Why TDS Compliance Matters for Your Business
Tax Deducted at Source (TDS) is one of the most pervasive compliance requirements for Indian businesses. As a business making certain payments, you're required to deduct tax at source and deposit it with the government — failing which, the payment itself may be disallowed as a business expense, on top of interest and penalties.
2026 adds a genuinely significant complication on top of the usual rate-and-threshold tracking: the entire familiar 194-series section numbering system was replaced starting this financial year. This guide covers both the current rates and thresholds, and what the renumbering actually means for how you reference and file TDS going forward.
Note: This is educational information, not tax advice. TDS rates, thresholds, and section references are revised periodically and the 2026 renumbering is still being adopted across compliance tools and filing systems — confirm your specific obligations with a qualified CA before relying on any rate or code referenced here.
Table of Contents
- The 2026 Renumbering: What Actually Changed
- Why This Matters Beyond Just Relearning Numbers
- Key TDS Categories for Businesses
- TDS Payment and Filing Deadlines
- Common TDS Mistakes and Consequences
- TDS on Payments to Non-Residents
- Lower / Nil TDS Deduction Certificate
- Building a TDS Register
- FAQ
- Conclusion
The 2026 Renumbering: What Actually Changed
From April 1, 2026 (FY 2026-27), the Income-tax Act, 2025 replaced the entire 194-series of TDS sections that most Indian business owners and accountants had memorized over years of practice:
| Old Structure | New Structure (FY 2026-27 onward) |
|---|---|
| Section 192 (salary) | Section 392 (salary) |
| 194-series (194C, 194H, 194I, 194J, 194Q, and others) for non-salary payments to residents | Section 393, using numbered payment codes (1001 through 1067) instead of separate lettered sections |
| TCS provisions | Section 394 |
Rather than a separate named section for each payment type, non-salary TDS on resident payments now runs through one section with a single rate table, referenced by payment code.
Why This Matters Beyond Just Relearning Numbers
This isn't just a cosmetic renumbering exercise. If your bookkeeping system, invoicing templates, or vendor communication still reference "Section 194C" or "Section 194J," those references are now technically outdated for payments made in FY 2026-27 onward — the compliance obligation itself hasn't changed, but the correct citation has. Two practical implications:
- Internal documentation and TDS registers built around the old section numbers need updating to reference the correct payment code under Section 393
- Software and filing tools are being updated at different speeds — confirm your accounting platform and any filing service you use has actually adopted the new codes, rather than assuming it has
Key TDS Categories for Businesses
The categories below reflect the payment types most relevant to Indian startups and SMEs — rates are current as of FY 2025-26/2026-27, but confirm the specific applicable payment code under Section 393 for your filing, since the reference number itself has changed even where the rate hasn't.
Payments to Contractors
Applies to: Payments to contractors for carrying out work — sub-contractors, service providers, logistics, printing, advertising
| Payee Type | TDS Rate |
|---|---|
| Individual / HUF | 1% |
| Company / Firm / LLP | 2% |
Threshold: Single payment exceeds ₹30,000 OR total payments in FY exceed ₹1,00,000
Professional / Technical Services
Applies to: Professionals, consultants, technical service providers — CA fees, legal fees, technical consultants, management consultants
| Service Type | TDS Rate |
|---|---|
| Technical services | 2% |
| Professional services | 10% |
| Royalty payments | 10% |
| Call center / other | 2% |
Threshold: ₹30,000 per year
Dividend
Rate: 10% where dividend exceeds ₹5,000 in FY
Interest (Other Than Bank)
Rate: 10% where interest exceeds ₹5,000 in FY (₹40,000 for banks)
Commission / Brokerage
Rate: 2% (reduced from 5%, effective October 2024) Threshold: ₹15,000 in FY
Rent
Applies to: Rent for land, building, equipment
| Asset Type | TDS Rate |
|---|---|
| Land / Building / Furniture | 10% |
| Equipment / Machinery | 2% |
Threshold: ₹2,40,000 per year — some recent reporting cites a higher ₹6 lakh threshold under specific rent provisions; confirm the current figure with a CA before relying on it
Purchase of Goods (by Buyer)
Applies to: Purchase of goods from a resident seller Rate: 0.1% Threshold: Payment exceeds ₹50 lakh in FY; only applies to buyers with turnover exceeding ₹10 crore
Lottery, Game Show, and Online Gaming Winnings
Rate: 30% flat, with no basic exemption applied — the full rate is deducted at source Note: Online gaming winnings (Section 194BA equivalent) apply this rate with no minimum threshold at all, reflecting continued tightening of TDS on the gaming sector
TDS Payment and Filing Deadlines
TDS Deposit (Challan 281):
- April to February: By 7th of the following month
- March deductions: By 30th April
Quarterly TDS Return (Form 26Q / 24Q):
- Q1 (Apr-Jun): 31st July
- Q2 (Jul-Sep): 31st October
- Q3 (Oct-Dec): 31st January
- Q4 (Jan-Mar): 31st May
Form 16A (TDS Certificate to vendor): Within 15 days of filing the quarterly return
Common TDS Mistakes and Consequences
| Mistake | Consequence |
|---|---|
| Wrong rate applied | Shortfall treated as undeposited TDS; 1.5%/month interest |
| Not deducting at all | Expense disallowed; interest + penalty equal to the TDS amount |
| Late deposit | 1.5% per month interest from due date |
| Late return filing | ₹200/day late fee (up to the TDS amount) |
| Non-filing of return | ₹10,000 – ₹1,00,000 penalty |
| Non-issuance of Form 16A | ₹100/day default |
| Citing an outdated section number | Not itself penalized directly, but signals a compliance process that hasn't been updated for FY 2026-27 — worth auditing alongside the rate and threshold review |
TDS on Payments to Non-Residents
For payments to non-residents (including US clients receiving services from India), TDS applies at rates determined by India's tax treaties (DTAA), under the section governing non-resident payments.
