TDS Rate Chart for FY 2025-26 / AY 2026-27 as Amended by Finance Act 2025
Published: July 2025 | Author: CMA Knowledge Team |
Introduction
Tax Deducted at Source (TDS) plays a fundamental role in India’s tax administration, ensuring that tax is collected at the origin of income. Instituted under the Income Tax Act, 1961, TDS provisions aim to reduce tax evasion by collecting tax at the time payments are made. Every year, the Finance Act revises TDS rates and thresholds to reflect economic realities, administrative priorities, and policy objectives.
For the Financial Year (FY) 2025-26 (Assessment Year 2026-27), the Finance Act 2025 introduced significant changes, effective from April 1, 2025. These include adjustments to existing TDS rates, introduction of new sections for evolving transactions such as digital assets and high-value goods procurement, and enhanced threshold limits for various categories of payments. This comprehensive guide delves into every aspect of the updated TDS regime, providing detailed rate charts, section-wise explanations, practical examples, compliance procedures, and authoritative references.
The objective of this article is to equip taxpayers, deductors, and tax professionals with an exhaustive resource on TDS provisions—empowering them to accurately apply rates, meet statutory obligations, and optimize cash flows.
What Is TDS and Why It Matters
Tax Deducted at Source (TDS) is a mechanism where tax is collected at the source of income, i.e., the payer deducts tax before disbursing the payment to the payee. Under Sections 192 to 206C of the Income Tax Act, various types of payments, including salaries, interest, rent, professional fees, dividends, and certain contractual and property transactions, are subject to TDS.
Importance of TDS:
- Efficient Revenue Collection: TDS ensures regular inflow of tax revenue to the exchequer, reducing reliance on end-of-year lump-sum collections.
- Wider Coverage: By mandating deduction at multiple touchpoints, TDS captures income streams that might otherwise escape scrutiny.
- Ease for Taxpayers: Taxpayers receive credit for taxes deducted at source, mitigating large tax outflows at the time of return filing.
- Deterrent Against Evasion: The anticipatory deduction of tax discourages underreporting of income.
Given its centrality, staying updated on TDS provisions is critical for both deductors (entities making payments) and deductees (recipients of income). Misapplication or non-compliance can lead to interest charges, penalties, and disallowance of expenses.
Key Amendments in Finance Act, 2025
The Finance Act, 2025 has introduced the following notable changes to TDS provisions:
| Section | Description | Effective Date | Key Impact |
|---|---|---|---|
| 194Q | TDS on purchase of goods by specified buyers | 1 April 2025 | 0.1% TDS when annual purchases exceed ₹50 lakh |
| 194S | TDS on virtual digital asset transactions | 1 July 2025 | 1% TDS on payments for cryptocurrencies, NFTs, and similar assets |
| 194P | TDS on pension payments to senior citizens | 1 October 2025 | Deduction as per slab rates; nil if pension below basic exemption |
| Various | Threshold revisions and rate adjustments | 1 April 2025 | Enhanced exemption limits for interest, rent, and other payments |
| 206AA | Higher TDS for non-quoting PAN/Aadhaar | 1 April 2025 | Default TDS at 20%–30% to compel compliance |
Comprehensive TDS Rate Chart for Residents
The following table presents the TDS sections applicable to resident payees for FY 2025-26 (AY 2026-27), along with thresholds and rates:
| Section | Nature of Payment | Threshold (₹) | Rate (%) |
|---|---|---|---|
| 192 | Salary | Nil | As per slab rates |
| 192A | Premature EPF withdrawal | 50,000 | 10 |
| 193 | Interest on securities | 5,000 per instrument | 10 |
| 194 | Dividend | 5,000 | 10 |
| 194A | Interest (banks, post office) | 40,000 (50,000 seniors) | 10 |
| 194B | Lottery winnings | 10,000 | 30 |
| 194C | Contractor payments | 30,000 (single), 1,00,000 (works) | 1 (Ind/HUF), 2 (others) |
| 194D | Insurance commission | 15,000 | 5 |
| 194EE | Mutual fund repurchase under VRS | 2,50,000 | 20 |
| 194H | Commission/brokerage | 15,000 | 5 |
| 194I | Land/building rent | 2,40,000 | 10 |
| 194IA | Immovable property transfer | 50,00,000 | 1 |
| 194IB | Rent by Ind/HUF | 50,000 per month | 5 |
| 194J | Professional fees | 30,000 | 10 |
| 194K | Mutual fund income | 5,000 | 10 |
| 194LA | Property compensation | 2,50,000 | 10 |
| 194M | Contractor fees (Ind/HUF) | 50,00,000 | 5 |
| 194N | Cash withdrawal | >2,00,00,000 | 2 |
