New Financial Year, New Rules: How the Income Tax Act 2025 Changes TDS Compliance from April 2026

Introduction

April 1, 2026 was not just the start of a new financial year - it was the beginning of an entirely new era for India's tax system.

The Income Tax Act, 1961, which governed every taxpayer and tax professional in India for over six decades, stood repealed on March 31, 2026. In its place, the Income Tax Act, 2025 came into force, bringing with it a completely restructured TDS (Tax Deducted at Source) framework.

For businesses, Chartered Accountants, payroll teams, and finance professionals, this transition is not optional. From April 1, 2026 onwards, all TDS deductions, filings, and certificates must follow the new rules - new section numbers, new form names, new return formats, and new payment codes.

If your TDS software or ERP system has not been updated to reflect these changes, your filings for Tax Year 2026-27 could trigger validation errors, reconciliation mismatches, and compliance penalties.

This blog breaks down every major TDS change from April 2026, explains exactly what it means for your business or practice, and shows you how updated TDS filing software can make this transition smooth and error-free.

What Is the Income Tax Act 2025 and Why Does It Matter for TDS?

The Income Tax Act, 2025 replaces the Income Tax Act, 1961, which had accumulated over 800 sections across 60+ years of amendments, making it notoriously difficult to navigate. The new Act contains just 536 sections and 16 schedules, restructured for clarity, logical flow, and easier compliance.

Importantly, the new Act does not introduce new taxes or change TDS rates. The objective is simplification - the same tax policy in a cleaner, more accessible format.

However, the structural changes are significant, especially for TDS compliance. Section numbers have changed entirely, form names are different, and the reporting mechanism has shifted from section-based to code-based references.

The golden rule to remember:

Payments or credits made on or before March 31, 2026 → governed by the Income Tax Act, 1961

Payments or credits made on or after April 1, 2026 → governed by the Income Tax Act, 2025

The Biggest TDS Change: From 60+ Sections to 3 Sections

Under the old Income Tax Act, 1961, TDS provisions ran from Section 192 to Section 194T - more than 60 separate sections, each covering a different type of payment, with its own thresholds, rates, and sub-clauses.

The Income Tax Act, 2025 has consolidated all of this into just three parent sections:

This is the most fundamental structural change. Instead of searching across dozens of individual sections, deductors now refer to a single Section 393, which organises all payment types in a tabular format with serial numbers and numeric codes (1001–1067).

For example, what was Section 194C (TDS on contractor payments) is now reported as Section 393(1) [Table: Sl. No. 6(i)] with payment code 1017 in TDS returns.

Old Section vs New Section: A Quick Reference Table

Here is a mapping of commonly used old TDS sections to their new equivalents under the Income Tax Act, 2025:

Note: Always verify specific code references from official CBDT notifications or your updated TDS software before filing.

New Form Names Under the Income Tax Rules, 2026

Along with new section numbers, the Income Tax Rules, 2026 have introduced completely new form names and numbers. Using old form names for Tax Year 2026-27 transactions will make your certificates and returns technically non-compliant.

Critical Point for Employers

If your HR or payroll team issues a document labelled Form 16 for Tax Year 2026-27 salaries, it is technically issuing a non-compliant certificate. The correct form is now Form 130. Employees relying on Form 16 for filing their own returns could face mismatches on the e-filing portal.

New Payment Code System: What Replaces Section Numbers in TDS Returns

Under the old system, TDS returns referenced section numbers like 194C, 194J, 194I, etc. Under the new system, TDS challans and return filings use numeric payment codes from 1001 to 1067, corresponding to specific table entries in Section 393.

Using an old section number (such as 194C or 194J) when filing a TDS return for a payment made on or after April 1, 2026 will trigger system-level validation errors at the time of filing. The deductor would then need to submit a correction statement, causing delays and compliance risk.

This is precisely why updated TDS software that maps old sections to new codes automatically is not a luxury - it is essential for error-free filing in FY 2026-27.

Key Substantive Changes Under the New TDS Rules

While TDS rates remain largely unchanged, several important substantive updates have come into effect from April 1, 2026:

1. Manpower Supply Now Explicitly Covered Under TDS

Earlier, there was genuine ambiguity about whether deploying contract workers or labour supply services constituted a "works contract" under Section 194C. That ambiguity is now resolved. The Income Tax Act, 2025 explicitly includes manpower supply services as "work" under the TDS provision equivalent to old Section 194C (now Section 393).

