TDS Compliance in July 2026: Q1 Due Dates, New Forms, Penalties and the Complete Action Checklist
July 2026 is the first real test of TDS compliance under the Income-tax Act, 2025. Every deductor — employer, company, LLP, or individual subject to tax audit — must navigate two parallel obligations this month: deposit June 2026 TDS by 7 July and file the Q1 TDS return by 31 July using new form numbers that many accounting teams are still unfamiliar with.
The stakes have never been higher. Using old Form 24Q instead of the new Form 138 for salary TDS will trigger a validation error on TRACES. Citing Section 194C instead of the new Section 393 payment code will make the return defective. And a missed deposit generates interest from the date of deduction — not the due date — which means even a one-day delay costs more than most deductors realise. This complete guide to TDS compliance in July 2026 covers every deadline, every new form, the exact penalty structure, the 30% disallowance rule, and a section-by-section checklist so you file right the first time.
Why TDS Compliance in July 2026 Is Unlike Any Previous Year
Every July, deductors face the Q1 TDS return deadline. But TDS compliance in July 2026 carries a structural change that makes it qualitatively different from every previous year: this is the first Q1 return cycle governed entirely by the Income-tax Act, 2025, which replaced the Income-tax Act, 1961 for all income earned from 1 April 2026 onwards.
Under the new Act, every familiar TDS section number — 192 (salary), 194C (contractor), 194J (professional fees), 194I (rent), 194A (interest) — has been retired. All TDS provisions for non-salary payments are now consolidated under a single Section 393, organised in a tabular format with numeric payment codes 1001 to 1092. Salary TDS sits under Section 392. The quarterly TDS return forms have been renumbered. Even the concept of “Assessment Year” is abolished for Tax Year 2026-27 onwards — replaced by a single “Tax Year.”
The Department has issued an unambiguous warning: deductors who quote old section numbers (like 194C or 194J) for post-April 2026 transactions in the Q1 return will face system-level validation errors on TRACES and must file a correction statement — with the late fee clock still running. For finance teams that have not yet updated their ERP, payroll software, or TDS return preparation utility, July 31 is an immovable deadline with compounding consequences.
The Transition Split in the Same Month: A company may file two types of TDS returns in the same July period. If they have any arrear Q4 FY 2025-26 corrections to file, those use old Form 24Q and old section numbers (1961 Act). The Q1 Tax Year 2026-27 return uses new Form 138 and Section 392/393 codes (2025 Act). Mixing the two — filing Q1 TY 2026-27 on old Form 24Q — is the single most common error TRACES will flag in July 2026.
TDS Compliance Calendar — Every July 2026 Due Date
The following table gives every TDS and TCS deadline in July 2026 for non-government deductors. Government deductors using book-entry follow different rules — deposit is due on the same day of deduction.
| Due Date | Compliance Obligation | Form (New Act) | Who |
|---|---|---|---|
| 7 July 2026 | Deposit TDS on all June 2026 payments — salary, professional fees, contractor, rent, interest, commission | Challan — Act 2025 codes | All non-govt deductors |
| 7 July 2026 | Quarterly TDS deposit for deductors with AO-approved quarterly deposit scheme (April–June 2026 deductions) | Challan — Act 2025 codes | AO-approved deductors |
| 7 July 2026 | Upload Form 121 declarations (15G/15H equivalents) received in June 2026 | Form 121 (new Act) | Payers / deductors |
| 15 July 2026 | Issue Form 132 — non-salary TDS certificates for May 2026 deductions | Form 132 (replaces 16A) | Non-salary deductors |
| 30 July 2026 | Form 141 (challan-cum-statement) for property purchase, rent, VDA, specified individual/HUF payments in June 2026 (30-day window from month-end) | Form 141 (replaces 26QB/QC/QD/QE) | Specified individuals / HUFs / property buyers |
| 31 July 2026 | Q1 TDS return — salary (April–June 2026) | Form 138 (replaces 24Q) | All employers / salary deductors |
| 31 July 2026 | Q1 TDS return — domestic non-salary (April–June 2026) | Form 140 (replaces 26Q) | All non-salary deductors |
| 31 July 2026 | Q1 TDS return — non-resident payments (April–June 2026) | Form 144 (replaces 27Q) | Deductors making NRI / foreign company payments |
| 31 July 2026 | Q1 TCS return — Tax Collected at Source (April–June 2026) | Form 143 (replaces 27EQ) | All TCS collectors |
TDS Deposit by 7 July 2026 — Rules and the Interest Trap
The first obligation of TDS compliance in July 2026 falls on 7 July: all TDS and TCS deducted during June 2026 must be deposited into the Central Government’s account. This is a monthly obligation, separate from the quarterly return filing, and missing it triggers the most punishing element of TDS non-compliance — interest that runs from the date of deduction, not from 7 July.
