Updated 3 November 2026. A plain-language guide for business owners and finance teams, not tax advice. Check the latest rules on the Income Tax Department portal and with your CA.
Short answer: for payments credited or paid on or after 1 April 2026, TDS is governed by the Income-tax Act 2025, not the 1961 Act. Salary TDS is now in section 392, almost all other TDS in section 393 and TCS in section 394. The familiar section numbers such as 194C, 194J and 194H, and form names such as 24Q, 26Q, Form 16 and 16A, have been replaced. If your accounting, payroll or ERP software still uses the old references, your TDS returns and certificates can fail validation.
What changed on 1 April 2026
- "Tax year" replaces previous year and assessment year. As ClearTax explains, the tax year matches the financial year, so FY 2026-27 is tax year 2026-27.
- TDS is consolidated. According to India Briefing, section 393 applies where the earlier of credit or payment falls on or after 1 April 2026. Earlier transactions stay under the 1961 Act.
- Tables and payment codes. Section 393 is organised as tables: 393(1) for payments to residents (rent, interest, contract and professional fees, commission and so on), 393(2) for payments to non-residents, and 393(3) for payments to any person (such as winnings and cash withdrawals). Each payment type has a table entry and a payment code.
- Rates mostly unchanged. India Briefing notes that rates and thresholds remain largely consistent with the old law for most payments. The structure and references are what changed.
Old vs new: the references your team uses every day
| Under the 1961 Act | Under the Income-tax Act 2025 |
|---|---|
| Section 192 (salary TDS) | Section 392 |
| Sections 194A, 194C, 194H, 194J, 194I and other non-salary TDS | Section 393 (table entry and payment code) |
| Section 206C (TCS) | Section 394 |
| Form 24Q (salary TDS return) | Form 138 |
| Form 26Q (non-salary TDS return) | Form 140 |
| Form 16 (salary TDS certificate) | Form 130 |
| Form 16A (non-salary TDS certificate) | Form 131 |
The form mapping above is as reported by ClearTax. Always confirm the exact form and payment code against the official utilities before filing.
Other changes finance teams should know
- New validation codes: ClearTax reports that FVU codes were reassigned, so a return filed with old section codes for tax year 2026-27 can be rejected.
- Manpower supply is now expressly treated as "work" for contract TDS, per ClearTax.
- Shorter correction window: correction statements can be filed only within two years from the end of the financial year in which the original statement was due, as reported by ClearTax.
- TCS rates: several TCS categories moved to a flat 2%, according to ClearTax. Check the categories you collect on.
What to update in your accounting, payroll and ERP software
- Vendor and ledger masters: replace the old section field (194C, 194J and so on) with the new section 393 table entry and payment code, while keeping old references for transactions before 1 April 2026.
- Date-based logic: the rule depends on the date of credit or payment, whichever is earlier. Your software needs to pick old or new law by date, not just by financial year label.
- Return exports: generate Form 138 and Form 140 data in the format the new utility accepts.
- Certificates: rename templates and numbering for Form 130 and Form 131 so you do not issue certificates under old form names.
- Labels and reports: show "tax year 2026-27" instead of "AY 2027-28" in reports, emails and vendor statements.
- Audit trail: track transactions where TDS was not deducted and why. Tax audit reporting under the new law asks for more detail, according to ClearTax.
If you use Tally or a similar package, update to the latest release and check each TDS nature-of-payment master. If you use a custom system, budget for the changes above. Our comparison of Tally vs custom billing software may help you decide which way to go.
Common mistakes to avoid
- Quoting 194C or 194J on vendor invoices or certificates for payments after 1 April 2026.
- Issuing "Form 16A" instead of Form 131 for tax year 2026-27.
- Treating manpower supply invoices as exempt from contract TDS.
- Waiting until the year-end return to fix masters, then correcting a full year of data.
How we can help
Nextinera builds and updates custom accounting, payroll and ERP software for Indian businesses, including TDS masters, date-based tax logic and return exports. Book a free call to review what your system needs.