Your complete reference to Tax Deducted at Source — sections, rates, thresholds, and key changes brought in by the Income Tax Act 2025 for Tax Year 2026-27.
What is TDS (Tax Deducted at Source)?
Tax Deducted at Source (TDS) is a mechanism introduced under the Income Tax Act, 1961, by which the person making specified payments — such as salary, rent, interest, commission, or professional fees — is required to deduct a prescribed percentage of tax at the time of payment (or credit, whichever is earlier) and deposit it with the Central Government on behalf of the recipient.
In simple terms: instead of waiting for a taxpayer to pay their tax at the end of the year, the government collects the tax upfront at the source of income. TDS applies to both residents and non-residents, and covers a wide range of transactions across individuals, businesses, and institutions.
Who deducts TDS?
The “deductor” — typically an employer, business, or institution making the payment. They are responsible for deducting the correct amount and depositing it with the government within prescribed timelines.
Who receives TDS credit?
The “deductee” — the person receiving the payment. They can claim credit for TDS deducted against their final tax liability when filing their Income Tax Return, or claim a refund if excess TDS was deducted.
How is TDS reflected?
TDS is reflected in Form 26AS (Annual Tax Statement) and the Annual Information Statement (AIS), which can be accessed on the Income Tax e-filing portal using your PAN credentials.
Why TDS is Important
TDS serves multiple purposes for both the government and taxpayers. Understanding these helps clarify why compliance is non-negotiable.
Steady revenue for government
TDS ensures a continuous, predictable flow of tax revenue throughout the year rather than a lump-sum collection at year-end.
Wider tax net
It brings transactions into the formal financial system, reducing tax evasion and ensuring that income is captured even when taxpayers might not file returns voluntarily.
Advance payment of tax
For individuals, TDS means taxes are paid gradually throughout the year, reducing the burden of large advance tax payments or year-end lump-sum settlements.
Audit trail
Every TDS transaction creates a digital trail via TDS returns (Form 24Q, 26Q, 27Q, 27EQ), making it easier for the Income Tax Department to verify income and detect discrepancies.
Key Changes: Income Tax Act 2025 NEW
The Income Tax Act, 2025 (effective from Tax Year 2026-27) is a comprehensive recodification of the Income Tax Act, 1961. While the substantive tax law largely remains the same, the section numbering has been completely restructured. All TDS and TCS provisions have been renumbered under new sections. Practitioners must now use the new section references in their returns and challans.
Income Tax Act 1961
- TDS on salary: Section 192
- TDS on interest: Section 194A
- TDS on commission: Section 194H
- TDS on rent: Section 194I
- TDS on professional fees: Section 194J
- TDS on dividends: Section 194
- TDS on goods purchase: Section 194Q
- TCS provisions: Section 206C
Income Tax Act 2025
- TDS on salary: Section 392(7)
- TDS on interest: Section 393(1) [Sl. 5]
- TDS on commission: Section 393(1) [Sl. 1]
- TDS on rent: Section 393(1) [Sl. 2(ii)]
- TDS on professional fees: Section 393(1) [Sl. 6(iii)]
- TDS on dividends: Section 393(1) [Sl. 7]
- TDS on goods purchase: Section 393(1) [Sl. 8(ii)]
- TCS provisions: Section 394(1)
Important note on section mapping
The rates and thresholds remain largely unchanged under the IT Act 2025 — what has changed is the section numbering. The old sections (e.g. 194A, 194H, 194J) and their corresponding new sections (under 392, 393, 394) are both shown in the rate charts below to facilitate the transition for practitioners filing TDS returns for Tax Year 2026-27.