How the Interest Trap Works
The interest rule under the Income-tax Act 2025 (Section 398(3) — equivalent to old Section 201(1A)) is identical to its predecessor but frequently misunderstood in practice:
- Failure to deduct: Interest at 1% per month from the date TDS was deductible to the date it was actually deducted.
- Failure to deposit after deduction: Interest at 1.5% per month from the date of deduction to the date of actual deposit.
The interest is computed in months, not days — and even a fraction of a month counts as a full month. This means a company that deducted salary TDS on 30 June 2026 and deposited it on 10 July (just three days after the 7 July deadline) will be charged 1.5% on the TDS amount for two complete months: June and July — even though the actual delay was only 3 days.
Real Scenario — Vijay Constructions, Pune: The payroll team deducted ₹4,50,000 in salary TDS during June 2026 and deposited it on 11 July due to a banking system delay. The deposit was 4 days late. Interest = ₹4,50,000 × 1.5% × 2 months (June deduction date to July deposit date) = ₹13,500. Had the team deposited by 7 July, this cost would have been zero. A four-day banking delay cost ₹13,500 in interest — plus the time spent on documentation and reconciliation for the interest payment.
Challan Selection Under the New Act
All TDS deposits for Tax Year 2026-27 (i.e., for payments made from 1 April 2026) must be made using the Income-tax Act 2025 challan codes. When accessing the income tax e-pay portal, select “Tax Year 2026-27” — not “AY 2026-27.” Selecting the wrong year causes the TDS credit to appear in the wrong year’s records, creating a mismatch in the deductee’s Form 168 (the new Act’s equivalent of Form 26AS/AIS).
Government Deductors — Same-Day Rule: Government deductors paying TDS through book entry (treasury challan) must deposit on the same day as deduction — there is no 7-day grace period. Only government deductors paying through regular banking challans get until the 7th of the following month. Confusing these two categories is a common error that leads to immediate default status for the government deductor.
New TDS Forms Under the Income-tax Act 2025 — Complete Mapping
The most operationally urgent change in TDS compliance in July 2026 is the introduction of entirely new TDS return form numbers under the Income-tax Rules, 2026. Every form a deductor has used for the past decade has been renumbered. The underlying logic and content remain largely the same — what has changed is the statutory reference, form name, and section citations within each return.
| Old Form (Act 1961) | New Form (Act 2025) | Coverage | Section Reference | Q1 Due Date |
|---|---|---|---|---|
| Form 24Q | Form 138 | Salary TDS return | Section 392 | 31 July 2026 |
| Form 26Q | Form 140 | Domestic non-salary TDS return | Section 393(1) | 31 July 2026 |
| Form 27Q | Form 144 | Non-resident / foreign company TDS | Section 393(2) | 31 July 2026 |
| Form 27EQ | Form 143 | TCS return (Tax Collected at Source) | Section 394 | 31 July 2026 (changed from 15 July) |
| Forms 26QB / 26QC / 26QD / 26QE | Form 141 | Challan-cum-statement: property, rent (individuals/HUF), VDA, specific payments | Section 393(1) | 30 days from month-end |
| Form 16 | Form 130 | Annual salary TDS certificate | Section 392 | 15 June (annual) |
| Form 16A | Form 131 | Non-salary TDS certificate (quarterly) | Section 393 | 15 days after Q return |
| Form 15G / 15H | Form 121 | Declaration for nil/lower TDS | Section 395 | 7th of following month (quarterly upload) |
| Form 13 (lower deduction) | Form 128 | Certificate for lower / nil deduction | Section 395 | As applicable |
| Form 15CA / 15CB | Form 145 / 146 | Foreign remittance reporting | Section 393(2) | At time of remittance |
Expert Insight — The TCS Return Due Date Has Changed: Under the old Act, the Form 27EQ (TCS return) was due on 15th of the month following the quarter-end. Under the new Act, Form 143 (the TCS return) follows the same schedule as TDS returns — 31 July for Q1. This change aligns TDS and TCS quarterly filing timelines. TCS collectors who are still setting reminders for 15 July for their TCS return are using the wrong date and will face a 16-day non-compliance window.
