Introduction
The transition from the Income-tax Act, 1961 to the Income-tax Act, 2025 marks a significant shift in how tax deduction at source (TDS) obligations are governed. For deductors, the key lies in understanding the timing of credit or payment, as this determines which Act applies. While the substantive provisions such as rates and thresholds remain unchanged, the transition introduces new section references, reporting requirements, and compliance adjustments. This blog addresses common queries around the transition, ensuring clarity for professionals handling contracts, payments, and system updates during FY 2026–27.
A. OBLIGATION TO DEDUCT — TRANSITION
1. What is the fundamental rule for determining which Act governs TDS obligations during the transition?
Ans. The Act governing TDS depends on when the “earlier of the event of credit or payment” occurs. If the earlier event occurs on or before 31st March, 2026, the Income-tax Act, 1961 will be applicable. However, if the earlier event occurs on or after 1st April, 2026, the provisions of the Income-tax Act, 2025 shall be applicable.
Example: Professional fees credited in March, 2026 in books. However, payment is made in April, 2026. In this situation, provisions of the Income-Tax Act, 1961 will be applicable and TDS must be deducted in March, 2026.
Advance payment made in March, 2026. However, it is credited in books in April, 2026. In this situation, provisions of the Income-tax Act, 1961 will be applicable and TDS must be deducted in March, 2026.
2. If a deductor has an ongoing contract with monthly payments, how does the deductor handle the switch from the old Act to the new Act?
Ans. The deductor applies the old Act for all payments/credits up to and including 31st March, 2026, and will apply the new Act for payments/credits from 1st April, 2026 onwards. There is no need to amend the contract merely because the new Act is commencing on 1st April, 2026. The deductor is required to apply the applicable TDS provision based on the date of credit or payment, whichever is earlier.
Example: M/s. XYZ Ltd. has a monthly housekeeping contract with M/s. ABC Cleaning Services. Payments for March 2026 (credited on 31.03.2026) → TDS obligation shall be under Section 194C of old Act. Payment for April 2026 (credited on 30.04.2026) → TDS obligations shall be under Section 393(1) [Table: Sl. No. 6(i)] of the new Act. Rates and thresholds remain the same under both the Acts.
3. Has there been any change in the rates of TDS under the new Act?
Ans. No. The TDS rates and monetary thresholds for all categories of payments have been retained as they are under the Income-tax Act, 1961. The consolidation of TDS provisions under Section 393 is a simplified tabular presentation and not a change in TDS rates or tax policy.
4. What happens if a deductor erroneously deducts TDS quoting the old Act section number for a payment made after 01.04.2026?
Ans. Although the substantive provisions—such as the applicable rate and threshold—remain unchanged, citing the old section number (for example, Section 194C instead of Section 393(1) [Table: Sl. No. 6(i)]) may lead to processing errors at the time of filing the TDS return. In such cases, the deductor may be required to submit a correction statement to rectify the section reference.
5. A company makes payment to a contractor on 28 March 2026. Which Act governs TDS in this situation?
Ans. The TDS provisions of the Income-tax Act, 1961 shall apply, since the triggering event—being the payment or credit of income, whichever is earlier—occurred prior to 1 April 2026. The commencement of the Income-tax Act, 2025 does not affect liabilities or obligations that arose under the 1961 Act in respect of tax years beginning before 1st April, 2026.
6. Interest income is credited in the account of payee on 31 March 2026 but paid in April 2026. Which Act will govern the TDS on such interest payments?
Ans. The TDS provisions of the Income-tax Act, 1961 shall apply, since the triggering event—being the payment or credit of income, whichever is earlier—occurred prior to 1 April 2026. The subsequent date of deposit of TDS or payment of interest does not alter the governing law once the triggering event has occurred.
7. Are tax deductors required to modify their ERP and payroll systems after commencement of Income Tax Act, 2025?
Ans. Yes. Systems are required to be updated to reflect new section numbering, terminology, and reporting requirements under the Income Tax Act, 2025.
B. DEPOSIT OF TDS — TIMELINES AND COMPLIANCE
8. What are the due dates for depositing TDS with the Government during the transition year i.e. FY 2026-27?
Ans. The due dates for depositing the TDS for non-government deductors remain the same under both the Acts. For the transition phase, the due dates for depositing TDS are tabulated as under:
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Non-Government Deductors
- January 2026 to February 2026 → 7th of next month (IT Act, 1961 – Rule 30)
- March 2026 → 30th April, 2026 (IT Act, 1961 – Rule 30)
- April 2026 onwards → 7th of next month (IT Act, 2025 – Rule 218 of Income-tax Rules, 2026)
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Government Deductors
- January 2026 to February 2026 → 7th of next month (with challan) / Same Day (without challan) (IT Act, 1961 – Rule 30)
- March 2026 → 7th April, 2026 (with challan) / Same Day (without challan) (IT Act, 1961 – Rule 30)
- April 2026 onwards → 7th of next month (with challan) / Same Day (without challan) (IT Act, 2025 – Rule 218 of Income-tax Rules, 2026)
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Challan-cum-TDS statement (Form 26QB /26QC /26QD/ 26QE under the old Act):
Due date of depositing TDS is 30 days from end of month in which TDS was made. These due dates remain same in the new Act.
9. If tax was deducted in March 2026 but the deposit is made in May 2026, will there be a late deposit consequence?
Ans. Yes. The due date for depositing the tax deducted in the month of March 2026 is 30th April, 2026. In this situation, the TDS is deposited in May 2026 and this delay will attract interest liability @ 1.5% per month from the date of deduction to the date of actual payment.
Conclusion
In essence, the transition to the Income-tax Act, 2025 is designed to be smooth, with continuity in rates and thresholds but a clear demarcation based on the timing of credit or payment. Deductors must remain vigilant about section references, deposit timelines, and ERP updates to avoid compliance errors. By aligning practices with the governing Act applicable to each transaction, organizations can ensure seamless compliance and minimize risks during this changeover. The focus should be on accuracy in application rather than overhauling contracts or processes, thereby making the transition a matter of careful attention rather than disruption.
Blog By – Mittal & Co.