TDS COMPLIANCE (BY DEDUCTOR & BY DEDUCTEE) 2025 & INCOME TAX RULE ,2026
A. OBLIGATION TO DEDUCT — TRANSITION
Q6.1 What is the fundamental rule for determining which Act governs TDS obligations during the transition?
Ans. The Act governing TDS depends on when the “earlier of the event of credit or payment” occurs. If the earlier event occurs on or before 31st March, 2026, the Incometax Act, 1961 will be applicable. However, if the earlier event occurs on or after 1st April, 2026, the provisions of the Income-tax Act, 2025 shall be applicable.
Example: Professional fees credited in March, 2026 in books. However, payment is made in April, 2026. In this situation, provisions of the Income-Tax Act, 1961 will be applicable and TDS must be deducted in March, 2026. Advance payment made in March, 2026. However, it is credited in books in April, 2026. In this situation, provisions of the Income-tax Act, 1961 will be applicable and TDS must be deducted in March, 2026.
Q6.2 If a deductor has an ongoing contract with monthly payments, how does the deductor handle the switch from the old Act to the new Act?
Ans. The deductor applies the old Act for all payments/credits up to and including 31st March, 2026, and will apply the new Act for payments/credits from 1st April, 2026 onwards. There is no need to amend the contract merely because the new Act is commencing on 1
st April, 2026. The deductor is required to apply the applicable TDS provision based on the date of credit or payment, whichever is earlier.
Example: M/s. XYZ Ltd. has a monthly housekeeping contract with M/s. ABC Cleaning Services. Payments for March 2026 (credited on 31.03.2026) → TDS obligation shall be under Section 194C of old Act. Payment for April 2026 (credited on 30.04.2026) → TDS obligations shall be under Section 393(1) [Table: Sl. No. 6(i)] of the new Act. Rates and thresholds remain the same under both the Acts.
Q6.3 Has there been any change in the rates of TDS under the new Act?
Ans. No. The TDS rates and monetary thresholds for all categories of payments have been retained as they are under the Income-tax Act, 1961. The consolidation of TDS provisions under Section 393 is a simplified tabular presentation and not a change in TDS rates or tax policy.
Q6.4 What happens if a deductor erroneously deducts TDS quoting the old Act section number for a payment made after 01.04.2026?
Ans. Although the substantive provisions—such as the applicable rate and threshold—remain unchanged, citing the old section number (for example, Section 194C instead of Section 393(1) [Table: Sl. No. 6(i)]) may lead to processing errors at the time of filing the TDS return. In such cases, the deductor may be required to submit a correction statement to rectify the section reference.
Q6.5 A company makes payment to a contractor on 28 March 2026. Which Act governs TDS in this situation?
Ans. The TDS provisions of the Income-tax Act, 1961 shall apply, since the triggering event—being the payment or credit of income, whichever is earlier—occurred prior to 1 April 2026. The commencement of the Income-tax Act, 2025 does not affect liabilities or obligations that arose under the 1961 Act in respect of tax years beginning before 1st April, 2026.
Q6.6 Interest income is credited in the account of payee on 31 March 2026 but paid in April 2026. Which Act will govern the TDS on such interest payments?
Ans. The TDS provisions of the Income-tax Act, 1961 shall apply, since the triggering event—being the payment or credit of income, whichever is earlier—occurred prior to 1 April 2026. The subsequent date of deposit of TDS or payment of interest does not alter the governing law once the triggering event has occurred.
Q6.7 Are tax deductors required to modify their ERP and payroll systems after commencement of Income Tax Act, 2025?
Ans. Yes. Systems are required to be updated to reflect new section numbering, terminology, and reporting requirements under the Income Tax Act, 2025.
B. DEPOSIT OF TDS — TIMELINES AND COMPLIANCE
Q6.8 What are the due dates for depositing TDS with the Government during the transition year i.e. FY 2026-27?
Ans. The due dates for depositing the TDS for non-government deductors remain the same under both the Acts. For the transition phase, the due dates for depositing TDS are tabulated as under:
The due dates for depositing the TDS for Government deductors remain the same under both the Acts. For the transition phase, the due dates for depositing TDS are tabulated as under:
For Challan-cum-TDS statement (Form 26QB /26QC /26QD/ 26QE under the old Act), the due date of depositing TDS is 30 days from end of month in which TDS was made. These due dates for depositing TDS remain same in the new Act.
Q6.9 If tax was deducted in March 2026 but the deposit is made in May 2026, will there be a late deposit consequence?
Ans. Yes. The due date for depositing the tax deducted in the month of March 2026 is 30th April, 2026. In this situation, the TDS is deposited in May 2026 and this delay will attract interest liability @ 1.5% per month from the date of deduction to the date of actual
payment.
C. TDS RETURNS AND STATEMENTS
Q6.10 Which TDS returns must be filed during the transition year, and under which Act?
Ans. During FY 2026-27, a deductor may need to file TDS returns under both the Acts:
Note: Correction statements for Q1–Q4 of FY 2025-26 (or earlier) must be filed under the framework of Income Tax Act, 1961.
