Transition of TDS/TCS Provisions from Income tax act 1961 Vs 2025
Table of Contents
Transition of TDS/TCS Provisions from the Income Tax Act, 1961 to the Income Tax Act, 2025: The New Era of Withholding Tax Compliance
Income-tax Act, 2025: A New Era for TDS/TCS Compliance and Withholding Tax Administration. The Income-tax Act, 2025 marks one of the most significant reforms in India’s withholding tax framework. While the tax rates applicable to most transactions remain largely unchanged, the architecture of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) has been completely redesigned to make compliance simpler, more digital, and less litigation-prone. The reforms introduced through Sections 392 to 395 represent a shift from a fragmented, section-based system to a consolidated, table-driven framework supported by technology, analytics, and automation.
Consolidation of Non-Resident TDS Provisions under Section 393(2)
One of the most important structural changes is the consolidation of multiple non-resident withholding provisions into a single framework under Section 393(2) . The following sections of the Income-tax Act, 1961 have now been integrated into one table Section 195, Section 196A, Section 196B, Section 196C and Section 196D. This significantly reduces complexity for taxpayers making payments to non-residents.
Key Mappings
Income from Mutual Funds and Specified Companies Earlier covered under Section 196A, income payable to non-residents from mutual funds and specified companies is now covered under Section 393(2), Table 2, Serial No. 10. The withholding tax rate of 20% continues unchanged.
Offshore Funds : Earlier governed by Section 196B, the new provisions retain
- 10% TDS on income from offshore funds
- 12.5% TDS on long-term capital gains
Global Depository Receipts (GDRs) : The provisions of Section 196C continue substantially unchanged:
- Interest and dividend income: 10%
- Long-term capital gains: 12.5%
Foreign Institutional Investors (FIIs) : Income of FIIs from securities continues to attract TDS at 20%, now appearing under Table 2.
Relief for Specified Funds : A notable benefit under the 2025 Act is the reduction of TDS from 20% to 10% in certain cases involving specified funds, providing welcome relief to foreign investors.
Section 195 Continues Through the “Rates in Force” Principle
Although Section 195 no longer exists as a standalone provision, its fundamental principle survives intact within Section 393(2). Tax is deductible at:
- The rate prescribed under the Income-tax Act, or
- The beneficial DTAA rate,
whichever is lower.
This ensures India’s treaty obligations remain fully protected and non-resident taxpayers continue to enjoy treaty benefits.
Major Compliance Relief for NRI Property Transactions
From October 2026, resident Individuals and HUFs purchasing immovable property from a non-resident seller will no longer be required to obtain a TAN. Instead:
- PAN can be used for tax deduction purposes.
- Compliance burden is significantly reduced.
- Property transactions become easier and faster.
This is one of the most practical taxpayer-friendly reforms under the new law.
Table 3: Payments to Any Person : Section 393(3) introduces a dedicated table for transactions where residential status is irrelevant. These provisions apply uniformly to both residents and non-residents.
Lottery and Gambling Winnings : Lottery, Crossword and Gambling Winnings. Earlier under Section 194B, these payments now appear in Table 3.
- TDS Rate: 30%
- Threshold: INR 10,000 per transaction. The high withholding rate continues as a revenue protection measure.
Online Gaming Winnings : The provisions earlier contained in Section 194BA continue. Important Features
- TDS Rate: 30%
- Based on net winnings
- Applicable on withdrawals and year-end balances
Unlike traditional lottery winnings, no simple monetary threshold exists.
Horse Race Winnings : The old Section 194BB framework has been retained.
Rate: 30%
Threshold: INR 10,000 per payout
Lottery Commission : The TDS provisions on commission paid to lottery distributors continue with:
- Rate: 2%
- Threshold: INR 20,000
Cash Withdrawals : The earlier Section 194N has been migrated into Table 3.
Thresholds
| Category | Threshold |
| Co-operative Society | ₹3 Crore |
| Others | ₹1 Crore |
Rate: 2%
National Savings Scheme Withdrawals : Earlier governed by Section 194EE, these provisions continue with a minor but meaningful change.
- Old Position : TDS applied when withdrawal was ₹2,500 or more.
- New Position : TDS applies only when withdrawal exceeds ₹2,500.
This provides small taxpayer relief while preserving the overall structure. Legal heirs continue to enjoy the existing exemption.
TDS on Partner Remuneration : One of the newer withholding provisions is TDS on partner payments. Tax is deductible on Salary, Bonus, Commission and Interest
paid by the firm to a partner. Threshold ₹20,000 aggregate annually
Rate : 10%
Important Clarification
Share of profit remains exempt. Only remuneration-type payments are subject to TDS.
