TDS Under the Income Tax Act, 2025: New Section Numbers, Form 141 and Form 168 Require System Changes for FY 2026-27

Current development

Businesses deducting tax at source in FY 2026-27 need to treat the transition to the Income Tax Act, 2025 as a systems and reporting change, not merely a renumbering exercise. The Income Tax Department's current TDS Compliance guidance confirms that transactions triggered on or after 1 April 2026 fall under the new Act, while obligations that crystallised on or before 31 March 2026 continue under the Income-tax Act, 1961.

The Department has also warned that quoting an old section number for a new-law transaction can lead to processing errors in the TDS return. For finance, payroll and ERP teams, this means section mapping, challan logic and reporting masters need to be aligned to the new framework.

The trigger is the earlier of credit or payment

For non-salary TDS, the Department says the governing law depends on when the earlier event of credit or payment occurs. If that event took place on or before 31 March 2026, the 1961 Act continues to govern the deduction. If the trigger occurs on or after 1 April 2026, the Income Tax Act, 2025 applies.

This distinction matters for contracts spanning March and April. A professional fee credited in March but paid in April remains an old-Act transaction because the obligation arose on credit in March. Similarly, an advance paid in March against an amount booked later continues to be governed by the old law.

Section 393 replaces multiple familiar TDS references

The Department states that the new Act has consolidated non-salary TDS provisions under section 393 in a tabular format. The underlying rates and monetary thresholds have broadly been retained, but the reporting reference changes.

For example, the Department's guidance uses a contractor payment to illustrate that a post-1 April 2026 transaction should be reported under section 393(1), Table Sl. No. 6(i) rather than old section 194C. The Department specifically cautions that use of the old section number may cause system-level validation or processing errors and may require a correction statement.

ERP and payroll systems need to be updated

The Department expressly says that deductors should update ERP and payroll systems to reflect the new section numbering, terminology and reporting requirements. This is a practical implementation point for companies that hard-code TDS sections in vendor masters, payment workflows, payroll rules, tax engines or return-preparation software.

A business may therefore need to maintain parallel references during the transition: old-law sections for FY 2025-26 corrections and other legacy transactions, and new-law section references for Tax Year 2026-27 transactions.

Salary TDS also moves to the new framework. The Department states that salary paid for the new tax year is governed by section 392(1) of the Income Tax Act, 2025. Employers should reset annual salary-TDS computations from 1 April 2026 using projected income, deductions and the employee's applicable tax regime for the new tax year.

Common Form 141 replaces four challan-cum-statement forms for new-law transactions

One of the more operationally significant changes concerns specified transactions that previously used Forms 26QB, 26QC, 26QD and 26QE. These covered TDS on purchase of immovable property, specified rent payments, payments by certain individuals or HUFs to contractors or professionals, and specified virtual digital asset transactions.

The Department's TDS FAQ states that old forms continue for transactions where the relevant credit or payment event occurred on or before 31 March 2026. For transactions under the new Act, however, the Income Tax Rules, 2026 provide a common Form 141 for these challan-cum-statement categories.

This means taxpayers and advisers should not select a form merely from habit. The transaction date and governing law must be identified first.

Old-period corrections remain under the old framework

The new Act does not force earlier TDS statements into the new reporting structure. The Department confirms that correction or revised TDS statements for periods governed by the 1961 Act will continue to use the old Act's forms and formats even when the correction is filed after 1 April 2026.

This is particularly relevant where businesses discover errors in FY 2025-26 statements during the current year. The correction should not be converted to the new-law section merely because it is being filed in 2026-27.

AIS and new Form 168 will run in parallel

The transition also affects annual information reporting. The Department states that information relating to FY 2025-26 will continue to appear in the Annual Information Statement for AY 2026-27 under the old framework. For Tax Year 2026-27 under the new Act, the evolved annual information statement will be Form 168.

The Department says both statements will be accessible on the e-Filing portal, with credits segregated according to the period and TDS return filed by the deductor. This makes correct year and section selection especially important, because mismatches can affect the deductee's tax-credit visibility.

Rates remain broadly unchanged, but mistakes can still be costly

The Department's clarification is also important because businesses should not assume the new numbering means every TDS rate has changed. It states that rates and monetary thresholds have been retained across the transition. The change is primarily one of statutory structure, terminology and reporting.

However, compliance consequences remain significant. The new Act continues interest at 1% per month or part thereof for failure to deduct and 1.5% per month or part thereof for failure to deposit after deduction. A reporting error may also create return-processing problems even where the correct amount of tax was actually deducted.

Practical checklist for finance and tax teams

- Map old TDS sections to the corresponding section 392 or 393 references used from 1 April 2026.

- Update ERP, payroll, vendor masters and return-preparation systems without deleting old-law mappings needed for corrections.

- Use the earlier-of-credit-or-payment test to decide which Act governs cross-period transactions.

- Use old forms for old-period correction statements even when filed after 1 April 2026.

- Check whether a transaction previously reported in Forms 26QB, 26QC, 26QD or 26QE now falls within common Form 141.

- Reconcile TDS credits carefully between AY 2026-27 AIS and the new-law Form 168 framework for Tax Year 2026-27.

Key takeaway

The Income Tax Act, 2025 has not broadly changed TDS rates, but it has changed the reporting architecture that businesses must use from 1 April 2026. Section 393 now houses non-salary withholding in a consolidated table, specified challan-cum-statement transactions move to common Form 141 under the new law, and Tax Year 2026-27 information will be reflected through Form 168. Businesses that have not yet updated ERP, payroll and TDS reporting masters should treat this as an immediate implementation issue because use of old section references for new-law transactions can trigger validation and correction problems.