TDS Under Income Tax Act 2025—Key Changes and Reliefs

TDS Under Income-tax Act, 2025 (ITA 2025) refers to the mechanism of Tax Deducted at Source, whereby a person responsible for making specified payments—such as salary, interest, dividends, professional fees, contractual payments, rent, purchase of goods, or other notified sums—is required to deduct tax at prescribed rates at the time of payment or credit, whichever is earlier, and deposit it with the Government on behalf of the recipient. The system aims to ensure timely tax collection, improve tax compliance, and reduce tax evasion by collecting tax at the source of income itself. Under ITA 2025, TDS provisions have also been streamlined to reduce compliance burden and provide greater clarity for deductors and deductees.

Table of Contents

1. TDS Made Less Tedious By Income Tax Act, 2025 (ITA 2025) for Deductors of TDS
2. TDS Made Less Tedious by Income Tax Act, 2025 (ITA 2025) for Deductees of TDS (Payees or Recipients of Amounts)/Collectees of TCS

Check out Taxmann's TDS Ready Reckoner which is the definitive guide to Tax Deduction and Tax Collection at Source under the Income-tax Act 2025, read with the Income-tax Rules 2026, as amended by the Finance Act 2026. This 32nd Edition is the first to be fully rewritten around Chapter XIX of ITA 2025, where 50-plus stand-alone sections of ITA 1961 have been consolidated into sections 392 to 401 and Forms 121 to 150, with a running bridge to the old regime throughout. For every payment type, it sets out who deducts, at what rate, threshold, timing, and consequences of default—followed by the certificate, return, self-declaration, and correction-statement obligations. Across six Divisions, 76 chapters and 4 Appendices, with seven front-matter reference matrices and CBDT's Guidance Notes on Forms 121 to 150, it is the one-stop compliance manual for professionals, in-house teams and revenue authorities transitioning to the new regime.

The changes made by ITA 2025 in TDS/TCS provisions vis-a-vis ITA 1961 have been grouped in 5 categories as below:

• TDS made less tedious by Income-tax Act, 2025 (ITA 2025) for deductors of TDS
• TDS made less tedious by Income-tax Act, 2025 (ITA 2025) for
  deductees of TDS
• Changes in TCS provisions
• Pain-points due to changes
• New avenues for litigation
• Other Changes

1. TDS Made Less Tedious By Income Tax Act, 2025 (ITA 2025) for Deductors of TDS

1.1 Landmark Change – Liability to Deduct TDS Can’t Be Created from a Back Date Through a Retrospective Amendment Which Deems Some Item as Income With Retrospective Effect

Section 391(1)(a) of ITA 2025 provides that

“the income-tax on any income shall be payable directly by the assessee if there is no provision under this Chapter to deduct income-tax on such income at the time of payment”.

If there is any retrospective amendment treating some item as income with retrospective effect, and it comes within the scope of TDS provisions retrospectively because of the amendment, tax on such income can only be recovered directly from the taxpayer. The deductor cannot be penalised for not deducting tax on the same, as the provision requiring deduction of TDS did not exist in the Act at the time the source from which TDS was to be deducted (payment made) existed. This landmark change is inspired by judicial decisions such as Bharti Cellular Ltd. v. Assistant Commissioner of Income-tax [2024] 160 taxmann.com 12 (SC) and Canara Bank v. ITO [2009] 121 ITD 1 (Nag.-Trib)

1.2 New Clarification Regarding TDS on Joint Development Agreement

Note 2 in Sl. No.3 of the Table in section 393(1) clarifies that in case of consideration on which provisions of both serial numbers 3(i) [corresponding to section 194-IA of ITA 1961] and 3(ii) [corresponding to section 194-IC of ITA 1961] are applicable, tax shall be deducted under 3(ii) only. This new clarification was necessary as there was an overlap of TDS provisions of sections 194-IA and 194-IC in the case of JDAs, giving rise to litigation. This new clarification will bring more clarity in TDS provisions and reduce litigation. [Chapter 14]

1.3 TDS Only on Dividends Declared; No TDS on Deemed Dividends Under ITA 2025

Section 194 of ITA 1961 required a domestic company to deduct TDS not only from final dividends and interim dividends but also from deemed dividends [amounts covered by clauses (a) to (f) of section 2(22) of ITA 1961] Sl. No.7 of the Table in section 393(1) of ITA 2025 requires a domestic company to deduct TDS from “Any dividend (including dividend on preference shares) declared” and not from deemed dividends distributed or paid within the meaning of clauses (a) to (e) of section 2(40)

1.4 Clarity on Scope of “Royalty” – Wider Scope of “Royalty”

The definition of “royalty” as per Explanation 2 to section 9(1)(vii) applied to section 194J. For section 194J, the scope of “royalty” inter alia included consideration for transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property and consideration for transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work. It also included consideration for rendering of services in connection with such transfers. The scope of definition of “royalty” in section 9(6)(b) applicable to Sl. No. 6(iii) of the Table is wider. It also covers consideration for grant of the aforesaid rights and consideration for any services rendered in connection with grant of such rights.