New Section Numbers: From the 194-Series to Sections 392 and 393
For deductors who have spent years citing Section 194C for contractor payments and Section 194J for professional fees, the transition to numeric payment codes under Section 393 of the Income-tax Act 2025 requires deliberate re-training. The rates themselves are largely unchanged — the structural change is in how those rates are referenced and reported.
How Section 393 Works
Section 393 replaces the entire 194-series for non-salary resident TDS. Instead of individual sections for each payment type, Section 393 presents all payment types in a single table — Schedule I to Section 393 — with serial numbers and 4-digit numeric payment codes (1001 to 1092). When filing Form 140 for Q1, the deductor cites the payment code rather than an old section number.
| Payment Type | Old Section (Act 1961) | New Reference (Act 2025) | Payment Code (Form 140) | Rate |
|---|---|---|---|---|
| Contractor payments (work contract) | 194C | Section 393(1) Table Sl. No. 6(i) | 1017 | 1% (Individual/HUF) / 2% (Others) |
| Professional/technical fees | 194J | Section 393(1) Table Sl. No. 7 | 1022 | 10% (professional) / 2% (technical) |
| Rent — plant/machinery/equipment | 194I(a) | Section 393(1) Table Sl. No. 8(a) | 1026 | 2% |
| Rent — land/building/furniture | 194I(b) | Section 393(1) Table Sl. No. 8(b) | 1027 | 10% |
| Interest (banks) | 194A | Section 393(1) Table Sl. No. 3 | 1009 | 10% |
| Commission / brokerage | 194H | Section 393(1) Table Sl. No. 6(ii) | 1018 | 2% (revised — from 5%) |
| Rent — individuals/HUF (>₹50K/month) | 194IB | Section 393(1) Table Sl. No. 9 | Form 141 (not 140) | 2% (reduced from 5%) |
| Salary | 192 | Section 392 | Form 138 | Slab rate |
Two Rate Changes Worth Noting from April 2026: Commission/brokerage TDS has been reduced from 5% to 2% under the new Act (payment code 1018 in Form 140). TDS on rent paid by individuals/HUFs above ₹50,000 per month has been reduced from 5% to 2% (now reported in Form 141, not Form 140). Deductors who have not updated their ERP or payroll system to reflect these rate changes will either over-deduct (causing deductee refund issues) or under-deduct (causing disallowance risk). Verify all vendor payment configurations before filing Q1.
Q1 TDS Return Filing by 31 July — Step-by-Step Process
The Q1 TDS return covers all TDS deductions from April 1 to June 30, 2026. Filing by 31 July 2026 is non-negotiable — the late fee clock starts from 1 August and does not pause for weekends or public holidays. Here is the exact process for TDS compliance in July 2026 on TRACES.
Step 1: Compile Deductee-Level Data
Gather for every deductee: PAN (verified on TRACES), amount paid or credited, TDS deducted, applicable payment code (not old section number), and the challan BSR code and serial number under which the tax was deposited. A single wrong PAN prevents that deductee from claiming their TDS credit in their Tax Year 2026-27 return — generating a notice for the deductee and a correction demand for you.
Step 2: Reconcile All Challans
Match every monthly challan (April, May, and June 2026) against the deductee data. The total TDS on challans must equal the total TDS in the return. Any gap — a challan paid but not linked, or a deduction not yet deposited — must be resolved before filing. The TRACES portal will reject returns with unmatched challans.
Step 3: Generate Form 138, 140, 143 or 144 Using Updated Software
Use a TRACES-approved FVU utility that has been updated for Tax Year 2026-27. The FVU codes have been reassigned under the new Act — older versions of the utility will generate returns that fail validation. Confirm with your software vendor that the Q1 TY 2026-27 update is installed and tested before filing.