Key rates under DTAA (India-US, for example):
- Royalties: 15% (treaty) vs. 20% (domestic law) — the treaty rate applies
- Interest: 15%
- Business income: generally 0% if there's no Permanent Establishment
Always verify the applicable DTAA rate with a tax advisor before making payments to non-residents — treaty rates vary meaningfully by country, and applying the wrong one either over-withholds unnecessarily or under-withholds and creates a compliance gap.
Lower / Nil TDS Deduction Certificate
Vendors with low actual tax liability can apply for a lower/nil TDS certificate (Form 13) from the Income Tax Department. If granted, you deduct at the lower rate specified in the certificate instead of the standard rate.
Check the certificate's validity period carefully, and apply the reduced rate only if the vendor provides a currently valid certificate — an expired certificate doesn't authorize continued reduced deduction.
Building a TDS Register
Given the section renumbering adds a genuine layer of complexity on top of the usual rate-and-threshold tracking, a properly structured TDS register matters more in FY 2026-27 than in prior years. At minimum, it should track:
- Payee details and PAN verification status
- Payment code under the current Section 393 structure (not just the legacy section number, which may no longer be the correct citation)
- Amount, rate applied, and threshold check
- Deduction date, deposit date, and challan reference
- Form 16A issuance status
FAQ
From April 1, 2026 (FY 2026-27), the Income-tax Act, 2025 replaced the entire familiar 194-series of TDS sections. Salary TDS moved to Section 392, non-salary payments to residents were consolidated into a single Section 393 using numbered payment codes (1001 through 1067) instead of separate lettered sections, and TCS moved to Section 394.What actually changed with TDS sections in 2026?
The renumbering itself is structural, not a rate change — but rates and thresholds are also revised periodically through the Union Budget, independent of the section renumbering. For FY 2025-26, for example, Section 194H's rate on commission and brokerage was reduced from 5% to 2%, effective October 2024. Always confirm current rates against the specific payment code, not just the old familiar section number.Do the actual TDS rates and thresholds change along with the renumbering?
TDS should be deducted on the base amount excluding GST, per CBDT circular. The GST component itself is not subject to TDS.Should we deduct TDS on GST-inclusive or GST-exclusive amounts?
Deduct TDS at the higher of the applicable rate or 20%. Using incorrect PAN details can create compliance issues for both parties — always verify PAN before the first payment, not after.What happens if a vendor provides a PAN that doesn't match their name?
Yes — TDS applies at the time of payment or credit to the payee's account, whichever is earlier. Advances are taxable at the time the advance is made, not when the final invoice is settled.Is TDS required on advance payments?
Cross-reference your specific payment type against the current TDS rate chart published by the Income Tax Department or a reliable tax reference, since the old section-to-rate mapping most businesses memorized (194C, 194J, 194H) no longer maps directly to a section number the same way — it maps to a specific payment code under Section 393 instead.How do I find the new payment code for a TDS deduction I used to know by its old section number?
Conclusion
TDS compliance already demanded attention to rates, thresholds, timing, and documentation across multiple payment categories — the FY 2026-27 renumbering adds a genuine, one-time relearning cost on top of that, precisely because so much institutional knowledge was built around section numbers that no longer apply the same way. Businesses that update their TDS register and internal references now, rather than continuing to cite legacy section numbers out of habit, avoid a slow accumulation of outdated documentation that eventually creates real confusion during an audit or filing review.
If your TDS process needs a cleanup — updated for the current payment-code structure, not just the old familiar sections — get in touch and our team can audit your current position and establish a compliant ongoing process.