TDS Rate Chart — Domestic Transactions (Tax Year 2026-27)
The following rate chart covers TDS applicable on domestic payments under the Income Tax Act 2025, mapped from their old section numbers under the Income Tax Act 1961. Rates and thresholds are as updated on 08 April 2026.
| Return Code | Old Section (1961) | Nature of Payment | New Section (IT Act 2025) | Rate | Threshold (₹) |
|---|---|---|---|---|---|
| 1005 | 194D | Commission or brokerage — insurance | 393(1) [Sl. No. 1(I)] | 2% (Individual) 10% (Others) |
₹20,000 |
| 1006 | 194H | Commission or brokerage — others | 393(1) [Sl. No. 1(ii)] | 2% | ₹20,000 |
| 1008 | 194I(a) | Rent on machinery etc. — specified person | 393(1) [Sl. No. 2(ii).D(a)] | 2% | ₹50,000/month |
| 1009 | 194I(b) | Rent other than machinery etc. — specified person | 393(1) [Sl. No. 2(ii).D(b)] | 10% | ₹50,000/month |
| 1011 | 194IC | Payment under joint development agreements (Sec. 67(14)) | 393(1) [Sl. No. 3(ii)] | 10% | — |
| 1012 | 194IA | Compensation on acquisition of certain immovable property | 393(1) [Sl. No. 3(iii)] | 10% | ₹5 Lakh |
| 1033 | 194R | Benefit or perquisite arising from business / profession | 393(1) [Sl. No. 8(iv)] | 10% | ₹20,000 |
| Return Code | Old Section (1961) | Nature of Payment | New Section (IT Act 2025) | Rate | Threshold (₹) |
|---|---|---|---|---|---|
| 1019 | 193 | Interest on securities | 393(1) [Sl. No. 5(i)] | 10% | ₹10,000 |
| 1020 | 194A | Interest other than on securities — Senior citizens | 393(1) [Sl. No. 5(ii).D(a)] | 10% | ₹1,00,000 |
| 1021 | 194A | Interest other than on securities — Others | 393(1) [Sl. No. 5(ii).D(b)] | 10% | ₹50,000 |
| 1022 | 194A | Interest other than on securities (general) | 393(1) [Sl. No. 5(iii)] | 10% | ₹10,000 |
| 1013 | 194K | Income from units of specified Mutual Fund / Schedule VII | 393(1) [Sl. No. 4(i)] | 10% | ₹10,000 |
| 1014 | 194LBA | Interest from units of a business trust — resident unit holder | 393(1) [Sl. No. 4(ii)] | 10% | — |
| 1015 | 194LBA | Dividend from units of a business trust — resident unit holder | 393(1) [Sl. No. 4(ii)] | 10% | — |
| 1029 | 194 | Dividends (including preference shares) — Individual resident | 393(1) [Sl. No. 7] | 10% | ₹10,000 |
| Return Code | Old Section (1961) | Nature of Payment | New Section (IT Act 2025) | Rate | Threshold (₹) |
|---|---|---|---|---|---|
| 1023 | 194C | Contract payments — Individual/HUF contractor | 393(1) [Sl. No. 6(i).D(a)] | 1% (Individual) 2% (Others) |
₹30,000 (single) or ₹1,00,000 (aggregate) |
| 1024 | 194C | Contract payments — Non-Individual/HUF contractor | 393(1) [Sl. No. 6(i).D(b)] | 1% (Individual) 2% (Others) |
₹30,000 (single) or ₹1,00,000 (aggregate) |
| 1026 | 194J(a) | Fees for technical services; royalty (films); call centre operations | 393(1) [Sl. No. 6(iii).D(a)] | 2% | ₹50,000 |
| 1027 | 194J(b) | Fees for professional services; Sec. 26(2)(h) payments | 393(1) [Sl. No. 6(iii).D(b)] | 10% | ₹50,000 |
| 1028 | 194J(b) | Remuneration/fees/commission to a director (non-salary) | 393(1) [Sl. No. 6(iii).D(b)] | 10% | — |
| 1067 | 194T | Salary, remuneration, commission, bonus or interest to a partner of a firm | 393(3) [Sl. No. 7] | 10% | ₹20,000 |
