TDS Under the New Income Tax Act 2025: Updated Rates and Sections

The TDS provisions under the Income Tax Act 2025 mark the most significant overhaul of tax deduction at source since the concept was introduced in India. With approximately 37 separate TDS sections from the 1961 Act now consolidated into around 20, businesses deducting tax on salary, rent, professional fees, and contractor payments will operate under an entirely restructured framework from April 1, 2026. Section 393 replaces the familiar Section 194 series. Threshold limits, return filing schedules, and penalty structures have been recalibrated. Whether you run a Private Limited Company or a partnership firm, every payment you make to a vendor, employee, or consultant now falls under new section references. Here is a complete breakdown of TDS rates, new sections, filing requirements, and what your business needs to do before the transition date.

What Is TDS and Why Does the New Act Matter?

Tax Deducted at Source (TDS) is the mechanism where the person making a payment deducts income tax at a prescribed rate before releasing the payment to the recipient. It is governed by the Income Tax Act and administered by the Central Board of Direct Taxes (CBDT). TDS applies to salaries, interest, rent, professional fees, contractor payments, commissions, and several other transaction types.

Under the Income Tax Act, 1961, TDS provisions had ballooned to approximately 37 standalone sections. Each payment type had its own section number, threshold, rate, and set of exceptions. For a company making 200 vendor payments a month, tracking which section applied to which payment was a compliance exercise in itself. The Income Tax Act 2025, effective April 1, 2026, restructures this entire framework. Fewer sections, clearer groupings, and a single primary provision (Section 393) mean your accounts team spends less time on section lookups and more on getting the numbers right.

Section 393: The New TDS Framework Explained

If you have been doing TDS compliance for any length of time, you know the old routine: check Section 194A for interest, 194C for contractors, 194H for commission, 194I for rent, 194J for professional fees, and so on. Each had its own threshold, its own rate chart, and (inevitably) its own set of CBDT circulars clarifying edge cases.

Section 393 of the Income Tax Act 2025 consolidates these fragmented provisions into a unified TDS chapter. Instead of 37 separate sections, related payment types are grouped as subsections or referenced through a consolidated rate schedule. The practical effect? You consult one primary section and its schedule instead of flipping between a dozen provisions.

How the Old Sections Map to the New Structure

The mapping is not a simple one-to-one renumbering. The new Act merges related provisions:

Updated TDS Rate Chart for FY 2025-26 (AY 2026-27)

The rates themselves are largely familiar. What changes is where they sit in the legislation. Here is the consolidated TDS rate table applicable from April 1, 2026 under the Income Tax Act 2025.

Use the IncorpX TDS Calculator to compute the exact TDS amount for any payment type. It is updated for the Income Tax Act 2025 rates and thresholds.

TDS on Salary Under the New Act

For businesses with employees, salary TDS remains the most frequent deduction obligation. Every month, your payroll must compute and deduct TDS based on the employee's estimated annual income, applicable slab rates, and declared deductions. Under the Income Tax Act 2025, two changes affect this calculation.

Standard Deduction Increase

The standard deduction for salaried employees and pensioners has been increased to ₹75,000 under Section 58(2) of the new Act, up from ₹50,000 under the old Act. This means employers must adjust their TDS computation to account for the higher deduction when estimating annual taxable income. Your payroll software needs this figure updated before April 2026 payroll processing.

Default New Tax Regime

Under the old Act, the old tax regime (with full deductions) was the default. The Income Tax Act 2025 makes the new tax regime the default. Employees who want the old regime must submit a written declaration to their employer before the start of the financial year. If no declaration is received, salary TDS is computed under the new regime's lower slab rates but without deductions like 80C, 80D, and HRA.

So what does this mean at payroll time? If an employee earns ₹12 lakh annually and submits no declaration, you apply the new regime slabs and deduct the ₹75,000 standard deduction. If they submit an old regime opt-in, you factor in their 80C investments, health insurance premiums, and other claimed deductions. Getting this wrong means either excess TDS (unhappy employees) or short deduction (penalties for the employer).

TDS on Rent, Professional Fees, and Contractor Payments

These three payment types account for the bulk of non-salary TDS activity in most businesses. If you lease office space, hire a CA firm, or engage contractors for project work, you are deducting TDS on these payments every month. Here is how each works under the new Act.

TDS on Rent

Rent payments exceeding ₹2,40,000 per year attract TDS at 2% for plant and machinery and 10% for land, building, or furniture. The threshold limit was revised upward from ₹1,80,000 under old Section 194I. This is a genuine reduction in compliance burden: businesses paying monthly rent of ₹20,000 or less are now exempt from TDS deduction on rent.

One important nuance: the threshold applies to the annual aggregate paid to a single landlord, not per property. If your company rents office space for ₹18,000/month and a warehouse from the same landlord for ₹5,000/month, the combined ₹2,76,000 annual rent crosses the ₹2,40,000 threshold. TDS applies on the entire amount, not just the excess.

