1. What is TDS and Why Does It Matter?
TDS stands for Tax Deducted at Source. It is the government's mechanism to collect income tax right at the point where income is generated — before the money even reaches your bank account.
Here is the simplest way to understand it: When your employer pays you a salary of ₹1,00,000, they don't actually transfer the full amount. They deduct a certain percentage as TDS and deposit it with the Income Tax Department on your behalf. You then get the remaining amount.
This same logic applies to many other payments — rent, professional fees, interest on FD, commission, freelance payments, and more. Whoever is making the payment is called the deductor. The person receiving the money is the deductee.
Why should you care about TDS in FY 2026-27 specifically?
Because the government passed a completely new Income Tax Act 2025, which replaced the old Income Tax Act 1961. The new act came into effect for Tax Year 2026-27 (Assessment Year 2027-28). This act did not change most TDS rates, but it completely renumbered all sections. Section 192 became 392. Section 194J became 393(1). And so on.
Who deducts TDS?
- Employers — TDS on salary every month
- Companies and firms — TDS on payments to contractors, professionals, landlords
- Banks — TDS on FD interest above ₹50,000 (senior citizens: ₹1 lakh)
- Individuals buying property — TDS on property purchase above ₹50 lakh
- E-commerce operators — TDS on payments to sellers on their platform
2. What Changed in FY 2026-27
The most significant change is the renumbering of the entire Income Tax Act under the new IT Act 2025. The government restructured the act to make it cleaner and easier to read. Every chapter, section, and sub-section has a new number.
2.1 Old Act vs New Act – The Big Picture
- Old Act: Income Tax Act, 1961 (with hundreds of amendments over 60+ years)
- New Act: Income Tax Act, 2025 (completely restructured, effective from Tax Year 2026-27)
2.2 What Changed in TDS Rates?
Surprisingly, very little changed in the actual rates. The government mostly kept the existing TDS rates and thresholds intact. Here are the notable updates for FY 2026-27:
- TDS on Salary (Section 392) — No fixed rate. Deducted as per applicable slab rates after considering deductions. Same as before.
- TDS on Commission/Brokerage for insurance agents (Section 393(1)) — 2% for individuals, 10% for others. Previously Section 194D had a different individual rate in some years.
- TDS on FD Interest for Senior Citizens — Threshold raised to ₹1,00,000 (from ₹50,000 in the previous year). This is a taxpayer-friendly change.
- TDS on Purchase of Goods (Section 393(1) / old 194Q) — Rate remains 0.1%, threshold ₹50 lakh.
- TDS on Virtual Digital Assets (crypto, NFTs) — 1% remains unchanged. Two sub-sections now — one for non-cash transfers (1037) and one for in-kind transfers (1038).
- New: TDS on Partner Payments (Section 393(3) / old 194T) — 10% on salary, remuneration, commission, bonus, and interest paid to partners of a firm. Threshold: ₹20,000.
- TCS on Luxury Goods — New sub-categories added under Section 394(1) for wrist watches, art, collectibles, yachts, sunglasses, handbags, shoes, sportswear, and home theatres. All at 1% above threshold.
2.3 What is the threshold for TDS on luxury goods in FY 2026-27?
The government has not explicitly stated the threshold in the rate chart for the luxury goods TCS, but Section 394(1) Table: Sl. No. 6.D(b) covers these items. The general interpretation is that TCS applies on individual sale consideration exceeding the notified threshold (likely ₹10 lakh per item based on accompanying CBDT circulars). Watch for the official threshold notification for each category.
3. Section 392 Explained – TDS on Salary
Section 392 of the new Income Tax Act 2025 governs TDS on salary. It replaces the old Section 192. The logic is exactly the same — your employer deducts tax every month based on your estimated annual income and applicable slab.
3.1 Who is covered under Section 392?
Three categories of employees are covered:
- Government employees (non-Union Govt.) — Return code 1001
- Private sector employees — Return code 1002
- Union Government employees — Return code 1003
Additionally, Section 392(7) covers payment of accumulated PF balance to an employee on exit (return code 1004). TDS applies if the PF tenure was less than 5 years.