1.5 Threshold Limit Applies Individual Sum-wise Under Sl. No. 8(ii) of the Table in Section 393(1) as Compared to Applying Threshold to Aggregate Purchases During FY Under Section 194Q

• Tax is deductible under Sl. No. 8(ii) of the Table on sum as per Note 1 for serial number 8(ii). Note 1 says that “The tax shall be deducted on the sum exceeding fifty lakh rupees”. The threshold limit is to be applied sum-wise. If any sum paid for the purchase of any goods exceeded ₹50 lakhs, TDS is to be deducted.
• Under Section 194Q, the purchase of goods during the previous year from a supplier/payee had to be aggregated to determine whether the threshold limit of ₹50 lakhs had been exceeded. Under section 194Q, the “buyer”/payer was required to track, from the start of the financial year, the value of completed purchases (deliveries received) from each resident seller and payments made to him. No TDS was to be deducted for credit/payment of amount to the seller so long as the threshold of ₹50,00,000 was not crossed either in respect of deliveries received from a resident seller during the financial year or in respect of payments made to him. Once the threshold of  ₹50,00,000 was crossed either in respect of deliveries by him or in respect of payments made to him, TDS was liable to be deducted on a “credit to seller or payment to him, whichever is earlier” basis.

1.6 More Clarity in the Definitions of “Partner” and “Firm” for TDS on Partner’s Remuneration and Interest Under Sl. No. 7 of the Table in Section 393(3)

• There is more clarity in the new definitions of “partner” and “firm” than there was in the definitions in ITA 1961.
• TDS will have to be deducted under Sl. No. 7 of the Table in section 393(3) by traditional partnership firm under Indian Partnership Act, 1932 from remuneration/interest paid to a partner regardless of whether the firm is registered or not under Chapter VII of the Indian Partnership Act, 1932.
• TDS will have to be deducted under Sl. No. 7 of the Table in section 393(3) by traditional partnership firm under Indian Partnership Act, 1932 from remuneration/interest paid to a partner regardless of whether the firm is a assessed as such or whether it is assessed as AOP.
• TDS will have to be deducted under Sl. No. 7 only by an LLP which is an Indian LLP (i.e. LLP defined in section 2(1)(n) of the LLP Act, 2008 as an LLP incorporated in India) Sl. No. 7 will not apply to a foreign LLP having a place of business even if it complies with certain provisions of LLP Act as foreign LLP is a “company” and not “firm” for tax purposes.
• Designated Partner of an Indian LLP who is nominee of a body corporate partner is not a “partner”. Remuneration paid to such DP will not suffer TDS under Sl. No. 7 but under section 392 as salary.

1.7 Clarity that TDS Defaults Under Sl. No. 7 of the Table in Section 393(3) Will Result is Disallowance Under Section 35(b) of Remuneration/Interest Paid/Credited to Partners

There is also more clarity that TDS defaults under Sl. No. 7 of the Table in section 393(3) will result in disallowance of remuneration paid by a firm to a partner, whereas there was considerable doubt under ITA 1961 whether TDS defaults under section 194-T will lead to disallowance under section 40(a) of remuneration paid/credited to partner even though the payment was compliant with conditions and limit in section 40(b).

1.8 New Clarificatory Provision As Regards a Situation Benefit or Perquisite Provided is in Exchange of Another VDA Where There is No Part in cash

Note 6 in Sl. No. 8 of the Table in section 393(1) provides that for serial number 8(iv) [corresponding to section 194R of ITA 1961] and (vi) [corresponding to section 194S of ITA 1961]:

(a) where the consideration or, benefit or perquisite provided, as the case may be:

(i) is in exchange of another virtual digital asset where there is no part in cash, in respect of serial number 8(iv); or

(ii) is wholly in kind; or

(iii) is partly in kind and partly in cash, but such part in cash is not sufficient to meet the liability of deduction of tax in respect of the whole of such payment or benefit or perquisite,

(b) the person responsible for paying or providing shall ensure that the tax required to be deducted has been paid, before releasing such consideration or providing such benefit or perquisite, as the case may be;

The provision in Note 8(a)(i) is unclear. Hopefully, it will be clarified in the removal of difficulty guidelines to be issued by the CBDT.