TDS on Professional and Technical Fees

Payments to professionals (CAs, lawyers, architects, engineers, consultants) exceeding ₹30,000 in a financial year attract TDS at 10%. The rate and threshold carry forward from old Section 194J. If your company pays a CA firm ₹50,000 for an annual audit, you deduct ₹5,000 as TDS before releasing ₹45,000. The CA claims the ₹5,000 TDS credit in their own return.

TDS on Contractor Payments

Contractor payments remain at 1% for individual/HUF contractors and 2% for companies, firms, and other entities. The threshold is ₹30,000 for a single payment or ₹1,00,000 aggregate payments to the same contractor in a financial year. For businesses with large vendor networks, accurate tracking of aggregate payments per vendor is critical. Your accounting system must flag when a vendor approaches the threshold limit.

Higher TDS for Non-Filers: What Businesses Must Know

One provision that catches many businesses off guard is the higher TDS rate for payees who have not filed their income tax returns. This was introduced as Section 206AB in the old Act, and the Income Tax Act 2025 retains it with equivalent force.

When Higher TDS Applies

If the person receiving your payment (the payee) meets both of these conditions, you must deduct TDS at a higher rate:

1. Non-filing: The payee has not filed income tax returns for the two assessment years immediately preceding the year in which TDS is to be deducted
2. Threshold breach: The aggregate TDS deducted from the payee in each of those two years exceeded ₹50,000

The Higher Rate

When both conditions are met, TDS is deducted at the higher of:

• Twice the rate specified in the TDS schedule, or
• 5%

So if the normal TDS rate on a professional fee payment is 10%, the non-filer rate becomes 20%. If the normal rate is 1% (contractors), the non-filer rate becomes 5% (since 2x would be only 2%, and 5% is higher).

How to Check Non-Filer Status

The Income Tax Department provides a non-filer verification tool on the reporting portal. Before making any significant payment, verify whether the payee is a specified person under this provision. Failing to apply the higher rate when applicable makes the deductor (your business) liable for the shortfall plus interest.

TDS on Digital and Virtual Assets

Cryptocurrency, NFTs, and other virtual digital assets (VDAs) remain subject to TDS under the Income Tax Act 2025. If your business deals in digital assets or accepts crypto payments, this provision applies to you.

TDS Rate and Threshold

TDS at 1% applies on payment for transfer of any virtual digital asset. The thresholds are:

• ₹50,000 in a financial year for payments made by specified persons (individuals/HUFs with turnover below ₹1 crore for business or ₹50 lakh for profession)
• ₹10,000 in a financial year for all other persons

The buyer/transferee is responsible for deducting TDS, not the seller. This means if your company purchases cryptocurrency worth ₹5 lakh from a vendor, you deduct ₹5,000 as TDS (1% of ₹5 lakh) before making the payment.

Reporting Requirement

All VDA transactions must be reported in the TDS return for the quarter in which the payment was made. The loss from one VDA cannot be set off against gains from another, and deductions are not available against VDA income. This makes accurate TDS deduction at source even more important, as the payee's final tax liability on VDA income is a flat 30% with no offset benefits.

TDS for E-Commerce Operators

If you run an e-commerce platform or sell through one, the TDS provisions under the new Act apply directly to your operations. The Income Tax Act 2025 consolidates the earlier Section 194-O into the new framework.

Who Deducts and How Much

The e-commerce operator (the platform facilitating the sale) must deduct TDS at 1% on the gross amount of goods or services sold through their platform. The deduction is made at the time of crediting the amount to the seller's account or at the time of actual payment, whichever is earlier.

Threshold and Applicability

The provision applies when aggregate payments to an e-commerce participant (seller) exceed ₹5 lakh in a financial year. Individual and HUF sellers whose aggregate gross sales through the platform do not exceed this limit are exempt. However, the e-commerce operator must still track cumulative payments to each seller throughout the year.

For sellers on platforms like Amazon, Flipkart, or Meesho, this means 1% of your gross sales value is deducted before settlement. You claim this TDS credit when filing your income tax return. Make sure your TDS credits reflected in Form 26AS match the actual deductions, as mismatches delay refund processing.

PAN-Aadhaar Linking: The 20% TDS Trap

This is the provision that hits businesses hardest when they are unaware of it. If a vendor's, consultant's, or contractor's PAN is not linked to their Aadhaar, that PAN becomes inoperative. And an inoperative PAN is treated the same as no PAN, which triggers TDS at 20%.

How It Works

Every non-salary TDS payment requires the deductor to verify the payee's PAN. If that PAN is inoperative (due to non-linking with Aadhaar), the deductor must apply TDS at 20% regardless of the standard rate. On a ₹1 lakh professional fee payment, this means deducting ₹20,000 instead of ₹10,000. The payee cannot claim a lower deduction certificate to override an inoperative PAN.

Verification Process

Before processing any payment, verify PAN-Aadhaar linking status through the Income Tax portal's PAN verification tool. A simple bulk upload feature allows verification of multiple PANs at once. Build this verification step into your vendor onboarding and annual vendor review process.