Step 4: Upload and Validate on TRACES
Log in to the TRACES portal using your TAN credentials. Upload the Form 138 / 140 / 143 / 144 file. The portal will run validation checks for: correct form number, valid TAN, valid PAN for each deductee, matching challan amounts, and correct payment codes under Act 2025. Save the acknowledgement receipt after successful upload.
Step 5: Issue Certificates Within 15 Days
After the Q1 return is processed by TRACES (typically within a few working days), generate and issue Form 131 (non-salary TDS certificate, replacing Form 16A) to each deductee within 15 days of filing — i.e., by 15 August 2026. Certificates can only be generated through TRACES; self-generated versions are not valid.
Pro Tip — Bulk PAN Verification Before Q1 Filing: Run a bulk PAN verification of all deductees on TRACES at least two weeks before the 31 July deadline. TRACES provides a PAN verification utility that flags invalid, inactive, or unlinked PANs. Vendors with PAN linked to Aadhaar but not seeded in TRACES will show as valid on the portal but may still generate mismatches post-filing. Also verify that any vendor added in Q1 does not have an invalid PAN — if PAN is not available, TDS must be deducted at 20% (or 5% for goods/e-commerce transactions at relevant payment codes). More on TDS rates is available on the Income Tax Department’s official portal.
Free TDS Late Fee and Interest Calculator — July 2026
Enter the deducted TDS amount, the number of days the deposit or return has been delayed, and the type of default to see the exact financial cost of non-compliance. This calculator applies the rates under the Income-tax Act 2025 for Tax Year 2026-27.
Bookmark this page to use this free TDS penalty calculator for every quarterly deadline.
Penalties for TDS Non-Compliance in July 2026
Non-compliance with TDS compliance in July 2026 operates on four levels — interest, late filing fee, penalty, and prosecution. Understanding the full stack helps you prioritise remediation when multiple issues exist simultaneously.
| Default | Provision | Rate / Amount | Maximum |
|---|---|---|---|
| Failure to deduct TDS | Section 398(2) — Act 2025 | 1% per month from date deductible to date of deduction | No upper cap on interest |
| Failure to deposit TDS after deduction | Section 398(3) — Act 2025 | 1.5% per month from date of deduction to date of deposit | No upper cap on interest |
| Late TDS return filing (Q1) | Section 427 — Act 2025 (old: 234E) | ₹200 per day from due date to filing date | Cannot exceed TDS amount |
| Non-filing beyond 1 year | Sections 461/465 — Act 2025 (old: 271H) | ₹10,000 to ₹1,00,000 per default | ₹1,00,000 |
| Failure to issue TDS certificate | Old Act Section 272A(2)(g) [FY 2025-26 certs] | ₹500 per day for each day of default | Amount of tax deducted |
| Prosecution — non-deposit of deducted TDS | Section 476 — Act 2025 (old: 276B) | Imprisonment 3 months – 7 years + fine | — |
| 30% business expense disallowance | Section 35(b) — Act 2025 (old: 40(a)(ia)) | 30% of payment disallowed | 30% of gross payment |
The 30% Disallowance Rule Under Section 35(b) — A P&L Risk
Most deductors focus on interest and late fees when thinking about TDS penalties. What frequently goes unnoticed until the income-tax assessment is the 30% disallowance rule — the provision that turns a TDS compliance failure into a direct hit on business profitability.
Under Section 35(b) of the Income-tax Act 2025 (equivalent to the old Section 40(a)(ia) of the 1961 Act), if a business pays a resident any sum on which TDS is deductible but either fails to deduct TDS or fails to deposit the deducted TDS by the due date of filing the return, 30% of that payment will be disallowed while computing business income for Tax Year 2026-27.
Concrete Example — Section 35(b) in Action: Rakesh Enterprises pays ₹20 lakh in professional fees to a consulting firm during Q1 Tax Year 2026-27 (April–June 2026). TDS at 10% = ₹2 lakh should be deducted but isn't. During income-tax assessment, the AO disallows 30% of ₹20 lakh = ₹6 lakh from business income. At a 30% tax rate, this disallowance creates an additional tax liability of ₹1,80,000 — nine times the original TDS that should have been deducted. The deductee (consulting firm) still gets no relief — they still owe their own tax on ₹20 lakh. The deductor bears the full cost of both the disallowance and the TDS default interest.