3.2 How is TDS on salary calculated?
Your employer estimates your total annual income at the beginning of the year. They consider all allowances (HRA, LTA, special allowance), apply deductions you declare (Section 80C, HRA exemption, etc.), and arrive at your taxable income. They then apply the applicable slab rates to compute annual tax, and divide it into 12 equal monthly deductions.
Priya works at a tech company in Hyderabad. Her CTC is ₹15 lakh per year.
3.3 What if your income changes mid-year?
If you get a salary hike in October, your employer will recalculate the TDS for the remaining months (October to March) to make up for the shortfall. You won't be penalised as long as the correct total TDS has been deducted by March 31.
3.4 Can you reduce TDS on salary?
Yes. Submit Form 12BB to your employer at the beginning of the year with your investment declarations. Include HRA receipts, home loan interest certificate, LIC premium receipts, ELSS investments, and NPS contributions. The more valid deductions you declare, the lower your taxable income, and therefore the lower your monthly TDS.
4. Section 393 Explained – TDS on Non-Salary Payments
Section 393 of IT Act 2025 is the big one. It covers TDS on all non-salary payments made by businesses and companies. It replaces a whole range of old sections — 193, 194, 194A, 194C, 194D, 194H, 194I, 194IC, 194IA, 194J, 194K, and many more.
Section 393 has three sub-divisions:
- Section 393(1) — Domestic payments (the main one for most businesses)
- Section 393(2) — Foreign payments (payments to non-residents)
- Section 393(3) — Special payments (lotteries, online games, horse racing, cash withdrawals)
4.1 Key TDS rates under Section 393(1) – Domestic
Here are the most practically relevant categories:
| Nature of Payment | Old Section | New Section | Rate | Threshold |
|---|---|---|---|---|
| Commission / Brokerage (Insurance – Individual) | 194D | 393(1) [Sl. No. 1(I)] | 2% | ₹20,000 |
| Commission / Brokerage (Insurance – Others) | 194D | 393(1) [Sl. No. 1(I)] | 10% | ₹20,000 |
| Commission / Brokerage (Others) | 194H | 393(1) [Sl. No. 1(ii)] | 2% | ₹20,000 |
| Rent on Machinery | 194I(a) | 393(1) [Sl. No. 2(ii).D(a)] | 2% | ₹50,000/mo |
| Rent on Property | 194I(b) | 393(1) [Sl. No. 2(ii).D(b)] | 10% | ₹50,000/mo |
| Interest on Securities | 193 | 393(1) [Sl. No. 5(i)] | 10% | ₹10,000 |
| FD Interest (Senior Citizen) | 194A | 393(1) [Sl. No. 5(ii).D(a)] | 10% | ₹1,00,000 |
| FD Interest (Others – non-senior) | 194A | 393(1) [Sl. No. 5(ii).D(b)] | 10% | ₹50,000 |
| Interest (Other than Securities) | 194A | 393(1) [Sl. No. 5(iii)] | 10% | ₹10,000 |
| Contractor Payment (Individual/HUF) | 194C | 393(1) [Sl. No. 6(i).D(a)] | 1% | ₹30K or ₹1L aggregate |
| Contractor Payment (Others) | 194C | 393(1) [Sl. No. 6(i).D(b)] | 2% | ₹30K or ₹1L aggregate |
| Technical Services / Call Centre | 194J(a) | 393(1) [Sl. No. 6(iii).D(a)] | 2% | ₹50,000 |
| Professional Fees | 194J(b) | 393(1) [Sl. No. 6(iii).D(b)] | 10% | ₹50,000 |
| Director's Remuneration | 194J(b) | 393(1) [Sl. No. 6(iii).D(b)] | 10% | Nil |