The applicable rates are:

• 1% where payment is made to a resident individual or HUF
• 2% for all other cases

If your business was not deducting TDS on worker deployment or manpower supply contracts, you must correct this from April 1, 2026 onwards.

2. MACT Interest Fully Exempt - No TDS Required

Interest awarded by the Motor Accident Claims Tribunal (MACT) to a natural person is now fully exempt from income tax. No TDS is to be deducted on such interest payments, and the earlier ₹50,000 ceiling no longer applies. Insurers and legal payors need to update their payment systems accordingly

3. CBDT Circulars Are Now Binding on All Deductors

Under Section 400(2) of the Income Tax Act, 2025, CBDT guidelines - including those on perquisites and virtual digital assets - now carry mandatory compliance weight for both tax authorities and deductors. The argument that "CBDT circulars are only advisory" no longer holds from April 1, 2026.

4. Age-Based Distinction for Seniors Streamlined

Under Section 393(6) of the new Act, the age-based distinction that previously allowed different TDS thresholds for senior citizens in some payment categories has been streamlined. Verify specific applicability with your tax advisor for relevant payment types.

5. Enhanced Disclosure Required in Tax Audit Reports

The new Form 26 (replacing old Form 3CD) requires a significantly more detailed TDS disclosure. Where the old Clause 34(b) required a simple Yes/No, the new equivalent under Clauses 49, 50, and 51 requires:

• Total number of TDS/TCS transactions reported in returns
• Total number of transactions not reported - as an exact count (not a Yes/No)
• Monetary amount attributable to unreported transactions

This means businesses need to build systematic transaction tracking from April 2026 itself, rather than attempting a year-end reconstruction at audit time.

The "Tax Year" Concept: Assessment Year Is Gone

The Income Tax Act, 2025 replaces the system of "Financial Year" and "Assessment Year" with a single unified concept: Tax Year.

• Old system: Income earned in FY 2025-26 was filed in Assessment Year (AY) 2026-27
• New system: Income earned in Tax Year 2026-27 is filed and assessed in Tax Year 2027-28

All software, returns, and documentation from April 2026 onwards must reference Tax Year, not Assessment Year, for transactions under the new Act.

What Happens to FY 2025-26 TDS Returns?(Important Transition Rule)

For transactions up to March 31, 2026 (i.e., Q4 of FY 2025-26), you must still file TDS returns under the old Income Tax Act, 1961 framework - using old section numbers and old form names (Form 24Q, Form 26Q, Form 16, etc.).

Do not use new form numbers or new section codes for Q4 FY 2025-26 returns. The governing law is determined by the date the payment or credit occurred, not the date of filing.

Also remember: TDS deducted for the month of March 2026 must be deposited by April 30, 2026 (for non-government deductors).

How Form 141 Simplifies PAN-Based TDS Filing

The Income Tax Act, 2025 consolidates four separate PAN-based TDS forms (26QB, 26QC, 26QD, 26QE) into a single form: Form 141, exclusively for Tax Year 2026-27 onwards.

Form 141 covers TDS under Section 393(1) for:

• Transfer of immovable property
• Rent payments by individuals/HUF
• Payments to contractors/professionals by individuals/HUF
• Virtual Digital Asset transactions

A single form with different schedules replaces four separate forms - a genuine compliance simplification.

Transition Period: Running Two Acts Simultaneously

The Income Tax Department has clarified that the e-filing portal will support both Acts simultaneously during the transition period:

• AIS for AY 2026-27 - covers FY 2025-26 data under the old 1961 Act
• Form 168 - new equivalent of Form 26AS, covering Tax Year 2026-27 data under the new 2025 Act

Deductors should be careful that mismatches can arise if old section numbers are quoted for post-April 2026 transactions, or if the wrong AY/TY is selected on the challan.