The disallowance is reversed in the year the TDS is actually deposited — but the interest on the default period is not. This means a company that corrects its TDS default in Q2 or Q3 still carries the disallowance in Q1's computation until it is claimed in the subsequent year, creating a timing mismatch in advance tax computation that can lead to further interest under Section 234B and 234C. For more on how this interacts with business compliance, refer to our year-end tax compliance checklist.
TDS Certificates: Form 130, 131 and 132
TDS certificates are the evidence that a deductee uses to claim TDS credit in their own tax return. Under the Income-tax Act 2025, the familiar Form 16 and Form 16A have been replaced. Issuing the old-format certificates for Tax Year 2026-27 deductions is technically non-compliant.
Form 130 — Annual Salary TDS Certificate (Replaces Form 16)
Form 130 is issued to employees for the full Tax Year 2026-27 by 15 June 2027 (for salary paid during April 2026 – March 2027). Employers cannot generate Form 130 from their own systems — it must be downloaded from the TRACES portal after the Q4 Form 138 return is filed and processed. A self-generated Form 130-equivalent document has no legal standing.
Form 131 — Quarterly Non-Salary TDS Certificate (Replaces Form 16A)
Form 131 is issued to all non-salary deductees within 15 days of filing the quarterly TDS return. For Q1 (due 31 July 2026), Form 131 must be issued by 15 August 2026. It covers professional fees, rent, contractor payments, interest, and all other non-salary payments on which TDS was deducted during Q1.
Form 132 — Interim TDS Certificate
Form 132 is issued for specific taxes deducted under certain provisions of Section 393. For May 2026 deductions, Form 132 must be issued by 15 July 2026. It bridges the gap between monthly deductions and the quarterly certificate cycle and is particularly relevant for specialised payment categories.
Pro Tip — Do Not Issue "Form 16" for Tax Year 2026-27: Employers who issue a document titled "Form 16" for salary TDS deducted from April 2026 onwards are issuing a non-compliant certificate. Employees who submit this to their new employer or to a lender will face document verification issues because the new system expects Form 130. Brief your HR team and payroll service provider well before June 2027 to ensure the right certificate format is prepared and issued on time.
7 TDS Compliance Errors That Generate Notices — and How to Avoid Them
These are the errors that consistently appear in income-tax demand notices and TDS mismatch proceedings. Every one of them is avoidable with a structured compliance review before 31 July.
Error 1: Filing Q1 Return on Old Form 24Q or 26Q
This is the most operationally urgent error for July 2026. The Q1 Tax Year 2026-27 TDS return must be filed on Form 138 (salary) and Form 140 (non-salary). Uploading old Form 24Q or 26Q for Q1 TY 2026-27 will generate a validation rejection on TRACES, and the late fee clock continues to run until a valid return is submitted.
Error 2: Citing Old Section Numbers in Form 140
Inside Form 140, each payment row requires the payment code from the new Act (e.g., Code 1017 for contractor payments under Section 393). Entering "194C" — the old section number — will make the return defective. Many deductors who upgraded their software to run the new forms but forgot to update the section references inside the return will face this error.
Error 3: Wrong PAN for Deductee
A wrong PAN causes the TDS credit to not appear in the deductee's Form 168 (the new Act's AIS equivalent). The deductee gets a mismatch notice; the deductor gets a short-deduction notice. Always verify PAN through TRACES's bulk verification utility before filing. This single check eliminates the most frequent post-filing notice category.
Error 4: Challan BSR Code or Serial Number Mismatch
Every challan has a unique BSR (Basic Statistical Return) code, date, and serial number. If the BSR code entered in the return does not match the challan actually generated, the entire return fails validation. Double-check challan details in Form ITNS 281 receipts against what is entered in the TDS return preparation utility before upload.