| Dividends | 194 | 393(1) [Sl. No. 7] | 10% | ₹10,000 |
| Life Insurance Policy Payout | 194DA | 393(1) [Sl. No. 8(i)] | 2% | ₹1 lakh |
| Purchase of Goods | 194Q | 393(1) [Sl. No. 8(ii)] | 0.1% | ₹50 lakh |
| Mutual Fund Units | 194K | 393(1) [Sl. No. 4(i)] | 10% | ₹10,000 |
| Business Trust Income (Interest/Dividend/Rent) | 194LBA | 393(1) [Sl. No. 4(ii)] | 10% | – |
| Investment Fund Income | 194LBB | 393(1) [Sl. No. 4(iii)] | 10% | – |
| Securitisation Trust Income | 194LBC | 393(1) [Sl. No. 4(iv)] | 10% | – |
| Virtual Digital Assets (Crypto/NFT) | 194S | 393(1) [Sl. No. 8(vi)] | 1% | ₹10,000 |
| VDA – In-kind Transfer | 194SP | 393(1) [Sl. No. 8(vi)] | 1% | ₹10,000 |
| E-Commerce Sales | 194O | 393(1) [Sl. No. 8(v)] | 0.1% | ₹5 lakh (Ind/HUF) |
| Business Perquisites / Benefits | 194R | 393(1) [Sl. No. 8(iv)] | 10% | ₹20,000 |
| Property Acquisition Compensation | 194IA | 393(1) [Sl. No. 3(iii)] | 10% | ₹5 lakh |
| JDA Consideration Payment | 194IC | 393(1) [Sl. No. 3(ii)] | 10% | – |
4.2 Section 393(3) – Special Payments
These cover high-risk payments where TDS is deducted at source before the money is paid:
- Lotteries, crossword, card games, gambling — 30% (threshold: ₹10,000 per transaction)
- Online gaming winnings — 30% (no threshold — every ₹1 is taxable)
- Horse race winnings — 30% (threshold: ₹10,000)
- Cash withdrawals from bank — 2% above ₹1 crore (3 crore for co-operative societies)
- Partner payments (salary/interest/commission) — 10% above ₹20,000
5. Old vs New TDS Sections – Complete Mapping Table
Here is the complete mapping between old Income Tax Act 1961 sections and their equivalents in the new Income Tax Act 2025:
| Payment Type | Old Section (IT Act 1961) | New Section (IT Act 2025) | Rate |
|---|---|---|---|
| Salary (All employees) | 192 | 392 | Slab Rate |
| PF balance withdrawal | 192A | 392(7) | 10% |
| Interest on securities | 193 | 393(1) [Sl. No. 5(i)] | 10% |
| Dividends | 194 | 393(1) [Sl. No. 7] | 10% |
| FD Interest – Senior Citizen | 194A | 393(1) [Sl. No. 5(ii).D(a)] | 10% |
| FD Interest – Others | 194A | 393(1) [Sl. No. 5(ii).D(b)] | 10% |
| Other Interest (non-securities) | 194A | 393(1) [Sl. No. 5(iii)] | 10% |
| Lottery / gambling winnings | 194B | 393(3) [Sl. No. 1] | 30% |
| Online game winnings | 194BA | 393(3) [Sl. No. 2] | 30% |
| Horse race winnings | 194BB | 393(3) [Sl. No. 3] | 30% |
| Contractor – Individual/HUF | 194C | 393(1) [Sl. No. 6(i).D(a)] | 1% |
| Contractor – Others | 194C | 393(1) [Sl. No. 6(i).D(b)] | 2% |
| Insurance commission (Individual) | 194D | 393(1) [Sl. No. 1(I)] | 2% |
| Insurance commission (Others) | 194D | 393(1) [Sl. No. 1(I)] | 10% |
| Life insurance payout | 194DA | 393(1) [Sl. No. 8(i)] | 2% |
| NSS withdrawal (80CCA) | 194EE | 393(3) [Sl. No. 6] | 10% |
| Lottery ticket commission | 194G | 393(3) [Sl. No. 4] | 2% |
| Brokerage / Commission (Others) | 194H | 393(1) [Sl. No. 1(ii)] | 2% |
| Rent (machinery) | 194I(a) | 393(1) [Sl. No. 2(ii).D(a)] | 2% |
| Rent (property) | 194I(b) | 393(1) [Sl. No. 2(ii).D(b)] | 10% |
| Property acquisition (immovable) | 194IA | 393(1) [Sl. No. 3(iii)] | 10% |