1.9 Clarity on TDS Deduction Related to Payments for Advertising Services by Removing Overlap of TDS Provisions Related to Commission or Brokerage and TDS Provisions Related to Professional Services

• Any payment for professional services fall outside the scope of the term “commission or brokerage” since these suffer TDS under different provisions and not under TDS provisions for Commission or brokerage.
• However, advertising services were not covered in the definition of “professional services” in Explanation (ii) to section 194H. Therefore, this created confusion whether advertising services would attract TDS under section 194H or under section 194J. Section 402(28) provides a uniform definition of “professional services” for all TDS provisions under the ITA 2025. Therefore, as advertising services are covered in “professional services” under section 402(28), it is clear that under the ITA 2025 payment for advertising services will not be regarded as commission or brokerage so as to attract TDS under Sl. No. 1(ii) of the Table in section 393(1) but will attract TDS under Sl. No. 6(iii) of Table in section 393(1).

1.10 Supply of Manpower Included in the Definition of “Work”

Supply of manpower to a person to work under his supervision, control or direction (and not under the supervision, control or direction of the supplier and the manpower) shall attract TDS under Sl. No. 6(i) or 6(ii) of Table of section 393(1) and not under Sl. No. 6(iii).

1.11 Omission of Tedious TDS Requirement Based on Account Holder’s ITR Filing Track Record for Past 3 FYs

First proviso to section 194N of ITA 1961 required TDS @2% to be deducted by banks, banking co-operative societies and post offices from cash withdrawn from any account if cash withdrawal/aggregate cash withdrawal during a financial year exceeded the threshold of ₹20,00,000 and TDS @5% if threshold of ₹1,00,00,000 was exceeded in case the account holder was a belated filer or non-filer of ITRs for immediately three preceding financial years. It was obviously impractical for banks, banking co-operative societies and post offices to verify the ITR filing track record of the account holder at the time of cash withdrawal to enforce this punitive measure of TDS intended to disincentivise non-filing/belated filing of ITRs. Therefore, ITA 2025 omits the first proviso.

See items 13 to 15 below as they also will reduce TDS deduction workload for TDS deductors.

2. TDS Made Less Tedious by Income Tax Act, 2025 (ITA 2025) for Deductees of TDS (Payees or Recipients of Amounts)/Collectees of TCS

2.1 Code on Wages Fortifies Section 205/Section 401 Protection to Salaried Taxpayers

New sub-section (4) in section 18 of COW 2019 provides that where any deduction is made by the employer from the wages of an employee under this section but not deposited in the account of the trust or Government fund or any other account, as required under the provisions of the law for the time being in force, such employee shall not be held responsible for such default of the employer in depositing the same with Trust/Government Fund or any other account. Thus, the provisions of section 205 of ITA 1961 (as it existed till 31-03-2026)/section 401 of ITA 2025 have received greater legal force from section 18(4) of COW 2019 in respect of TDS deducted by the employer from the salaries of employees.

The Table below provides the rates of TDS provided in the ITA 2025:

Reference1	Nature of Income	Payer	Payee	Threshold for Tax Deduction	Rate of TDS		Time of Deduction	Exemption (See Note 7)
					If PAN is Furnished	If PAN is Not Furnished
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)
Payment to Employees
Section 392	Salary	Every employer	Every employee (resident or non- resident)	Income exceeding basic exemption limit	Average rate of income tax computed on the basis of rates in force	Average rate of tax or 20%, whichever is higher	At the time of payment	–
Section 392(6) and (7)	Withdrawal from EPF Scheme	Trustee of EPF Scheme or any other authorised person	Every employee (resident or non-resident)	Rs. 50,000	10%	20%	At the time of payment	–
Interest and Dividend
Table 1, Sl. No. 5(i)	Interest on Securities	Any Person	Resident Person	Rs. 10,000	Rates in force (See Note 1)	Rates in force or 20%, whichever is higher.	At the time of credit or payment, whichever is earlier	Exemption 1
Table 1, Sl. No. 5(ii)	Interest other than interest on Securities	Banking Co., Co-operative Society carrying on banking business, or Post Office (for a deposit made under a notified scheme)	Resident Person	Rs. 1,00,000 – in case of senior citizen Rs. 50,000 – in case of other persons	Rates in force (See Note 1)	Rates in force or 20%, whichever is higher.	At the time of credit or payment, whichever is earlier	Exemption 2
Table 1, Sl. No. 5(iii)	Interest other than interest on Securities	Specified person other than person in Table 1, Sl. No. 5(ii) (See Note 2)	Resident Person	Rs. 10,000	Rates in force (See Note 1)	Rates in force or 20%, whichever is higher.	At the time of credit or payment, whichever is earlier	–
Table 1, Sl. No. 7	Any dividend declared	Any domestic company	Resident Person	–	10%	20%	At the time of payment or distribution, whichever is earlier	Exemption 3
Table 1, Sl. No. 8(iii)	Pension or interest income of specified Senior Citizen who opts for deduction of TDS by specified bank under Sl. No. 8(iii) by filing declaration with specified bank in Form No. 125	Specified Bank	Resident Senior citizen ageing 75 years or more	–	Rates in force (See Note 1)	Rates in force or 20%, whichever is higher	At the time of payment	–
Table 2, Sl. Nos. 2, 3 and 4	Income by way of interest in respect of foreign borrowings	Indian Company or a Business Trust	Non-resident person or foreign company	–	Interest payable in respect of long-term bond or rupee-denominated bond listed on a recognised stock exchange located in IFSC- 4% if bonds were issued between 1-4-2020 and 30-6-2023 and 9% if bonds are issued on or after 1-7-2023 5% – In any other case	20% [excluding payment of interest on long-term bonds]	At the time of credit or payment, whichever is earlier	–
Table 2, Sl. No. 5	Interest from Infrastructure Debt Fund	Any Person	Non-resident Person	–	5%	20%	At the time of credit or payment, whichever is earlier	–
Table 2, Sl. No. 13	Interest or dividend from Bonds or GDRs	Any Person	Non-resident Person	–	10%	20%	At the time of credit or payment, whichever is earlier	–
Table 2, Sl. No. 17	Any Interest (not being interest referred to Table 2, Sl. Nos. 2, 3, 4 and 5) or any other sum chargeable under the Act other than Salaries	Any person	Non-resident person	–	Rates in force (See Note 1)	Rates in force or 20%, whichever is higher.	At the time of credit or payment, whichever is earlier	–
Winnings
Table 3, Sl. No. 1	Winning from Lotteries, Crossword Puzzles, gambling, betting, etc. (except online games)	Any Person	Resident or Non-Resident	Rs. 10,000 in respect of a single transaction	Rates in force (See Note 1)	Rates in force or 20%, whichever is higher.	At the time of payment	–
Table 3, Sl. No. 2	Winnings from online games	Any Person	Resident or Non-Resident	–	Rates in force (See Note 1)	Rates in force or 20%, whichever is higher.	At the time of withdrawal and at year end on amounts not withdrawn	–
Table 3, Sl. No. 3	Winning from horse race	Bookmaker or a person to whom a license has been granted for horse racing	Resident or Non-Resident	Rs. 10,000 in respect of a single transaction	Rates in force (See Note 1)	Rates in force or 20%, whichever is higher.	At the time of payment	–
Payment for Goods or Services
Table 1, Sl. No. 8(vi)	Payment on transfer of Virtual Digital Asset	Any person	Resident Person	Rs. 10,000/Rs. 50,000 (See Note 3)	1%	20%	At the time of credit or payment, whichever is earlier	–
Table 1, Sl. No. 6(i)	Payment to Contractors	Any designated person (See Note 4)	Resident Person	Rs. 30,000 for a single payment Rs. 1,00,000 for aggregate payment during the tax year	1% – If deductee is an individual or HUF 2% – In other cases	20%	At the time of credit or payment, whichever is earlier	Exemption 4
Table 1, Sl. No. 6(ii)	Payment to contractor, commission agent, broker or professional by certain Individuals or HUF	Individual or HUF not liable for deduction as per Table 1, Sl. No. 6(i) and (iii) or 1(ii)	Resident person	Rs. 50,00,000	2%	20%	At the time of credit or payment, whichever is earlier	–
Table 1, Sl. No. 6(iii)	Royalty and Fees for Professional or Technical Services	Specified person (See Note 2)	Resident Person	Rs. 50,000 [Nil for any remuneration, fees or commission (other than salary) payable to the Director of Company]	2% – If sum is payable towards royalty income arising to a person by way of sale, distribution or exhibition of cinematographic films 2% – If recipient is engaged in business of operation of call Centre 2% – If sum is payable towards fees for technical services (other than professional services) 10% – In all other cases	20%	At the time of credit or payment, whichever is earlier	Exemption 5
Table 1, Sl. No. 8(ii)	Purchase of Goods	Buyer	Resident Seller	Rs. 50,00,000	0.1%	5%	At the time of credit or payment, whichever is earlier	–
Table 1. Sl. No. 8(v)	Payment by e-commerce operator to an e-commerce participant	E-commerce operator	Resident e-commerce participant	–	0.1%	5%	At the time of credit or payment, whichever is earlier	Exemption 6
Commission or Insurance Receipts
Table 1, Sl. No. 1(i)	Insurance Commission	Any Person	Resident Person	Rs. 20,000	Rates in force (See Note 1)	Rates in force or 20%, whichever is higher	At the time of credit or payment, whichever is earlier	–

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1. In the Reference column, ‘Table 1’ means Table given under section 393(1); ‘Table 2’ means Table given under section 393(2); ‘Table 3’ means Table given under section 393(3).