Form 131 certificates.

Ongoing each quarter: Maintain reconciliation of deductions, deposits, and returns. Monitor CPC-TDS processing on TRACES. Address correction statements promptly. Consider engaging a Virtual CFO service for oversight and schedule annual tax audit coverage including TDS verification.

Conclusion: Simpler Structure, Same Compliance Discipline

The new Income Tax Act 2025 delivers genuine simplification for TDS compliance. Consolidating 40+ sections into two, eliminating the punitive ₹200/day late filing fee, and removing the non-filer higher TDS burden are meaningful reforms that reduce compliance costs for businesses of every size. But the core discipline remains unchanged: deduct correctly, deposit by the 7th, file returns quarterly, and issue certificates on time.

The transition from old section numbers to the new framework requires deliberate preparation - software updates, staff training, and process changes must happen before April 2026. Companies that prepare early will file their first Q1 return smoothly; those that delay will face processing rejections and correction cycles that compound through the year.

For businesses that want to focus on growth rather than decoding new section numbers and return formats, professional compliance support ensures zero-disruption filing from Q1 FY 2026-27 onward. Whether you need help with income tax return filing, GST compliance, or comprehensive business compliance management, IncorpX provides end-to-end support backed by experts who understand both the old and new frameworks.