| JDA consideration payment | 194IC | 393(1) [Sl. No. 3(ii)] | 10% |
| Technical services fees | 194J(a) | 393(1) [Sl. No. 6(iii).D(a)] | 2% |
| Professional fees | 194J(b) | 393(1) [Sl. No. 6(iii).D(b)] | 10% |
| Mutual fund income | 194K | 393(1) [Sl. No. 4(i)] | 10% |
| Business trust income | 194LBA | 393(1) [Sl. No. 4(ii)] | 10% |
| Investment fund income | 194LBB | 393(1) [Sl. No. 4(iii)] | 10% |
| Securitisation trust income | 194LBC | 393(1) [Sl. No. 4(iv)] | 10% |
| Cash withdrawals (co-op society) | 194N | 393(3) [Sl. No. 5.D(a)] | 2% |
| Cash withdrawals (others) | 194N | 393(3) [Sl. No. 5.D(b)] | 2% |
| E-commerce sales | 194O | 393(1) [Sl. No. 8(v)] | 0.1% |
| Senior citizen (bank handles TDS) | 194P | 393(1) [Sl. No. 8(iii)] | Slab Rate |
| Goods purchase above ₹50L | 194Q | 393(1) [Sl. No. 8(ii)] | 0.1% |
| Perquisites / business benefits | 194R | 393(1) [Sl. No. 8(iv)] | 10% |
| VDA / Crypto transfer | 194S | 393(1) [Sl. No. 8(vi)] | 1% |
| VDA in-kind transfer | 194SP (New) | 393(1) [Sl. No. 8(vi)] | 1% |
| Partner firm payments | 194T | 393(3) [Sl. No. 7] | 10% |
| TCS – various goods | 206C | 394(1) | 1–20% |
| No PAN penalty rate | 206AA | 397(2) | 20% or higher |
6. Practical Examples with Real Numbers
Example 1 — TDS on Rent (Section 393(1))
Scenario: Rahul's company pays ₹60,000 per month as rent to their landlord for office space in Bengaluru.
The company deposits ₹6,000 with the IT Department and gives the landlord a TDS certificate (Form 16A). The landlord then claims this ₹6,000 as credit when filing their ITR, so they don't pay this tax twice.
Example 2 — TDS on Professional Fees (Section 393(1))
Scenario: A startup pays a freelance CA ₹80,000 for auditing their books.
Note: If the same CA was hired only for technical work (like software implementation, not auditing), the rate would be 2% instead of 10% under the same Section 393(1).
Example 3 — TDS on FD Interest (Section 393(1))
Scenario: Sunita (age 45, not a senior citizen) has a fixed deposit of ₹8 lakh earning 7% annual interest.
If Sunita's total income is below ₹2.5 lakh, she can submit Form 15G to avoid TDS. The bank will not deduct any TDS on her FD interest in that case.
Example 4 — TDS on Crypto / VDA (Section 393(1))
Scenario: Arjun sells Bitcoin worth ₹5 lakh on a crypto exchange in India.
The ₹5,000 TDS is reflected in Arjun's Form 26AS and AIS. He can claim it as tax credit when filing his ITR. However, TDS is NOT the final tax on crypto — he still pays 30% tax on the profit separately.
Example 5 — TDS on Property Purchase (Section 393(1))
Scenario: Meera buys a flat in Hyderabad for ₹75 lakh from a builder.
Meera must file Form 26QB online and deposit ₹7,50,000 as TDS within 30 days of the end of the month in which the payment was made. The builder gets Form 16B as TDS certificate.
7. TCS Rate Chart FY 2026-27 (Section 394)
TCS (Tax Collected at Source) is the opposite of TDS — here the seller collects tax from the buyer at the time of sale, and deposits it with the government. Section 394(1) of IT Act 2025 covers TCS (replacing old Section 206C).
