What Changed: Old Income Tax Act 1961 vs New Income Tax Act 2025

The Income Tax Act, 2025 is best described as a structural recodification rather than a sweeping policy overhaul on TDS. The core rates and thresholds on most payments remain largely unchanged. However, the legislative architecture has been completely rebuilt — and this makes compliance far more demanding during the transition period.

Under the old Act, TDS provisions were scattered across more than 25 different sections (192, 192A, 193, 194, 194A, 194B, and so on). Every professional had to memorise which section governed which payment. The new Act consolidates all of this into a structured, table-based approach within a handful of sections.

The Core Structural Change

Under the Income Tax Act 2025:

• Section 392 covers TDS on salary (replacing old Section 192) and premature EPF withdrawal (replacing old Section 192A)
• Section 393(1) covers all non-salary payments to resident taxpayers — consolidating 20+ old sections into a single structured table
• Section 393(2) covers payments to non-residents — replacing old Sections 194E, 194LC, 195, 196B, 196C, 196D, and others
• Section 393(3) covers special/miscellaneous payments (winnings, NSS, partner payments) — replacing old Sections 194B, 194BA, 194BB, 194EE, 194N, 194T
• Section 394 covers TCS (Tax Collected at Source), replacing old Section 206C

Additionally, the old section-based codes used in TDS returns (TRACES) have been replaced with new 4-digit payment codes (1001–1092). These codes are now the primary identifiers in Forms 138, 140, 143, and 144 — the new TDS return forms replacing the old Forms 24Q, 26Q, 27Q, and 27EQ.

📥 Download: TDS Rate Chart FY 2026-27 (Excel File)

Before diving into the section-wise analysis, you can download the complete TDS rate chart as an Excel file. The sheet covers all provisions under Sections 392, 393(1), 393(2), and 393(3) of the Income Tax Act 2025 — with old section cross-references, TRACES payment codes, threshold limits, and detailed remarks.

TDS Rates on Salary and EPF Under Section 392

The Income Tax Act 2025 places salary and provident fund TDS provisions together under a single Section 392. This replaces Sections 192 and 192A of the old Act. Every employer in India must update payroll configurations to reference Section 392 from April 2026 onwards.

Section 392(1): TDS on Salary

TDS on salary continues to be deducted at applicable slab rates on the employee’s estimated annual income. The basic exemption limit is now ₹4,00,000 under the new tax regime (as applicable for Tax Year 2026-27). Employers must obtain a fresh investment declaration from each employee referencing the provisions of the Income Tax Act, 2025 — for instance, deductions under old Section 80C now appear as Schedule XV read with Section 123 of the new Act.

TRACES Payment Codes for salary: 1001 (regular salary), 1002 (salary to government employee), 1003 (salary advance). The complete guide to salary TDS computation remains applicable with these updated references.

Section 392(7): TDS on EPF Premature Withdrawal

Premature or taxable withdrawals from the Employees’ Provident Fund attract TDS at 10% where the withdrawal exceeds ₹50,000. This replaces old Section 192A with TRACES code 1004. If the employee fails to furnish PAN, TDS rises to 20%.

Complete TDS Rates on Non-Salary Payments Under Section 393(1)

Section 393(1) is the most expansive TDS provision in the new Act. It consolidates the 20+ old TDS sections on resident payments into a single structured table. The rates, for the most part, mirror the existing framework — but specific changes on commissions, technical services, and individual rent payments deserve close attention.

External authority source: Income Tax Department official TDS rates page for section-wise verification.

TDS on Special and Miscellaneous Payments Under Section 393(3)

Section 393(3) of the Income Tax Act 2025 covers specific categories that do not fit neatly into the regular resident or non-resident payment framework. These include winnings from games and lotteries, cash withdrawals, NSS withdrawals, and a significant new provision — TDS on partner payments introduced by Finance Act 2024.

Section 393(3)[6]: New TDS on Partner Payments — Section 194T Equivalent

One of the most consequential new provisions, effective from 1 April 2025 (already applicable for FY 2025-26 under old Section 194T), requires partnership firms to deduct TDS at 10% on salary, remuneration, bonus, commission, and interest paid to partners exceeding ₹20,000 in a financial year. This provision is now codified under Section 393(3)[6] with TRACES code 1067.

For practical guidance on partnership TDS, also refer to our business compliance guide for firms registered under GST.

TDS on Payments to Non-Residents Under Section 393(2)

TDS on non-resident payments carries a fundamentally different logic from resident TDS. The rates are significantly higher — typically 20% or 30% plus surcharge and cess — reflecting the fact that non-residents have no other mechanism for tax collection in India. Additionally, Double Taxation Avoidance Agreement (DTAA) rates may apply where the treaty rate is lower than the statutory rate.

The Income Tax Department’s official DTAA listing should be consulted before applying treaty rates to non-resident TDS.

Key Threshold and Rate Changes Under the New Income Tax Act 2025

While the Income Tax Act 2025 is largely a structural recodification, several specific provisions have been updated. Here is a consolidated summary of the most significant changes that directly impact routine TDS compliance.

For a comprehensive understanding of how these changes interact with your annual return filing obligations, see the 15 proven income tax saving tips for FY 2025-26 on this site.