| Return Code | Old Section (1961) | Nature of Payment | New Section (IT Act 2025) | Rate | Threshold (₹) |
|---|---|---|---|---|---|
| 1030 | 194DA | Life insurance policy payout (taxable portion only) | 393(1) [Sl. No. 8(i)] | 2% | ₹1 Lakh |
| 1031 | 194Q | Purchase of any goods | 393(1) [Sl. No. 8(ii)] | 0.1% | In excess of ₹50 Lakh |
| 1035 | 194O | E-commerce: sale of goods/services by participant via platform | 393(1) [Sl. No. 8(v)] | 0.1% | ₹5 Lakh (Individual/HUF) |
| 1037 | 194S | Transfer of virtual digital asset — non-Individual/HUF | 393(1) [Sl. No. 8(vi)] | 1% | ₹10,000 |
| 1038 | 194SP | Transfer of virtual digital asset (in kind or partly in kind) | 393(1) [Sl. No. 8(vi)] | 1% | ₹10,000 |
| 1064 | 194N | Cash withdrawal — deductee is a co-operative society | 393(3) [Sl. No. 5.D(a)] | 2% | ₹3 Crore |
| 1065 | 194N | Cash withdrawal — deductee is other than co-operative society | 393(3) [Sl. No. 5.D(b)] | 2% | ₹1 Crore |
| 1066 | 194EE | NSS (National Savings Scheme) withdrawal — Sec. 80CCA(2)(a) | 393(3) [Sl. No. 6] | 10% | ₹2,500 |
| Return Code | Old Section (1961) | Nature of Payment | New Section (IT Act 2025) | Rate | Threshold (₹) |
|---|---|---|---|---|---|
| 1058 | 194B | Winnings from lottery, crossword puzzle, card games, gambling/betting | 393(3) [Sl. No. 1] | 30% | ₹10,000 (per transaction) |
| 1059 | 194B | Same as above — consideration in kind; tax paid before release | 393(3) [Sl. No. 1] Note 2 | 30% | ₹10,000 (per transaction) |
| 1060 | 194BA | Winnings from online games | 393(3) [Sl. No. 2] | 30% | — |
| 1061 | 194BA | Online game winnings — in kind; tax paid before release | 393(3) [Sl. No. 2] Note 2 | 30% | ₹10,000 (per transaction) |
| 1062 | 194BB | Winnings from any horse race | 393(3) [Sl. No. 3] | 30% | ₹10,000 (per transaction) |
| 1063 | 194G | Commission/prize on lottery ticket sales | 393(3) [Sl. No. 4] | 2% | ₹20,000 |
TDS Rate Chart — Foreign / Non-Resident Transactions
The following rates apply to payments made to non-residents and foreign entities under Section 393(2) of the IT Act 2025 (old: Sections 194E, 194LB, 194LC, 194LD, 195, 196B, 196C, 196D and related provisions).
| Return Code | Old Section (1961) | Nature of Payment | New Section (IT Act 2025) | Rate |
|---|---|---|---|---|
| 1039 | 194E | Income referred to in section 211 (non-resident sportsmen/entertainers) | 393(2) [Sl. No.1] | 20% |
| 1040 | 194LC | Interest on foreign currency borrowings (infrastructure bonds: 01 Jul 2012 to 01 Jul 2023) | 393(2) [Sl. No. 2] | 5% |
| 1041 | 194LD | Interest on rupee-denominated bonds issued before 01 Jul 2023 | 393(2) [Sl. No. 3] | 5% |
| 1042 | 194LC | Interest on long-term bonds listed on IFSC exchange (issued 01 Apr 2020 – 01 Jul 2023) | 393(2) [Sl. No. 4.E(a)] | 4% |
| 1043 | 194LC | Interest on long-term bonds listed on IFSC exchange (issued on or after 01 Jul 2023) | 393(2) [Sl. No. 4.E(b)] | 9% |
| 1044 | 194LB | Interest from Infrastructure Debt Fund — non-resident | 393(2) [Sl. No. 5] | 5% |
| 1045 | 194LBA(a) | Distributed income from business trust — nature of interest (Sch V [Sl. No. 3.B(a)]) | 393(2) [Sl. No. 6.E(a)] | 5% |
| 1046 | 194LBA(b) | Distributed income from business trust — nature of dividend (Sch V [Sl. No. 3.B(b)]) | 393(2) [Sl. No. 6.E(b)] | 10% |