Q6.11 What is the Challan-cum-TDS statement mechanism and how does it operate during the transition?
Ans. Under the old Act, certain specified transactions required the deductor to file a TDS-cum-Challan statement (Forms 26QB, 26QC, 26QD, and 26QE) instead of the regular quarterly TDS return. These apply to:
(i) Form 26QB — TDS on purchase of immovable property (Section 194-IA);
(ii) Form 26QC — TDS on rent by individual/HUF (Section 194-IB);
(iii) Form 26QD — TDS on payments by individuals/HUFs to contractors and professionals (Section 194M);
(iv) Form 26QE — TDS on transfer of virtual digital assets (Section 194S).
For transactions where the event of credit or payment occurred on or before 31st March, 2026, these Forms under the old Act continue to apply. For transactions where the event of credit or payment occurred on or after 1st April, 2026, the Challan-cum-TDS statement is required to be filed under the new Act. As per Income Tax Rules, 2026 a common form i.e. Form No. 141 can be used for any of the above four type of transactions.
Q6.12 Will the e-TDS/TCS return preparation utility (RPU) support both old and new formats?
Ans. Yes. The Government will ensure that the return preparation utilities and the TRACES portal support both old format returns (for periods up to March 2026) and new format returns (for periods from April 2026 onwards) during the transition period.
Q6.13 If a deductor discovers an error in a TDS return for Q3 of FY 2025-26 (October–December 2025), can a correction be filed after 01.04.2026?
Ans. Yes. Corrections to TDS returns for periods governed by the old Act can be filed even after the new Act has come into force. Such correction statements can be furnished within a period of two years from the end of the tax year in which the original statement was due.
Q6.14 Will revised or correction TDS returns for periods prior to 31.03.2026 be filed under the old or new Act?
Ans. Revised or correction TDS returns relating to periods governed by the Incometax Act, 1961 must continue to be filed under the old Act framework, even if such revision is made after 1st April, 2026. The form numbers and formats applicable to the old Act will apply for such corrections.
D. ISSUANCE OF TDS CERTIFICATES
Q6.15 What are the obligations of a tax deductor regarding issuance of TDS certificates during the transition year?
Ans. The obligations of TDS deductors to issue certificates during the transition phase, are tabulated as under:
Q6.16 If a deductor fails to issue Form 16A for Q4 of FY 2025-26 within the due date, which Act governs the penalty?
Ans. The penalty for failure to issue certificates for FY 2025-26 is governed by the Income-tax Act, 1961. Under Section 272A(2)(g) of the old Act, a penalty of Rs. 500 per day for the period of default can be levied. Since this relates to a compliance for a period covered by the old Act, the penalty provisions under the old Act shall apply.
E. ASSESSEE-IN-DEFAULT — DEDUCTOR’S LIABILITY
Q6.17 What happens if a deductor fails to deduct TDS on a payment or credit made before 31.03.2026?
Ans. The deductor is treated as an “assessee in default” under Section 201(1) of the old Act. The consequences include:
(i) Recovery of the TDS amount from the deductor;
(ii) Interest at 1% per month for failure to deduct (from date deductible to date of deduction) and 1.5% per month for failure to deposit (from date of deduction to date of actual payment);
(iii) Penalty under Section 271C of the old Act (equal to the amount of tax not deducted);
These proceedings can be initiated even after 01.04.2026 by virtue of Section 536(2)(c) and (d) of the Income Tax act, 2025.
Q6.18 Is there any change in the time-limits for passing an order deeming the deductor as assessee-in-default under the new Act?
Ans. No. The time-limit for passing an order deeming the deductor as assessee-indefault under the new Act remains same as provided in the old Act. Under Section 398(5) of the Income-tax Act, 2025, such order shall not be made after the later of:
(i) six years from the end of the tax year in which tax was deductible or collectible; or
(ii) two years from the end of the tax year in which the correction statement is delivered.
Q6.19 Where the deductor has not deducted the tax and If the deductee has paid tax directly on the income, is the deductor still liable?
Ans. Under Section 398(2) of the new Act (corresponding to the proviso to Section 201(1) of the old Act), the deductor shall not be deemed to be an assessee-in-default if the deductee has furnished a return of income, considered the amount on which tax was deductible while computing the income, and paid the tax due thereon subject to furnishing a certificate to this effect in the prescribed form (Form 26A). However, the deductor remains liable for interest for the period of delay. This provision is same under both the Acts.
Q6.20 If tax is not deducted or not deposited by the due date, what is the consequence for the deductor under the new Act?
Ans. There will be multiple consequences for not deducting the tax or not depositing the TDS by the due date. The deductor may be treated as an “assessee in default” which may lead to the recovery of the TDS amount along-with interest from the deductor. The deductor may also be liable for penalty in the cases of non-deduction of TDS and for prosecution proceedings in cases of deduction but non -deposition within due date. Besides above, as per Section 35(b) of the Income-tax Act, 2025 (corresponding to Section 40(a)(ia) of the old Act), 30% of any sum payable to a resident on which tax was deductible but not deducted or not deposited by the due date of filing the return, shall be disallowed while computing business income. Example: M/s. ABC Traders pays Rs. 5 lakhs as professional fees in Tax Year 2026-27 but does not deduct tax. In computing business income for TY 2026-27, Rs. 1.5 lakhs (30% of Rs. 5 lakhs) will be disallowed under Section 35(b).