Error 5: Computing Interest from the Due Date Instead of the Deduction Date
Interest for late TDS deposit runs from the date TDS was deducted — not from the 7th of the following month. Deductors who compute interest only from 8 July for a June deduction are understating their liability. The AO will recompute interest from the deduction date and raise a demand for the shortfall plus further interest.
Error 6: Selecting "AY 2026-27" on the Challan for April 2026 Deductions
All TDS deposits for Tax Year 2026-27 (income earned from April 2026) must select "Tax Year 2026-27" on the challan. Selecting "AY 2026-27" — the assessment year reference used under the old Act for FY 2025-26 — deposits the money against the wrong year's liability. Deductees will not see the credit in their Form 168 for Tax Year 2026-27.
Error 7: Not Deducting TDS on Manpower Supply Invoices
With effect from 1 April 2026, manpower supply services are explicitly covered under Section 393's contractor/work TDS provision (equivalent to old Section 194C). Some businesses had been treating manpower supply as a "pure service" under Section 194J (professional fees) and applying 10% TDS. The correct rate under Section 393 is 1% (individuals/HUF) or 2% (others). Conversely, businesses that had been deducting no TDS on manpower invoices because they were misclassifying them as non-taxable must now deduct and face retrospective interest from April 2026 if the Q1 return is filed without correcting this.
For a broader view of how TDS interacts with ITR filing and the AIS credit system, refer to our complete guide on AIS vs Form 26AS vs TIS for AY 2026-27 and the Section 192 salary TDS guide.
Your Complete July 2026 TDS Compliance Checklist
Use this as your firm's operating checklist for TDS compliance in July 2026. Each item maps to a concrete action before or on the stated deadline.
Before 7 July
- Compile June 2026 TDS computation across all payment categories: salary, contractor, professional fees, rent, interest, commission.
- Generate challan for June 2026 TDS and deposit using Tax Year 2026-27 (not AY 2026-27) on the e-pay portal.
- Upload Form 121 declarations (old 15G/15H equivalents) received in June 2026 by 7 July.
- Verify that all April and May 2026 TDS challans have already been deposited and accurately reflect on TRACES.
Before 15 July
- Generate and issue Form 132 certificates for non-salary TDS deducted in May 2026. Download from TRACES only — self-generated versions are invalid.
- Confirm that TRACES portal shows your TAN as active and in good standing with no pending defaults.
Before 31 July
- Run bulk PAN verification of all Q1 deductees on TRACES. Flag invalid or inactive PANs and deduct at 20% rate where PAN is not available or is invalid.
- Prepare deductee-level summary for Q1 (April–June 2026): PAN, payment code under Act 2025, amount paid, TDS deducted, challan details.
- Ensure TDS return preparation software is updated to the latest FVU for Tax Year 2026-27 with new section codes and payment codes 1001–1092.
- File Form 138 (salary TDS return) for Q1 TY 2026-27.
- File Form 140 (domestic non-salary TDS return) for Q1 TY 2026-27.
- File Form 144 (non-resident TDS return) if any NRI / foreign company payments were made in Q1.
- File Form 143 (TCS return) for Q1 TY 2026-27 if applicable.
- Save all TRACES acknowledgement receipts for each form filed.
After 31 July (by 15 August)
- Generate and issue Form 131 (non-salary TDS certificates) to all deductees for Q1 — within 15 days of filing the return.
- Verify that deductee credit appears in their Form 168 (new Act equivalent of AIS) on the income-tax portal. Any mismatch requires a correction statement within the 2-year window.
For any queries on penalty notices or TDS corrections, visit the official Income Tax Department portal and the CBIC official site for broader compliance guidance.
Key Takeaways
- 7 July: Deposit June 2026 TDS/TCS. Interest at 1.5%/month runs from the date of deduction — not from the 7th. Even a 3-day delay can trigger 2 months of interest.
- 31 July: Q1 TDS returns are due — use Form 138 (salary), Form 140 (non-salary), Form 144 (non-resident), Form 143 (TCS). Filing on old Form 24Q / 26Q will generate TRACES validation errors.
- Section 393 replaces the entire 194-series for non-salary TDS. All Form 140 entries must use numeric payment codes (1001–1092), not old section numbers like 194C or 194J.
- TCS return date changed: Form 143 (old Form 27EQ) is now due 31 July — not 15 July as under the old Act.
