TDS Compliance Checklist for FY 2026-27

Updated: November 2026 · By the Direct Tax Team at R. D. Jain & Associates

Tax Deducted at Source (TDS) has undergone its most significant structural transformation in over six decades. With the Income Tax Act, 2025 taking effect from 1 April 2026, the scattered TDS provisions of the erstwhile Act of 1961 — spread across more than 25 sections (192, 192A, 193, 194 and its many sub-clauses) — have been consolidated into a streamlined framework under Sections 392 and 393.

This checklist serves as a practical reference for deductors — businesses, professionals, and finance teams — to navigate TDS compliance for Financial Year 2026-27. It covers section mapping, threshold limits, periodic compliance deadlines, and the procedural changes that every deductor must implement.

1. The New TDS Architecture under the Income Tax Act, 2025

The Income Tax Act, 2025 has reorganised TDS provisions into three primary sections:

• Section 392 — Tax deduction on salary payments (replacing Section 192 of the 1961 Act)
• Section 393 — Tax deduction on all non-salary payments (consolidating Sections 192A, 193, 194 to 194-S of the 1961 Act)
• Section 394 — Tax Collection at Source (TCS) provisions

To preserve granular reporting, the Act introduces standardised “Nature Codes” within Section 393. Each type of payment — contractor fees, professional charges, rent, commission, etc. — carries a distinct nature code while sharing the same parent section. This simplifies the legislative structure without losing the transactional clarity that deductors and the department require.

2. Old vs New Section Mapping — Quick Reference

For ease of transition, the following table maps commonly used TDS sections under the old Act to the new consolidated framework:

Note: Surcharge and Health & Education Cess (4%) apply over and above the base TDS rate in specific cases — particularly for non-residents and high-income payees. Where PAN is not furnished by the deductee, TDS is deducted at 20% or the rate specified in the Act, whichever is higher.

3. Important New Provision — Section 194T (Payments to Partners)

A significant addition under the new regime is the TDS provision for payments made by partnership firms and LLPs to their partners. Previously, remuneration, interest, and bonus paid to partners were outside the TDS net.

Under Section 194T (mapped to the new Section 393):

• Applicability: All partnership firms and LLPs
• Threshold: Aggregate payment exceeding ₹20,000 per partner per year
• Rate: 10% on the entire amount
• Covered payments: Remuneration, interest on capital, bonus, commission

Firms and LLPs that have not historically maintained TAN must obtain one and operationalise quarterly TDS return filing.

4. Exemption for Small Individuals and HUFs

Individuals and HUFs whose turnover or gross receipts did not exceed ₹1 crore (business) or ₹50 lakh (profession) in the immediately preceding financial year are not required to deduct TDS under the following provisions:

• Contractor payments (erstwhile Section 194C)
• Professional fees (erstwhile Section 194J)
• Commission and brokerage (erstwhile Section 194H)
• Rent (erstwhile Section 194I)

Exceptions to the small-business exemption:

• Section 194-IB — Rent exceeding ₹50,000 per month must still be deducted by individuals/HUFs not liable to audit
• Section 194M — Contractor/professional payments exceeding ₹50 lakh in a year

5. The New Single Challan System

A notable procedural simplification under the 2025 Act: the requirement to mention the specific TDS section in the challan has been removed. Under the previous regime, this requirement had become functionally redundant for over a decade, with the section information actually captured in the deductee-level records attached to each challan.

Practical implication: Deductors may now use a single TDS challan for all sections within a month. Section-wise allocation happens at the time of filing the quarterly TDS return through the deductee-line records.

6. Form 121 Replaces Form 15G and Form 15H

The two long-standing self-declaration forms — Form 15G (for individuals below 60) and Form 15H (for senior citizens) — used to claim non-deduction of TDS where income is below the taxable threshold, have been consolidated into a single Form 121 under the Income Tax Act, 2025.

Deductors receiving Form 121 must continue to upload these declarations on the TRACES portal and quote the unique identification number in the quarterly TDS return.

7. Monthly TDS Compliance Checklist

Throughout the month, deductors must:

1. Deduct TDS at the time of credit or payment, whichever is earlier
2. Maintain deductee-wise records — PAN, nature of payment, gross amount, TDS amount, date of deduction
3. Verify PAN of each deductee through the e-filing portal before deduction
4. Where Form 121 is received, ensure it is uploaded to TRACES and the unique ID is recorded
5. Deposit TDS by the 7th of the following month (for non-government deductors)
6. For TDS deducted in March, the deposit deadline is 30 April
7. Government deductors must deposit on the same day, without challan

8. Quarterly TDS Return Filing

TDS returns must be filed quarterly using the appropriate form:

Form 16 (Salary) for FY 2026-27 must be issued to employees by 15 June 2027.

9. Penalties and Interest for Default

10. Annual TDS Compliance Calendar — FY 2026-27

Mark the following dates on your compliance calendar:

• 7th of every month — Deposit of TDS for the previous month
• 30 April 2027 — Deposit of TDS deducted in March 2027
• 31 July 2026 — Q1 TDS return
• 31 October 2026 — Q2 TDS return
• 31 January 2027 — Q3 TDS return
• 31 May 2027 — Q4 TDS return
• 15 June 2027 — Issue Form 16 to all employees
• 15 August / Nov / Feb / Jun — Issue Form 16A to non-salary deductees (quarterly)

11. Common Errors to Avoid

• Continuing to use old section codes in payroll/ERP systems — all references must be updated to Section 392/393 with appropriate nature codes
• Missing Section 194T compliance — partnership firms and LLPs that have not historically maintained TAN must obtain one and operationalise compliance
• Wrong deductee PAN — leads to 20% TDS deduction and credit issues for the payee; always validate PAN through the e-filing portal before deduction
• Ignoring Form 121 receipts — must be uploaded to TRACES and acknowledged in the TDS return
• Late deposit even by one day — attracts interest @ 1.5% per month, with even a partial month counted as a full month
• Not reconciling TDS quarterly — discrepancies between books, challans, and returns lead to demand notices and correction statements

Conclusion

The transition to the Income Tax Act, 2025 represents a structural recodification of TDS rather than a sweeping policy change. The core rates and thresholds on most payments remain largely unchanged. However, deductors must update their systems, processes, and section references — particularly the new Section 194T on payments to partners, the consolidation under Sections 392 and 393, and the single-challan procedure.

The first quarterly return under the new regime (Q1 of FY 2026-27, due 31 July 2026) is the litmus test for most organisations. Early system updates, careful PAN validation, and disciplined monthly deposits remain the foundation of clean TDS compliance.

Disclaimer: This article is intended for informational purposes only and does not constitute professional advice. Section references, threshold limits, and rates are based on the Income Tax Act, 2025 as in force on the date of publication, and are subject to amendment by notifications, circulars, and Finance Acts. Readers are advised to consult their tax advisor or refer to official notifications for case-specific advice. R. D. Jain & Associates assumes no responsibility for actions taken based on this content.