| Nature of Transaction | Old Section | New Section | TCS Rate |
|---|---|---|---|
| Sale of alcoholic liquor | 206C-A | 394(1) | 2% |
| Sale of tendu leaves | 206C-I | 394(1) | 2% |
| Sale of timber (forest lease) | 206C-B | 394(1) | 2% |
| Sale of scrap | 206C-E | 394(1) | 2% |
| Sale of coal / iron ore / lignite | 206C-J | 394(1) | 2% |
| Sale of motor vehicle (above threshold) | 206C-L | 394(1) | 1% |
| Sale of wrist watch (luxury) | 206C-MA (New) | 394(1) | 1% |
| Sale of art / antiques / paintings | 206C-MB (New) | 394(1) | 1% |
| Sale of yacht, helicopter, canoe | 206C-MD (New) | 394(1) | 1% |
| Sale of handbag / purse | 206C-MF (New) | 394(1) | 1% |
| Sale of shoes (luxury) | 206C-MG (New) | 394(1) | 1% |
| Sale of sportswear / golf kit / ski-wear | 206C-MH (New) | 394(1) | 1% |
| Sale of home theatre system | 206C-MI (New) | 394(1) | 1% |
| LRS remittance – education/medical | 206C-T | 394(1) | 2% |
| LRS remittance – all other purposes | 206C-Q | 394(1) | 20% |
| Overseas tour package (up to ₹10L) | 206C-O | 394(1) | 2% |
| Overseas tour package (above ₹10L) | 206C-O | 394(1) | 2% |
| Use of parking lot / toll / mine | 206C-F/G/H | 394(1) | 2% |
8. Common TDS Mistakes to Avoid
Not Deducting TDS on Rent Above ₹50K/Month
Many small businesses pay rent of ₹60,000–₹80,000 per month and forget to deduct 10% TDS. This makes the deductor liable for the TDS amount plus 1.5% interest per month and a penalty.
Using Old Section Numbers in Challans
For FY 2026-27, you must use new IT Act 2025 section references. Using "Section 194J" instead of "Section 393(1)" in your TDS return can cause mismatches in Form 26AS and lead to notices.
Not Filing Form 15G/15H
If your total income is below the basic exemption limit, submit Form 15G (under 60) or Form 15H (60+) to your bank at the start of the financial year. This prevents unnecessary TDS on FD interest.
Deducting TDS on Payments Below Threshold
If your contractor payment is ₹25,000 (below ₹30,000 threshold), don't deduct TDS. But check the aggregate — if the same contractor has received ₹85,000 across the year, TDS applies on ALL payments once ₹1 lakh aggregate is crossed.
Confusing Technical Services with Professional Services
Paying an IT company to maintain your website? That's technical services — 2% TDS. Paying a chartered accountant for audit? That's professional services — 10%. Getting this wrong means a notice from TRACES.
Late Deposit of TDS
TDS must be deposited by the 7th of the following month (30 April for March deductions). Late deposit attracts 1.5% per month interest plus ₹200/day late fee under Section 234E, up to the TDS amount.
8.1 What happens if you don't deduct TDS?
If you are required to deduct TDS and fail to do so, the Income Tax Department treats the entire payment as if TDS was payable but not collected. You — the deductor — become personally liable to pay that TDS amount, plus:
- Interest at 1% per month from the date TDS was deductible to the date of actual deduction
- Interest at 1.5% per month from deduction date to deposit date
- Penalty up to the amount of TDS not deducted under Section 271C
- Disallowance of 30% of expense in your tax computation (e.g., if you paid ₹5 lakh professional fees without TDS, ₹1.5 lakh won't be allowed as a deduction)
9. Frequently Asked Questions (FAQ)
What is the new section number for TDS on salary under IT Act 2025?
TDS on salary (previously Section 192 of IT Act 1961) is now covered under Section 392 of the new Income Tax Act 2025. The logic and process remain the same — your employer deducts TDS based on estimated annual income and slab rates. For PF withdrawal, the new section is 392(7).
Has the TDS rate on professional fees changed in FY 2026-27?
No. The rate remains 10% for professional fees (lawyers, doctors, CAs, consultants) and 2% for technical services (IT maintenance, call centres). The old Section 194J(a) and 194J(b) are both now merged under Section 393(1) but with separate table entries, and the rates haven't changed.
What is the TDS rate on rent if I pay ₹45,000 per month?