Surcharge, Cess, and PAN Non-Furnishing Rules Under the New Act

Knowing the base TDS rate is only half the equation. In many cases — particularly for high-income payees and non-residents — surcharge and cess must be added over and above the stated rate.

Health and Education Cess

A flat 4% Health and Education Cess is levied on the sum of TDS amount plus surcharge for all categories of taxpayers. This is already incorporated into your TDS computation automatically in most payroll and accounting software.

Surcharge on TDS

What Happens if PAN is Not Furnished?

Under Section 206AA of the Income Tax Act (continuing under the new Act), if the payee fails to furnish a valid PAN, TDS must be deducted at the higher of: (a) the prescribed rate under the applicable section, or (b) 20%. This applies to resident payees. For non-filers of Income Tax Returns, the additional provision under Section 206AB further mandates higher TDS — at twice the prescribed rate or 5%, whichever is higher.

Step-by-Step TDS Compliance Under the New Income Tax Act 2025

Transitioning to the new Act requires a structured approach across payroll, accounts payable, and tax operations. Follow these steps to ensure your organisation is compliant from 1 April 2026.

Step 1: Identify the Nature of Payment

Determine whether the payment is salary, contractor, professional, rent, interest, commission, purchase of goods, VDA, or any other specified category. Match it to the appropriate provision under Section 392 or 393 of the Income Tax Act 2025.

Step 2: Locate the Applicable Section and TRACES Code

Find the correct sub-section and table reference within Section 393, and identify the 4-digit TRACES payment code (1001–1092) for that payment type. These codes must now be entered in the TDS return forms — Forms 138, 140, 143, and 144 for FY 2026-27.

Step 3: Verify Threshold Limit

Check whether the payment amount — either on a single-payment basis or on aggregate-during-the-year basis — crosses the specified threshold. No TDS is required if the amount falls below the threshold.

Step 4: Calculate TDS with Surcharge and Cess

Apply the base TDS rate for the payee category (Individual/HUF vs Company/Firm). Add applicable surcharge based on the payee’s estimated income. Then add 4% Health and Education Cess on (TDS + surcharge). Deduct the resulting amount from the payment.

Step 5: Deposit TDS and File Returns

Deposit TDS to the government using the prescribed challan (Challan No. ITNS 280 / 281 as updated) by the 7th of the following month (or 30 April for March deductions). File quarterly TDS returns using the new forms within the prescribed due dates. Issue TDS certificates (Form 16A or equivalent) to payees within 15 days of the return due date.

For GST-registered businesses navigating parallel compliance obligations, see our guide to GST demand notices under Sections 73 and 74 for a comprehensive compliance perspective.

TDS Compliance Flowchart Under the Income Tax Act 2025

Penalties and Consequences for TDS Default Under the New Act

The Income Tax Act 2025 retains stringent penalties for TDS default. The consequences operate on multiple levels — interest charges, disallowance of business expenditure, penalty under specific sections, and in serious cases, prosecution. Every deductor must understand these consequences clearly.

Interest for Late Deduction and Late Deposit

1% per month (or part of month) from the date TDS was due to the date it was actually deducted. 1.5% per month from the date of deduction to the date of actual deposit. Both types of interest are compulsory and non-waivable.

Disallowance of Business Expenditure

Under Section 35(b) of the Income Tax Act 2025 (replacing old Section 40(a)(ia)), if TDS is not deducted or not deposited by the return filing due date, 30% of the payment made to a resident will be disallowed when computing business income. Consider this practical scenario:

Penalty Under Section 271C

A penalty equal to the amount of TDS that was not deducted may be levied by the Assessing Officer under Section 271C (equivalent provision in the new Act). This is in addition to interest.

Prosecution

Where TDS is deducted but not deposited within the prescribed time, prosecution under Section 276B (equivalent) may be initiated, carrying imprisonment of 3 months to 7 years along with a fine. Refer to Income Tax India’s official TDS compliance page for details on prosecution provisions and CBIC’s guidance on indirect tax compliance for broader perspective on statutory compliance obligations.

For investment-related TDS queries that intersect with portfolio decisions — particularly on dividends, mutual fund distributions, and REIT income — see our complete mutual fund investment guide for India.

Frequently Asked Questions: TDS Rates Under New Income Tax Act 2025

Conclusion: Preparing for TDS Compliance Under the New Income Tax Act 2025

The transition to the TDS rates under the new Income Tax Act 2025 is unlike any routine budget-year update. This is a structural overhaul requiring systematic changes across payroll systems, ERP platforms, TDS return software, vendor master data, and internal compliance workflows — all before the first payment of Tax Year 2026-27.

The good news is that most rates remain familiar. The discipline lies in mapping old section references to new ones, learning the 4-digit TRACES payment codes, transitioning to new return forms, and ensuring your team understands the specific provisions that have changed — particularly around commission/brokerage, individual rent, and the new partner payment TDS provision.

Use the free Excel TDS rate chart available above to equip your accounts team with a ready reference. Share it with your CA, payroll manager, and finance controller. And if you need professional assistance navigating the transition — from system mapping to compliance review — the team at ClearTax Advisors is available to help.