Why Your TDS Software Needs Immediate Updating

Updated TDS filing software handles the entire transition automatically:

• Auto-mapping of old section numbers to new Section 393 codes
• New form generation - Form 130, Form 131, Form 138, Form 140, Form 141
• Validation to ensure correct section codes for post-April 2026 transactions
• Tax Year referencing in all documentation and returns
• Transaction tracking to support the enhanced Form 26 tax audit disclosure requirements

CompuTds, CompuTax's dedicated TDS solution, has been fully updated for the Income Tax Act, 2025 and Tax Year 2026-27. From new section code mapping to Form 130 and Form 141 generation, CompuTds ensures your TDS filings remain accurate, compliant, and error-free - whether you are a business managing in-house TDS or a CA firm handling multiple clients.

Quick Action Checklist for TDS Compliance from April 2026

☐ Update your TDS software to support new Section 392/393/394 codes and payment codes (1001–1067)

☐ Stop using old section numbers (194C, 194J, 194I, etc.) for payments made on or after April 1, 2026

☐ Reissue payroll system configuration to reference Section 392(1) for salary TDS

☐ Ensure Form 130 is issued instead of Form 16 for Tax Year 2026-27 salary TDS certificates

☐ Use Form 141 for PAN-based TDS transactions (property, rent, VDA, contractor/professional payments by individuals)

☐ File Q4 FY 2025-26 TDS returns under old Act using old section numbers and old form names

☐ Deposit March 2026 TDS by April 30, 2026 (non-government deductors)

☐ Start tracking unreported TDS transactions with exact counts for new Form 26 tax audit compliance

☐ Update investment declarations for Tax Year 2026-27 to reference new Act sections

☐ Review manpower supply contracts and begin deducting TDS where not previously done

Frequently Asked Questions

Q1. Have TDS rates changed from April 2026?

No. TDS rates under the Income Tax Act, 2025 remain the same as under the old Act. What has changed is the section numbering, form names, and reporting codes. However, certain TCS rates have changed - scrap, alcoholic liquor, LRS for education/medical, and overseas tour packages are now at 2%.

Q2. Can I still use Form 16 for FY 2025-26 (AY 2026-27) salary certificates??

Yes. For FY 2025-26, the old form numbers apply - including Form 16 for salary TDS certificates. The new Form 130 applies only for Tax Year 2026-27 (April 2026 onwards).

Q3. What happens if I file with old section numbers?

Using old section numbers (e.g., 194C, 194J) for payments made on or after April 1, 2026 will trigger system-level validation errors. You will need to file a correction statement to rectify the section reference.

Q4. Is Section 194LD still applicable?

No. Section 194LD (interest on certain bonds and government securities payable to FIIs/QFIs) has been deprecated and is not applicable after March 31, 2026.

Q5. What is Form 121?

Form 121 is the new equivalent of the old Forms 15G and 15H (now merged). It is used by taxpayers to declare that their income is below the taxable threshold and request nil/lower TDS deduction. The old Forms 15G and 15H are not valid for Tax Year 2026-27.

Q6. Can my existing TAN continue?

Yes. Tax Deduction Account Numbers (TAN) continue unchanged under the Income Tax Act, 2025. No new TAN is required.

Conclusion

The shift from the Income Tax Act, 1961 to the Income Tax Act, 2025 is the biggest structural change to India's tax system in over 60 years. For TDS compliance, the changes are immediate and operational - new section codes, new form names, new return formats, new payment codes, and new audit reporting requirements, all effective from April 1, 2026.

The good news is that TDS rates have not changed, and the transition is a simplification exercise, not a policy overhaul. With the right updated TDS filing software, your team can navigate this shift without errors or penalties.

Whether you are a business managing payroll and vendor payments, or a CA firm handling TDS compliance for multiple clients, staying ahead of these changes ensures your filings for Tax Year 2026-27 are accurate, compliant, and on time.

CompuTds is already updated and ready for Tax Year 2026-27. Explore how CompuTds helps your firm manage TDS compliance under the new Income Tax Act, 2025 - from Section 393 mapping to automated Form 130 and Form 141 generation.

Disclaimer: This article is for informational purposes only and is based on the Income Tax Act, 2025, the Income Tax Rules, 2026, and official CBDT FAQs as of April 2026. Tax laws are subject to change. Please consult your Chartered Accountant or tax advisor for advice specific to your situation.