TDS Return Filing: Forms, Due Dates, and Process

Filing TDS returns correctly and on time is non-negotiable. Late filing attracts a fee of ₹200 per day. Incorrect filing triggers notice processing. Here is the complete filing schedule and form requirements under the new Act.

Quarterly Filing Schedule

Which Forms to File

• Form 24Q: TDS on salary. Filed quarterly by every employer who pays salary exceeding the basic exemption limit.
• Form 26Q: TDS on non-salary payments. Covers all other TDS deductions (rent, professional fees, contractors, interest, commissions).
• Form 27Q: TDS on payments to non-residents. Required when making payments to foreign entities subject to Indian TDS provisions.
• Form 27EQ: Tax Collected at Source (TCS). Filed by sellers who collect tax at source on specified transactions.

TDS Certificates

After filing returns, deductors must issue TDS certificates:

• Form 16: Annual TDS certificate for salary. Must be issued to employees by June 15 following the end of the financial year.
• Form 16A: Quarterly TDS certificate for non-salary payments. Must be issued within 15 days from the due date of filing the TDS return for that quarter.

Both forms are generated from the TRACES portal after your TDS return has been processed. Your bookkeeping team should track issuance deadlines for each certificate to avoid penalty triggers.

Penalties for TDS Non-Compliance

The Income Tax Act 2025 retains strict penalties for TDS non-compliance. The consequences escalate based on the nature of the default. Every business owner and finance team member should know these numbers by heart.

Old Act vs New Act: Key TDS Differences

The reorganization under the Income Tax Act 2025 is more than a section number shuffle. Here is a direct comparison of how TDS provisions differ between the two Acts.

How to Prepare Your Business for TDS Transition

The effective date is April 1, 2026. If your finance team processes the first payment of FY 2025-26 without updating your TDS workflows, you are already in non-compliance territory. Here is a practical preparation checklist.

Step 1: Map All TDS-Applicable Payments

Create a list of every payment type your business makes that attracts TDS: salaries, rent, professional fees, contractor payments, interest, commissions, and any VDA transactions. Map each to the new section reference under the Income Tax Act 2025. This becomes your internal TDS reference sheet for FY 2025-26.

Step 2: Update Software and Templates

Your accounting software (Tally, Zoho Books, QuickBooks), payroll software, and TDS return preparation tools must reference the new section numbers. Manually prepared challans and certificates need updated templates. Contact your software vendor before March 2026 to confirm the update timeline.

Step 3: Verify Vendor PAN-Aadhaar Status

Run a bulk PAN verification on all active vendors and consultants. Flag any with inoperative PANs. Notify affected vendors and request Aadhaar linking. For vendors who do not comply, budget for the 20% TDS rate in your payment processing.

Step 4: Collect Employee Tax Regime Declarations

Since the new regime is now default, employees who want old regime benefits must submit declarations before the first payroll. Issue a company-wide communication explaining the change and set a deadline for declaration submission.

Step 5: Schedule a Tax Audit Review

Have your CA firm or tax advisor review your current TDS processes against the new Act. They can identify specific gaps in your deduction, deposit, and filing workflows. This is not a luxury; it is insurance against the ₹200/day late filing fee and interest charges.

TDS Compliance Checklist for FY 2025-26

Pin this checklist to your finance team's workspace. Every item directly impacts your TDS compliance under the Income Tax Act 2025.

1. Update TDS rate reference: Replace old Section 194 series references with new Act section numbers in all internal documents
2. Verify all vendor PANs: Confirm PAN-Aadhaar linking for every payee. Apply 20% rate for inoperative PANs
3. Check non-filer status: Use the Income Tax reporting portal's specified person lookup before large payments
4. Collect regime declarations: Get tax regime opt-in forms from all salaried employees before April 2026 payroll
5. Update payroll for ₹75,000 standard deduction: Adjust salary TDS computations for the revised deduction amount
6. Configure accounting software: Ensure TDS modules reference new section numbers for challans and certificates
7. Set quarterly filing reminders: Mark July 31, October 31, January 31, and May 31 for TDS return filing
8. Track monthly deposit dates: TDS deposited by 7th of the following month (30th April for March deductions)
9. Monitor VDA transactions: Deduct 1% TDS on all crypto/NFT purchases exceeding the threshold
10. Engage professional support: If your monthly TDS transactions exceed 50, consider outsourced accounting services to reduce error risk

Summary

The TDS framework under the Income Tax Act 2025 consolidates 37 fragmented sections into approximately 20, with Section 393 as the primary provision. Rates for most payment types remain unchanged, but the structural reorganization reduces compliance complexity. The higher rent threshold (₹2,40,000), increased standard deduction (₹75,000), default new tax regime, and higher TDS for non-filers are the provisions that require immediate action from businesses. Every company processing TDS must update its software, verify vendor PAN-Aadhaar status, and collect employee regime declarations before April 1, 2026. Staying ahead of these changes is not just about avoiding penalties; it is about running a well-managed business that your vendors, employees, and tax authorities can trust.