- Two rate reductions from April 2026: Commission/brokerage reduced from 5% to 2% (code 1018). Individual/HUF rent TDS reduced from 5% to 2% (Form 141).
- 30% disallowance under Section 35(b): Failing to deduct or deposit TDS disallows 30% of the underlying payment from business income — a direct P&L impact, not just a penalty.
- Form 130 (not Form 16) must be issued to employees for Tax Year 2026-27 salary. Can only be downloaded from TRACES after Form 138 is filed.
- 2-year correction window: TDS return corrections for Tax Year 2026-27 must be made within 2 years from end of the Tax Year. After that, TRACES rejects correction requests.
- Always select "Tax Year 2026-27" on challans for April 2026 onwards TDS deposits. Selecting "AY 2026-27" misallocates the payment to FY 2025-26 records.
Frequently Asked Questions
What is the TDS return due date for Q1 FY 2026-27?
The Q1 TDS return for Tax Year 2026-27 (April to June 2026) must be filed by 31 July 2026. Use Form 138 for salary, Form 140 for domestic non-salary, Form 144 for non-resident, and Form 143 for TCS.
What is the TDS deposit due date for June 2026?
TDS deducted during June 2026 must be deposited by 7 July 2026 for non-government deductors. Interest at 1.5% per month is charged from the date of deduction, not from 7 July, if the deposit is delayed.
What are the new TDS forms under the Income-tax Act 2025?
Form 138 replaces Form 24Q (salary TDS), Form 140 replaces Form 26Q (domestic non-salary), Form 144 replaces Form 27Q (non-resident), Form 143 replaces Form 27EQ (TCS), and Form 141 consolidates Forms 26QB/26QC/26QD/26QE (property/rent/VDA TDS). Using old form numbers for Q1 Tax Year 2026-27 returns generates validation errors on TRACES.
What is the penalty for late filing of the TDS return?
Under Section 427 of the Income-tax Act 2025, a late fee of ₹200 per day applies from the day after the due date until filing. The total fee cannot exceed the TDS amount. An additional penalty of ₹10,000 to ₹1,00,000 under Sections 461/465 applies if the return remains unfiled for more than one year.
What is the consequence of not deducting TDS on business payments?
Under Section 35(b) of the Income-tax Act 2025, 30% of the payment will be disallowed from business income. At a 30% tax rate, failing to deduct ₹20 lakh of professional fees (₹2 lakh TDS) triggers a ₹1.8 lakh additional tax liability — nine times the original TDS.
What old TDS section numbers should I use for April 2026 payments?
None. For all payments from 1 April 2026, use the numeric payment codes under Section 393 (e.g., Code 1017 for contractor payments, Code 1022 for professional fees). Using old section numbers like 194C or 194J in the Q1 return will make it defective.
Is TDS on rent reduced for Tax Year 2026-27?
Yes. TDS on rent paid by individuals/HUFs (previously Section 194IB) is reduced from 5% to 2% under the Income-tax Act 2025, effective 1 April 2026. This is now reported in Form 141 (not Form 140 or Form 138).
What happens if I use the wrong form for Q1 TDS return in July 2026?
Filing Q1 Tax Year 2026-27 TDS on old Form 24Q or Form 26Q will generate system-level validation errors on TRACES. The return will be treated as defective, the late fee clock continues running, and a fresh valid return must be filed on the correct new form.
Conclusion
July 2026 marks the first real test of whether India's deductors have truly migrated to the Income-tax Act 2025. TDS compliance in July 2026 is not merely about meeting the 31 July deadline — it is about using the right forms, the right section codes, the right challan year reference, and the right certificate format, all for the very first time in a system that does not tolerate legacy errors without a financial cost. Deposit June TDS by 7 July. File the Q1 return on Forms 138, 140, 143 and 144 — not the old forms. Cite payment codes, not old section numbers. Issue Form 131 within 15 days. Avoid the 30% disallowance by ensuring no TDS default reaches your income-tax assessment. The deductors who approach TDS compliance in July 2026 with discipline and updated systems will file cleanly and move on. Those who do not will be managing notices, correction statements, and interest demands through Q2 and beyond.