Q6.21 What is the position for TCS compliance during the transition period?
Ans. The provisions relating to Tax Collected at Source (TCS) have been consolidated under Section 394 of the Income-tax Act, 2025. The same transition principles—such as the trigger for debit/receipt shall apply equally to TCS. Accordingly, for amounts debited or received on or before 31 March 2026 TCS provisions shall continue to be governed by the provisions of the erstwhile Act. Similarly, for amounts debited or received on or after 1 April 2026 TCS provisions shall be governed by Section 394 of the Income-tax Act, 2025.
F. TDS ON SALARY — SPECIFIC TRANSITION ISSUES
Q6.22 An employer pays salary for the month of March 2026 on 31 March 2026, and salary for the month of April 2026 on 30 April 2026. Considering the transition from the Income-tax Act, 1961 to the Income-tax Act, 2025, how should tax be deducted at source (TDS) on these salary payments?
Ans. Under the TDS provisions relating to salary, tax is required to be deducted at the time of payment. Thus, TDS on salary shall be governed by different Acts, based on the date of payment of salary, as explained below:
• Salary for March 2026 paid on 31 March 2026 will be governed by the Incometax Act, 1961, since the payment was made before the new Act came into force.
• Salary for April 2026 paid on 30 April 2026 will be governed by the Income-tax Act, 2025, as the payment was made on or after 1 April 2026.
Q6.23 How should employers handle TDS on salary during the transition from FY 2025-26 to Tax Year 2026-27?
Ans. Employers must handle salary TDS as follows:
(i) For salary pertaining to FY 2025-26 (paid up to March 2026): TDS obligations shall be in accordance to Section 192 of the old Act;
(ii) For salary pertaining to Tax Year 2026-27 (paid from April 2026 onwards):
TDS obligations shall be in accordance to Section 392(1) of the new Act;
(iii) The employer must reset the TDS computation from 1st April, 2026 for the new tax year, considering projected income, deductions, and tax regime for TY 2026-27.
Q6.24 If an employee submits an investment declaration for TY 2026-27, should it reference old Act or new Act provisions?
Ans. The investment declaration for Tax Year 2026-27 should reference the provisions of the Income-tax Act, 2025. For instance, deductions under Section 80C of the old Act will now be referenced as the Schedule XV read with section 123 of the Income Tax Act, 2025. The employer’s payroll system should be updated to reflect the new section numbering from April 2026.
G. CLAIMING TDS CREDIT
Q6.25 How will a deductee claim credit for tax deducted under the old Act in the return for AY 2026-27?
Ans. Tax deducted on income pertaining to FY 2025-26 will be reflected in Annual Information Statement (AIS) for AY 2026-27. The deductee will claim this credit in the return of income for AY 2026-27 filed under the old Act. The old section numbers will appear in AIS for the period up to March 2026.
Q6.26 If tax was deducted in March 2026 under the old Act but deposited by the deductor after 01.04.2026, will the deductee still get credit?
Ans. Yes. The TDS credit is linked to the year in which the income is assessable, not the date of TDS deposit. Even if the deductor deposits the TDS after 1st April 2026, the credit will be reflected against AY 2026-27 in AIS, provided the deductor correctly files the TDS return for Q4 of FY 2025-26.
Q6.27 How will TDS credit be handled where tax was deducted in both March 2026 (old Act) and April 2026 (new Act)?
Ans. The credits will be mapped to different assessment periods:
(i) Tax deducted in March 2026 → Credit in AY 2026-27 (covered by I.T. Act,1961);
(ii) Tax deducted in April 2026 → Credit in Tax Year 2026-27 (covered by I.T.Act, 2025).
The e-filing system and Annual Information Statement (AIS for AY 2026-27 and Form No. 168 for TY 2026-27) will automatically segregate the credits based on the TDS return filed by the deductor.
Q6.28 Will there be two separate AIS statements — one for AY 2026-27 and another for Tax Year 2026-27?
Ans. Yes. The Annual Information Statement will be generated separately for each assessment/tax year. The statement for AY 2026-27 will be in AIS and will reflect TDS/TCS along-with other information relating to FY 2025-26 under the old Act. However, the Annual Information Statement for Tax Year 2026-27 will be in Form No. 168 and will reflect information for FY 2026-27 under the new Act. Both the statements will be accessible on e-filing portal.
Q6.29 What should a deductee do if there is a mismatch between TDS claimed and AIS for the transition period?
Ans. During the transition, mismatches may arise due to the deductor quoting of section numbers corresponding to the old Act instead of quoting the sections of the new Act, or selecting the wrong AY/TY on the challan or in the TDS return. An early reconciliation is advisable at the end of the deductees. If there is a mismatch in TDS, the deductee should immediately inform the employer / deductor responsible for deducting tax. The employer / deductor needs to file a revised TDS return to rectify the mismatch.