TDS/TCS New Rules from May 1 2026 | Income Tax Act 2025 Guide

📢 Major Update: TDS/TCS Payment Rules Changed from May 1, 2026

Complete Guide to the Income Tax Act 2025 | New Codes | New Forms | Transition Rules

If you are about to deposit TDS for the month of April 2026, stop and read this carefully. The Income Tax Act, 2025 has replaced the old Income Tax Act, 1961 and completely changed the process of TDS/TCS payments.

Effective from May 1, 2026, taxpayers can no longer use old section references like 194C, 194J, or Assessment Year selection for new deductions.

1. The "Big 3" Changes You Must Know

No More Assessment Year (AY)

The concept of Assessment Year has been abolished under the Income Tax Act, 2025.

You must now select Tax Year 2026-27 for all payments related to income earned or paid after April 1, 2026.

Consolidated TDS Sections

  • Section 392: TDS on Salary (Earlier Section 192)
  • Section 393: TDS on all Non-Salary Payments such as Rent, Professional Fees, Contractors, Interest, Commission etc.
  • Section 394: TCS (Earlier Section 206C)

New Numeric Payment Codes

Instead of selecting old sections like 194C or 194J, users must select new numeric payment codes from dropdown menus while filing challans.

Example: Contractor payment to Individual/HUF now uses Code 1023 under Section 393.

2. How to Pay TDS Starting May 1, 2026

Practical Scenario

You paid a contractor ₹1,00,000 during April 2026 and now need to deposit TDS by May 7, 2026.

Step-by-Step Process

  • Step 1: Login to the Income Tax e-Filing Portal and open e-Pay Tax.
  • Step 2: Select “New Payment”.
  • Step 3: Select Tax Year 2026-27.
  • Step 4: Select Section 393 for non-salary payments.
  • Step 5: Select the appropriate Payment Code.
  • Code 1023 = Contractor (Individual/HUF)
  • Code 1024 = Contractor (Company)
  • Step 6: Enter tax amount and complete payment.
⚠️ Transition Warning: If you are depositing TDS deducted in March 2026 but paying it after May 1, 2026, you must still use the old Income Tax Act 1961 system with AY 2026-27 and old sections like 194C.

3. New TDS Rate Chart for Tax Year 2026-27

Nature of Payment Old Section New Section New Pay Code Rate (Indiv/HUF) Rate (Others)
Salary 192 392 1001 Slab Rate Slab Rate
Contractors 194C 393 1023 1% -
Contractors 194C 393 1024 - 2%
Professional Fees / Technical Services 194J 393 1026 2% / 10% 2% / 10%
Rent 194I 393 1025 10% 10%
Commission 194H 393 1060 5% 5%
Interest 194A 393 1022 10% 10%
Virtual Digital Assets 194S 393 1065 1% 1%
Purchase of Goods 194Q 393 1031 0.1% 0.1%

Note: Payment codes mentioned above are indicative examples based on the new coding structure. Always verify the exact description from the official portal dropdown before payment.

4. List of New TDS Forms

Old Form New Form
Form 16 Form 130
Form 16A Form 131
Form 24Q Form 138
Form 26Q Form 140
Form 26QB / 26QC Form 141

5. Practical Examples

Example A: Rent Payment

You pay office rent of ₹60,000 on May 5, 2026.

  • Applicable Law: Income Tax Act 2025
  • Section: 393
  • Payment Code: 1025
  • TDS Rate: 10%

Example B: Property Purchase from NRI

Under the new rules, buyers purchasing property from NRIs can deduct TDS using PAN only. TAN is no longer mandatory for this specific transaction.

Example C: Late Payment for March 2026

If March 2026 TDS is deposited late in May 2026, taxpayers must still use the old Income Tax Act 1961 system with old sections and AY 2026-27.

Frequently Asked Questions (FAQs)

Q1. I deducted TDS in March 2026 but I am paying it in May 2026. Which Act applies?

You must follow the old Income Tax Act, 1961 because the applicable law depends on the date of deduction and not the date of payment.

Q2. Is Assessment Year fully removed?

Yes. Under the Income Tax Act, 2025, Assessment Year has been replaced with Tax Year.

Q3. Can I still use Section 194C for April 2026 deductions?

No. Old section references will trigger validation errors. You must use Section 393 with the appropriate numeric payment code.

Q4. What are the new payment codes?

Examples include:

  • 1001 – Salary
  • 1023 – Contractor (Individual/HUF)
  • 1024 – Contractor (Company)
  • 1025 – Rent
  • 1026 – Professional Fees
  • 1031 – Purchase of Goods

Q5. What are the new TDS certificate forms?

  • Form 16 → Form 130
  • Form 16A → Form 131
  • Form 24Q → Form 138
  • Form 26Q → Form 140

Q6. Have TDS rates increased?

Mostly no. TDS rates remain largely unchanged under the new Act.

Q7. Is MACT interest now tax-free?

Yes. Interest received on Motor Accident Claims Tribunal compensation is now fully exempt from TDS.

Q8. Does manpower supply attract TDS?

Yes. Staffing and manpower supply services are explicitly covered under Section 393.