Table 4: Consolidated “No Deduction” Provisions : Perhaps one of the most useful innovations in the 2025 Act is Table 4, which consolidates various TDS exemptions in one location. Earlier, exemptions were scattered across multiple provisos and explanations throughout the Act. Now they can be found in a single table.
- Relief for Small Taxpayers: No TDS applies in several situations: Small E-Commerce Sellers No deduction if annual turnover does not exceed ₹5 lakh, subject to prescribed conditions.
- Small Dividends: No deduction on dividend payments up to ₹10,000.
- Small VDA Transactions: Existing thresholds of ₹10,000 or ₹50,000 continue depending upon the category of taxpayer.
- Personal Purpose Payments: Payments made by individuals and HUFs for personal purposes continue to remain outside the TDS net.
- Financial Sector Exemptions: Several entities continue to benefit from non-deduction provisions: LIC, Banking companies, insurance companies, UTI, Certain co-operative institutions. These provisions substantially reduce unnecessary withholding in regulated sectors.
TCS Rationalization: The Move Towards a Standard 2%
The Income-tax Act, 2025 also seeks to simplify Tax Collection at Source (TCS). Revised TCS Structure
| Item | Old Rate | New Rate |
| Liquor | 1% | 2% |
| Scrap | 1% | 2% |
| Minerals | 1% | 2% |
| Tendu Leaves | 5% | 2% |
| Forest Produce | 2.5% | 2% |
The objective is straightforward: Reduce confusion, Standardize rates and Make compliance easier
Section 396: Tax Credit Mechanism : Section 396 preserves an important principle: TDS and TCS are merely collection mechanisms. They do not create a separate tax liability. Key Principles
- Deemed Income Concept : Tax deducted is treated as income received by the taxpayer.
- Full Credit Availability : The taxpayer receives full credit for tax deducted or collected.
- Matching Principle : Credit is allowed in the tax year in which the income is assessable.
TAN Framework under Section 397
The general requirement to obtain a TAN continues. However, strategic exemptions have been introduced. Key Exemptions NRI Property Transactions, PAN can now substitute TAN. And VDA Transactions. Specified persons deducting tax on crypto transactions may not need TAN. These exemptions reflect the government’s intention to reduce compliance burden for non-business taxpayers.
Consequences of Default Continue
Failure to Deduct tax, Collect tax and Deposit tax continues to result in “assessee-in-default” consequences. Interest Provisions :
| Default | Interest |
| Delay in deduction | 1% per month |
| Delay in deposit | 1.5% per month |
- However, relief remains available where Payee files a return, includes the income, and Pays the tax, appropriate accountant certification is furnished.
- Correction Statements: A Major Change : One of the most significant compliance changes relates to correction statements.
Earlier Correction window: 6 Years
- Now Correction window: 2 Years from the end of the Tax Year : This reform is intended to encourage real-time compliance and timely reconciliation.
- Businesses should immediately review old TDS corrections as the opportunity to revise historical mistakes will now be significantly shorter.
Digital Transformation Takes Centre Stage : The Income-tax Act, 2025 is heavily technology-driven. Automated Lower Deduction Certificates Manual intervention is significantly reduced. Certificate issuance is increasingly system-based and automated. Centralized Declaration Filing/ Investors can submit declarations through depositories, reducing duplication and paperwork.
CPC-TDS Integration: Enhanced centralized processing enables Better matching, faster reconciliation, and improved tax credit flow
Form 121: Replacement of Forms 15G and 15H :
The traditional Forms 15G and 15H are replaced by a single unified declaration:
- Form 121 : New Disclosures Required. Estimated total income, Details of previous declarations, Aggregate covered amounts, Previous ITR details and Acknowledgement numbers
- UIN-Based Tracking: Every declaration receives a Unique Identification Number (UIN). This enables Cross-verification, data analytics, and fraud detection. Form 121 is no longer merely a declaration—it becomes an actively monitored compliance document.
Form 128: The New Lower/Nil Deduction Certificate System
- Form 128 replaces the earlier Form 13 ecosystem. A single form can be used for lower TDS, nil TDS, lower TCS, and Nil TCS. Factors Considered by the Assessing Officer Before issuing the certificate, the officer may examine: Estimated tax liability, Four years’ compliance history, existing tax dues, advance tax paid, and TDS/TCS already suffered.
- Additional scrutiny is prescribed for charitable institutions, NPOs, exempt entities, and Fully Digital Design, Form 128 is Tax-year based, Portal native, technology enabled, and integrated with the withholding ecosystem.