| 1047 | 194LBC | Distributed income from securitisation trust (Sch V [Sl. No. 4]) | 393(2) [Sl. No. 7] | 35% (NR Company) 30% (Other NR) |
| 1051 | 196B | Income in respect of units referred to in section 208 | 393(2) [Sl. No. 11] | 10% |
| 1052 | 196B | Long-term capital gains from units under section 208 | 393(2) [Sl. No. 12] | 12.5% |
| 1053 | 196C | Interest or dividends on bonds/GDRs (section 209) | 393(2) [Sl. No. 13] | 10% |
| 1054 | 196C | Long-term capital gains on bonds/GDRs (section 209) | 393(2) [Sl. No. 14] | 12.5% |
| 1055 | 196D | Income in respect of securities — section 210(1) | 393(2) [Sl. No. 15] | 20% |
| 1050 | 195 | Income from Mutual Fund units or specified company | 393(2) [Sl. No. 10] | 20% or agreement rate (lower) |
| 1057 | 195 | Any other interest or sum chargeable under the Act (not salary) | 393(2) [Sl. No. 17] | Average rate as applicable |
TCS Rate Chart — Tax Collected at Source (Tax Year 2026-27)
Tax Collected at Source (TCS) is the counterpart of TDS — here, the seller collects tax from the buyer at the time of sale and deposits it with the government. TCS is governed by Section 394(1) under the IT Act 2025 (old: Section 206C).
| Return Code | Old Section (1961) | Nature of Transaction | New Section (IT Act 2025) | Rate |
|---|---|---|---|---|
| 1068 | 206C-A | Sale of alcoholic liquor for human consumption | 394(1) [Sl. No. 1] | 2% |
| 1069 | 206C-I | Sale of tendu leaves | 394(1) [Sl. No. 2] | 2% |
| 1070 | 206C-B | Sale of timber obtained under a forest lease | 394(1) [Sl. No. 3] | 2% |
| 1071 | 206C-C | Sale of timber by any mode other than forest lease | 394(1) [Sl. No. 3] | 2% |
| 1072 | 206C-D | Sale of other forest produce (not timber or tendu leaves) | 394(1) [Sl. No. 3] | 2% |
| 1073 | 206C-E | Sale of scrap | 394(1) [Sl. No. 4] | 2% |
| 1074 | 206C-J | Sale of minerals — coal, lignite, or iron ore | 394(1) [Sl. No. 5] | 2% |
| 1075 | 206C-L | Sale of motor vehicle (above threshold) | 394(1) [Sl. No. 6.D(a)] | 1% |
| 1076–1085 | 206C-MA to MJ | Sale of luxury goods: wrist watches, antiques, collectibles, yacht/helicopter, sunglasses, handbags, shoes, sportswear, home theatre, polo horses | 394(1) [Sl. No. 6.D(b)] | 1% |
| 1086 | 206C-T | LRS remittance for education or medical treatment (above ₹10 lakh) | 394(1) [Sl. No. 7.D(a)] | 2% |
| 1087 | 206C-Q | LRS remittance for purposes other than education/medical (above ₹10 lakh) | 394(1) [Sl. No. 7.D(b)] | 20% |
| 1088 | 206C-O | Overseas tour programme package — up to ₹10,00,000 | 394(1) [Sl. No. 8.D(a)] | 2% |
| 1089 | 206C-O | Overseas tour programme package — above ₹10,00,000 | 394(1) [Sl. No. 8.D(b)] | 2% |
| 1090 | 206C-F | Use of parking lot for business | 394(1) [Sl. No. 9] | 2% |
| 1091 | 206C-G | Use of toll plaza for business | 394(1) [Sl. No. 9] | 2% |
| 1092 | 206C-H | Use of mine or quarry for business (excluding mineral oil) | 394(1) [Sl. No. 9] | 2% |
PAN Furnishing Rule & Higher TDS / TCS
Under Section 397(2) of the IT Act 2025 (old: Section 206AA for TDS / 206CC for TCS), every person entitled to receive a payment subject to TDS or TCS must furnish their valid PAN to the deductor/collector. Failure to do so results in tax being deducted or collected at a significantly higher rate.
