Introduction
Tax Deducted at Source (TDS) is a vital compliance mechanism under the Income Tax Act, ensuring tax collection at the point of income generation. For FY 2026-27, the Income Tax Department has notified updated rates applicable to residents and non-residents. While the overall framework remains consistent with FY 2025-26, there are important clarifications and changes that taxpayers must note.
TDS on Payments to Residents- FY 2026-27
| Sl. No. | Nature of Income | Payer | Rate | Threshold Limit |
| 1. Commission or brokerage | (i) Insurance commission | Any person | Rates in force | ₹20,000 |
| (ii) Other commission/brokerage | Specified person | 2% | ₹20,000 | |
| 2. Rent | (i) Rent – person other than specified person | Any person | 2% | ₹50,000 per month |
| (ii) Rent – specified person | Specified person | 2% (machinery/plant), 10% (land/building/furniture) | ₹50,000 per month | |
| 3. Transfer of immovable property (other than agricultural land) | (i) Consideration for transfer | Any person | 1% of consideration or stamp duty value | ₹50 lakh |
| (ii) Agreement under section 67(14) | Any person | 10% | Nil | |
| (iii) Compensation/enhanced consideration on compulsory acquisition | Any person | 10% | ₹5,00,000 | |
| 4. Income from capital market | (i) Mutual fund units, specified company units | Any person | 10% | ₹10,000 |
| (ii) Distributed income – business trust | Business trust | 10% | Nil | |
| (iii) Units of investment fund | Investment fund | 10% | Nil | |
| (iv) Securitisation trust income | Securitisation trust | 10% | Nil | |
| 5. Interest income | (i) Interest on securities | Any person | Rates in force | ₹10,000 |
| (ii) Interest (banks, co-op banks, post office) | Banking company/co-op/post office | Rates in force | ₹50,000 (others), ₹1,00,000 (senior citizens) | |
| (iii) Other interest | Specified person | Rates in force | ₹10,000 | |
| 6. Contractors / Professional fees | (i) Work contracts | Designated person | 1% (individual/HUF), 2% (others) | ₹30,000 single, ₹1,00,000 aggregate |
| (ii) Work/professional fees/commission | Individual/HUF | 2% | ₹50 lakh | |
| (iii) Professional/technical fees, royalty, director remuneration | Specified person | 2%–10% | ₹50,000 (most cases), Nil (director fees) | |
| 7. Dividend | Dividend declared | Domestic company | 10% | Nil |
| 8. Other cases | (i) Life insurance payout | Any person | 2% | ₹1,00,000 |
| (ii) Purchase of goods > ₹50 lakh | Buyer | 0.1% | Above ₹50 lakh | |
| (iii) Senior citizen income (bank deduction) | Specified bank | Rates in force | As applicable | |
| (iv) Business/professional perquisites | Specified person | 10% | ₹20,000 | |
| (v) E-commerce transactions | E-commerce operator | 0.1% | Nil | |
| (vi) Transfer of virtual digital assets | Any person | 1% | Nil |
TDS on Payments to Non-Residents FY 2026-27
| Sl. No. | Nature of Income | Payee | Payer | Rate |
| 1 | Income of non-resident sportsman/entertainer | Non-resident | Any person | 20% |
| 2 | Interest on foreign currency loans/bonds (pre-2023 issues) | Non-resident / foreign company | Indian company / trust | 5% |
| 3 | Interest on rupee denominated bonds (pre-2023) | Non-resident / foreign company | Indian company / trust | 5% |
| 4 | Interest on IFSC listed bonds | Non-resident / foreign company | Indian company / trust | 4% (till June 2023), 9% (after July 2023) |
| 5 | Interest from infrastructure debt fund | Non-resident / foreign company | Debt fund | 5% |
| 6 | Distributed income from business trust | Non-resident unit holder | Business trust | 5%–10% |
| 7 | Other distributed income from business trust | Non-resident unit holder | Business trust | Rates in force |
| 8 | Units of investment fund | Non-resident unit holder | Investment fund | Rates in force |
| 9 | Securitisation trust income | Non-resident investor | Trust | Rates in force |
| 10 | Mutual fund units / specified company units | Non-resident | Any person | 20% (subject to DTAA) |
| 11 | Offshore fund units | Offshore fund | Any person | 10% |
| 12 | LTCG on offshore fund units | Offshore fund | Any person | 12.5% |
| 13 | Interest/dividends on GDRs/bonds | Non-resident | Any person | 10% |
| 14 | LTCG on GDRs/bonds | Non-resident | Any person | 12.5% |
| 15 | Securities income (FII) | FII | Any person | 20% (subject to DTAA) |
| 16 | Securities income (specified fund) | Specified fund | Any person | 10% |
| 17 | Other interest/sums (not salaries) | Non-resident / foreign company | Any person | Rates in force |
Key Changes Compared to FY 2025-26
- Commission & Brokerage: Insurance commission moved from flat 2% (FY 2025-26) to “rates in force” in FY 2026-27, tightening compliance.
- Rent: No rate change, but clearer distinction between specified persons and others.
- Immovable Property Transfers: Clarification that threshold applies to aggregate consideration/stamp duty value, reducing disputes.
- Capital Market Income: Expanded coverage to include securitisation trust income at 10%.
- Interest Income: Shift from fixed 10% to “rates in force,” aligning with slab-based taxation.
- Contractors & Professional Fees: More granular categorization; call centres taxed at concessional 2%.
- Dividends: Threshold exemption of ₹10,000 removed; now all dividends taxable at source.
- Other Cases:
- Purchase of Goods: Deduction only on excess above ₹50 lakh clarified.
- E-commerce: Threshold removed; 0.1% applies from the first rupee.
- Virtual Digital Assets (VDAs): Threshold removed; 1% applies universally, stricter compliance.
- Senior Citizens: Banks deduct directly after considering deductions/rebates, simplifying compliance.
- Non-Resident Payments: IFSC bond rate clarified — 4% till June 2023, 9% thereafter.
Conclusion
The FY 2026-27 TDS framework builds on FY 2025-26 but introduces stricter compliance for dividends, VDAs, and e-commerce transactions, rationalizes insurance commission and interest income to “rates in force,” and expands coverage to securitisation trusts. Threshold exemptions have been reduced, making TDS more comprehensive and aligned with evolving digital and financial transactions.
For TDS on payments to a non-resident or NRI tax planning, see our NRI and expatriate taxation services in Pune.
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