No TDS is required. The threshold is ₹50,000 per month. Since ₹45,000 is below this limit, neither you nor your landlord needs to worry about TDS on rent. TDS applies only when monthly rent exceeds ₹50,000. Even in that case, TDS rate is 10% for property rent (Section 393(1)).
I am a freelancer. Will my client deduct TDS from my payments?
Yes, if your client is a company, firm, or LLP (i.e., not an individual or HUF not covered under tax audit). They will deduct TDS at 10% if your total payment exceeds ₹50,000 in the year under Section 393(1). You can claim this TDS as credit in your ITR and get a refund if your total tax liability is lower.
What is Form 15G and Form 15H? Who should submit it?
Form 15G is for individuals below 60 years whose total income is below the basic exemption limit (₹2.5 lakh). Form 15H is for senior citizens (60+) whose estimated tax liability is nil. Both forms are self-declarations submitted to your bank to prevent TDS deduction on FD interest. Submit them at the beginning of April each year.
What happens if TDS is deducted but I don't owe that much tax?
You get a refund. When you file your ITR, the tax liability is calculated on your actual income. TDS already deducted is subtracted from this. If TDS > actual tax, the difference is refunded to your bank account, usually within 30–90 days after ITR processing. Make sure your bank account is pre-validated on the income tax portal.
What is the TDS rate on property purchase in FY 2026-27?
If you buy a property for more than ₹50 lakh, you must deduct 10% TDS from the payment made to the seller. This is under Section 393(1) of IT Act 2025 (old Section 194IA). You file it using Form 26QB on the income tax portal and deposit the TDS amount online. Sellers can then claim this as credit in their ITR.
What is Section 397(2) — No PAN TDS rule?
Section 397(2) of IT Act 2025 (old Section 206AA) says: if the deductee does not provide a valid PAN to the deductor, TDS must be deducted at the higher of: the applicable rate OR 20% (5% in some cases like goods purchase). This is a strong incentive to always provide your PAN to whoever is making payments to you.
Is TDS on crypto final tax?
No. The 1% TDS deducted on VDA (crypto/NFT) transfers under Section 393(1) is not the final tax. It is just a tax advance. You still need to pay 30% tax on your net crypto profits when filing ITR. The 1% TDS is credited against this liability. If your profits are lower, you can claim a refund of excess TDS.
What is the TDS rate on online game winnings?
Online game winnings (Dream11, MPL, Zupee, skill games, etc.) attract 30% TDS under Section 393(3) of IT Act 2025 (old Section 194BA). There is no minimum threshold — even ₹1 of winnings is subject to TDS. The platform deducts this before crediting winnings to your account. Losses cannot be offset against winnings for TDS purposes.
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10. Conclusion
The new Income Tax Act 2025 brought the most significant restructuring of India's tax law in six decades. For TDS, the practical impact is mostly about section number changes, not rate changes. The rates you knew — 10% on professional fees, 2% on contractor payments, 1% on crypto — are largely unchanged.
But the section number matters. When your CA files your TDS return (Form 26Q, 24Q), they must use the new IT Act 2025 references. When you issue Form 16A to a vendor, it should reflect the correct new section. Mismatches in Form 26AS and AIS can trigger scrutiny notices.
Here are the 5 most important TDS facts to remember for FY 2026-27:
- Section 192 → 392 (Salary TDS). Everything else flows into Section 393 or 394.
- Rent > ₹50K/month = 10% TDS (property), 2% TDS (machinery). No exceptions.
- Professional fees = 10% TDS. Technical services = 2% TDS. Know the difference.
- Online game winnings = 30% TDS. No threshold. Every rupee counts.
- No PAN = minimum 20% TDS. Always share your PAN with whoever is paying you.
Stay compliant, file your TDS returns on time, and make sure your deductees receive Form 16A/16B on schedule. If you are a deductee, track your TDS credits on Form 26AS and AIS on the income tax portal throughout the year — not just at ITR filing time.
Disclaimer: This article is for informational purposes only and is based on the TDS & TCS Rate Chart for Tax Year 2026-27 (IT Act 2025) updated as of May 21, 2026. Tax laws can change and individual circumstances vary. Please consult a qualified CA or tax advisor for personalised advice before making any financial or compliance decisions.