Updated TDS Mapping Table under the Income-tax Act, 2025 (FY 2026-27)
The Income Tax Act, 2025 has consolidated multiple TDS provisions into Sections 392 and 393, replacing the scattered section-wise structure of the Income Tax Act, 1961. The table below provides a quick-reference guide for tax professionals, accountants, businesses, and ERP teams.
| Income-tax Act, 1961 | Nature of Payment | Income-tax Act, 2025 | Threshold Limit (FY 2026-27) | TDS Rate |
| 192 | Salary | Sec. 392(1)–(6) | As per salary computation | Income-tax slab rates |
| 192A | PF / EPF Withdrawal | Sec. 392(7) | INR 50,000 | 10% |
| 193 | Interest on Securities | Sec. 393(1) Table Sl. 5(i) | INR 10,000 | 10% |
| 194 | Dividend | Sec. 393(1) Table Sl. 7 | INR 10,000 (individuals) | 10% |
| 194A | Interest (Other than Securities) | Sec. 393(1) Table Sl. 5(ii)/(iii) | INR 1 lakh (senior citizens), INR 50,000 (others through banks), INR 10,000 (others) | 10% |
| 194B | Lottery / Crossword Winnings | Sec. 393(3) Table Sl. 1 | INR 10,000 per transaction | 30% |
| 194BB | Horse Race Winnings | Sec. 393(3) Table Sl. 3 | INR 10,000 per transaction | 30% |
| 194BA | Online Gaming Winnings | Sec. 393(3) Table Sl. 2 | Net winnings basis | 30% |
| 194C | Contractor Payments | Sec. 393(1) Table Sl. 6(i) | INR 30,000 single contract or INR 1,00,000 aggregate | 1% / 2% |
| 194D | Insurance Commission | Sec. 393(1) Table Sl. 1(i) | INR 20,000 | 2% / 10% (company) |
| 194DA | Life Insurance Proceeds | Sec. 393(1) Table Sl. 8(i) | INR 1,00,000 | 2% |
| 194E | Non-resident Sportsperson / Entertainer | Sec. 393(2) Table Sl. 1 | Nil | 20% |
| 194EE | NSS Withdrawal | Sec. 393(3) Table Sl. 6 | INR 2,500 | 10% |
| 194G | Lottery Commission | Sec. 393(3) Table Sl. 4 | INR 20,000 | 2% |
| 194H | Commission / Brokerage | Sec. 393(1) Table Sl. 1(ii) | INR 20,000 | 2% |
| 194I | Rent | Sec. 393(1) Table Sl. 2(ii) | INR 50,000 per month | 2% / 10% |
| 194IA | Transfer of Immovable Property | Sec. 393(1) Table Sl. 3(i) | INR 50 lakh | 1% |
| 194IB | Rent by Individual/HUF | Sec. 393(1) Table Sl. 2(i) | INR 50,000 per month | 2% |
| 194J | Professional / Technical Fees | Sec. 393(1) Table Sl. 6(iii) | INR 50,000 | 2% / 10% |
| 194K | Mutual Fund / Unit Income | Sec. 393(1) Table Sl. 4(i) | INR 10,000 | 10% |
| 194LA | Land Acquisition Compensation | Sec. 393(1) Table Sl. 3(iii) | INR 5,00,000 | 10% |
| 194LBA | Business Trust Income | Sec. 393(1) Table Sl. 4(ii) | Nil | 10% |
| 194LBB | Investment Fund Income | Sec. 393(1) Table Sl. 4(iii) | Nil | 10% |
| 194LBC | Securitisation Trust Income | Sec. 393(1) Table Sl. 4(iv) | Nil | 10% |
| 194M | Certain Payments by Individual/HUF | Sec. 393(1) Table Sl. 6(ii) | INR 50 lakh | 2% |
| 194N | Cash Withdrawals | Sec. 393(3) Table Sl. 5 | INR 1 crore / INR 3 crore | 2% |
| 194O | E-commerce Transactions | Sec. 393(1) Table Sl. 8(v) | INR 5 lakh (small sellers) | 0.1% |
| 194P | Specified Senior Citizens | Sec. 393(1) Table Sl. 8(iii) | As applicable | Rates in force |
| 194Q | Purchase of Goods | Sec. 393(1) Table Sl. 8(ii) | INR 50 lakh | 0.1% |
| 194R | Benefits / Perquisites | Sec. 393(1) Table Sl. 8(iv) | INR 20,000 | 10% |
| 194S | Virtual Digital Assets (Crypto) | Sec. 393(1) Table Sl. 8(vi) | INR 10,000 / INR 50,000 | 1% |
| 194T | Partner Remuneration / Interest | Sec. 393(3) Table Sl. 7 | INR 20,000 |
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