The implementation of the new Income Tax Act, 2025, effective from 1 April 2026, represents a major reform of India’s direct tax system. The Act replaces the Income-tax Act, 1961 with the objective of simplifying tax laws, improving compliance, reducing litigation, and modernising tax administration.
One of the key focus areas under the new regime is the framework relating to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS), given their wide impact on businesses, employers, banks, professionals, e-commerce operators, and taxpayers.
Although the new Act significantly restructures and renumbers provisions, the overall TDS/TCS mechanism remains largely unchanged. Accordingly, the impact is expected to be more structural and procedural rather than substantive.
This article discusses the key changes introduced under the new law and also highlights areas where the TDS/TCS mechanism continues without major alteration.
1. Structural Overhaul of TDS/TCS Provisions
One of the biggest reforms under the new Act is the consolidation of scattered TDS provisions into a simplified framework.
Under the old Income-tax Act, 1961, TDS provisions were spread across numerous sections such as:
- Section 192 – Salary
- Section 194A – Interest
- Section 194C – Contractor Payments
- Section 194J – Professional Fees
- Section 194Q – Purchase of Goods
- Section 195 – Payments to Non-Residents and several others.
Under the new Act:
| Old Framework | New Framework |
| 60+ TDS sections | Primarily Sections 392 & 393 |
| Separate TCS provisions under Section 206C | Consolidated under Section 394 |
As per the new structure:
- Section 392 – TDS on Salary
- Section 393 – TDS on Non-Salary Payments
- Section 394 – TCS Provisions
This restructuring aims to reduce duplication and simplify navigation of the law for taxpayers and deductors.
2. Major Changes Introduced under the New Act
(A) Renumbering of TDS/TCS Sections
Perhaps the most immediate practical challenge for professionals and businesses will be adapting to the new section references.
Illustrative mapping:
| Old Section | Nature | New Reference |
| 192 | Salary TDS | Section 392 |
| 194C | Contractor Payments | Section 393 |
| 194J | Professional Fees | Section 393 |
| 195 | Non-Resident Payments | Section 393 |
| 206C | TCS | Section 394 |
ERP systems, accounting software, compliance tools, TDS utilities, and internal SOPs will require updating accordingly.
(B) Replacement of Traditional TDS/TCS Forms
The new law also renumbers and restructures several reporting forms.
Illustrative changes include:
| Existing Form | New Form |
| Form 16 | Form 130 |
| Form 16A | Form 131 |
| Form 24Q | Form 138 |
| Form 26Q | Form 140 |
| Form 27Q | Form 144 |
| Form 27EQ | Form 143 |
| Form 26AS | Form 168 |
| Form 15G / 15H | Form 121 |
The objective is standardisation and reduction of compliance complexity.
(C) Introduction of “Tax Year”
The concepts of:
Previous Year (PY)
Assessment Year (AY)
have been replaced with a single term — “Tax Year.”
This change is expected to reduce confusion, especially in TDS return filing, notices, and reporting.
(D) Higher Threshold Limits for TDS
Budget-driven rationalisation has increased TDS applicability thresholds for several transactions from FY 2025-26 onwards.
The Government’s objective is to:
- reduce unnecessary deductions,
- lower compliance burden,
- and improve ease of doing business.
This is particularly relevant for:
- interest payments,
- commission,
- professional fees,
- and small-value transactions.
(E) TDS/TCS Correction Window Reduced to 2 Years from 01 April 2026
In a significant compliance update, the Income Tax Department has reduced the time limit for filing TDS/TCS correction statements from 6 years to 2 years under Section 397(3)(f) of the Income-tax Act, 2025, effective from 01 April 2026. This means deductors and collectors must now rectify errors such as incorrect PAN, challan mismatches, wrong deduction amounts, or other filing inaccuracies within two years from the end of the relevant financial year. The change emphasizes the importance of timely reconciliation and accurate return filing to avoid penalties, notices, and delays in tax credit availability to deductees.
3. What Remains Unchanged?
Despite the extensive restructuring, several foundational aspects of TDS/TCS remain substantially unchanged.
(A) Core TDS/TCS Philosophy
The Government has clarified that the new Act is intended primarily as a simplification exercise and not a major policy overhaul.
Accordingly:
- TDS continues as a mechanism for advance tax collection,
- TCS continues for transaction reporting and tax tracking,
- compliance responsibility remains with deductors/collectors.
(B) Existing TDS Rates Largely Continue
In most cases:
- TDS rates,
- surcharge provisions,
- higher deduction for non-PAN cases,
- and residential status-based treatment
remain broadly similar unless separately amended through Finance Acts.
(C) Quarterly Return Filing System Continues
The quarterly filing structure for TDS/TCS returns continues under the new law.
Businesses must still comply with:
- quarterly statements,
- correction returns,
- challan reconciliation,
- PAN validation,
and certificate issuance timelines.