TDS without PAN (Sec. 397(2) / 206AA)
- At the rate specified in the relevant provision, or
- At the rate or rates in force, or
- 5% where TDS applies to goods purchase [Sl. No. 8(ii)] or e-commerce [Sl. No. 8(v)], or
- 20% in any other case — whichever is higher
TCS without PAN (Sec. 397(2) / 206CC)
- At twice the rate specified in the relevant provision, or
- At the rate of 5% — whichever is higher
- Total TCS rate shall not exceed 20%
Always verify PAN before processing payments
- Ensure the PAN is valid and active — an invalid or deactivated PAN is treated the same as no PAN.
- Link PAN with Aadhaar if not already done, as unlinked PANs are treated as inoperative for TDS purposes.
- Deductors can verify PAN validity at incometax.gov.in before processing payments.
TDS Compliance — Key Obligations
For deductors (those who deduct TDS)
Obtain TAN (Tax Deduction Account Number)
Every deductor must have a valid TAN issued by the Income Tax Department. TAN is mandatory for all TDS/TCS transactions and must be quoted on challans and returns.
Deduct TDS at the correct rate and on time
TDS must be deducted at the time of payment or credit to the payee’s account, whichever is earlier. Apply the correct rate based on the nature of payment and residency status of the deductee.
Deposit TDS with the government
TDS deducted must be deposited by the 7th of the following month (for March: by 30 April). Use Challan ITNS 281 for TDS/TCS deposits via the IT portal or authorised bank.
File quarterly TDS returns
TDS returns must be filed quarterly: Q1 (April–June) by 31 July; Q2 (July–September) by 31 October; Q3 (October–December) by 31 January; Q4 (January–March) by 31 May. Forms: 24Q (salary), 26Q (domestic non-salary), 27Q (foreign), 27EQ (TCS).
Issue TDS certificates to deductees
Issue Form 16 (for salary) or Form 16A (for non-salary) to deductees within prescribed timelines after filing TDS returns. This allows deductees to claim TDS credit in their income tax returns.
Penalties for non-compliance
- Late deduction or non-deduction: Interest @ 1% per month from the date on which TDS was deductible to the actual deduction date.
- Late deposit after deduction: Interest @ 1.5% per month from the date of deduction to the date of actual deposit.
- Late filing of TDS return: Fee of ₹200 per day under Section 234E until the return is filed (subject to TDS amount limit).
- Incorrect filing: Penalty of ₹10,000 to ₹1,00,000 under Section 271H for furnishing incorrect information in TDS statements.
Common Questions on TDS
Can TDS be avoided or reduced?
Yes. A deductee with no taxable income can submit Form 15G (for non-senior-citizens) or Form 15H (for senior citizens) to the deductor to request NIL TDS deduction on interest income. These declarations are valid for one financial year and must be renewed annually. Note that submitting a false declaration attracts penalties.
What if excess TDS is deducted?
If more TDS is deducted than your actual tax liability, you can claim a refund by filing your Income Tax Return (ITR). The excess TDS credit visible in Form 26AS / AIS will be set off against your tax liability, and any surplus will be refunded by the Income Tax Department — typically along with interest under Section 244A.
What is the difference between TDS and advance tax?
TDS is deducted by the payer at the source of income and applies to specific categories of payment. Advance tax, on the other hand, is paid directly by the taxpayer in instalments during the financial year on all types of income — it applies when the estimated annual tax liability exceeds ₹10,000 and is not fully covered by TDS.
Is TDS applicable to individuals making payments?
Generally, individuals and HUFs are not required to deduct TDS on payments (other than salary to employees). However, individuals and HUFs whose accounts are subject to tax audit under Section 44AB of the Income Tax Act are required to deduct TDS on certain payments such as professional fees, rent, and contractual payments.