| 194Q | Goods purchase | 50,00,000 | 0.1 |
| 194P | Pension (≥60 yrs) | Nil | As per slab |
| 194S | Digital asset payment | Nil | 1 |
| 206AA | No PAN/Aadhaar | Nil | 20/30 |
Comprehensive TDS Rate Chart for Non-Residents
For non-resident payees, TDS rates are generally fixed and may be subject to reductions under Double Tax Avoidance Agreements (DTAA):
| Section | Nature of Payment | Rate (%) | Additional Notes |
|---|---|---|---|
| 195 | Other income | 20 | Plus surcharge & cess, subject to DTAA |
| 194LC | Interest on FCCB/GDR | 5 | — |
| 194LD | Interest on specified overseas borrowings | 4 | — |
| 194E | Sports participation fees | 20 | Flat rate |
| 196A | Mutual fund income | 20 | — |
| 196B | Foreign currency bonds | 5 | — |
| 196C | GDRs/ADRs/foreign securities | 10 | — |
| 196D | FPI income | 20 | — |
Section-wise Explanations with Examples
Section 192 – Salary
This section covers all forms of remuneration paid to employees, including basic salary, allowances, perquisites, bonuses, and gratuity. Employers estimate an employee’s yearly income and deduct TDS on each salary payment based on projected tax liability. For instance, if an employee’s annual salary is projected at ₹12 lakh, and the applicable slab rate is 20%, the employer deducts TDS monthly at the 20% slab rate, net of exemptions.
Section 193 – Interest on Securities
This applies to interest on government and corporate securities. Banks and financial institutions deduct 10% TDS if interest exceeds ₹5,000 per bond or security in a financial year. Example: If an investor receives ₹8,000 interest on a government bond, the payer deducts ₹800 at source.
Section 194A – Interest Other Than Securities
Covers interest from bank deposits, recurring deposits, and post-office schemes exceeding the threshold (₹40,000/₹50,000 for seniors). The payer deducts 10% TDS on interest beyond the limit unless the payee furnishes Form 15G/15H.
Section 194C – Contractual Payments
Applicable to payments to contractors and subcontractors. For a contractor payment of ₹50,000, an individual deductor withholds 1% (₹500) if the contractor is an individual/HUF, or 2% if the contractor is a company.
Section 194Q – Purchase of Goods
Introduced in Finance Act 2025, Section 194Q mandates a buyer to deduct 0.1% TDS on purchases exceeding ₹50 lakh from a resident seller during a financial year.
Example: Buyer X purchases goods worth ₹1 crore from Seller Y. X must deduct TDS of 0.1% on ₹50 lakh = ₹500.
Compliance, Filing, and Payment Procedures
Deposit of TDS
Deductors must deposit TDS using Challan ITNS-281 by the 7th of the following month. Late deposits attract interest at 1.5% per month.
Filing TDS Returns
- Form 24Q: Salary TDS returns – Quarterly due dates: 31 May, 31 Aug, 30 Nov, 31 May.
- Form 26Q: Non-salary TDS – Quarterly due dates: 31 Jul, 31 Oct, 31 Jan, 31 May.
- Form 27Q: Payments to non-residents – Same quarterly cycle as 26Q.
Challan and TAN Validation
Ensure correct TAN and challan details when depositing TDS. Use the e-filing portal Income Tax e-Filing.
Penalties and Interest for Non-Compliance
- Interest under Sections 201(1A) and 234E for late deposit and late filing.
- Penalty up to ₹200 per day under Section 271H for late return filing.
- Disallowance of expenses under Section 40(a)(ia) for failure to deduct or deposit TDS.
Frequently Asked Questions (FAQs)
- Can I submit Form 15G/15H to avoid TDS on bank interest?
- Yes, if the interest income is below the threshold and you meet eligibility criteria, submit Form 15G (below 60 years) or 15H (60+ years) before the financial year-end.
- What happens if I don’t quote PAN/Aadhaar?
- TDS will be deducted at higher rates under Section 206AA (20%–30%).
- How can I correct an erroneous TDS return?
- File a correction statement (Forms 24Q-C, 26Q-C, 27Q-C) before the specified due date to rectify mistakes.
- Are e-commerce marketplace payouts subject to TDS?
- Yes, platforms must deduct 0.75% under Section 194O on gross sales consideration paid to sellers.
Official References
Conclusion
The Finance Act 2025’s amendments underscore the evolving dynamics of India’s economy—incorporating digital assets, high-value transactions, and enhanced compliance measures. Accurate application of TDS provisions helps deductors fulfill statutory obligations and enables deductees to claim rightful credits. Staying informed, leveraging official portals, and adhering to timelines for deposit and return filing is essential for seamless compliance.
For personalized advice, consult a qualified chartered accountant or tax professional.
