Complete TDS Guide FY 2025-26: Updated Rates, Deadlines, and Compliance Requirements
Tax Deducted at Source (TDS) remains one of the most critical compliance requirements for businesses in India. For Financial Year 2025-26 (Assessment Year 2026-27), several significant changes have been introduced including reduced rates for specific categories and increased threshold limits, making compliance even more important.
💡 Key Update: FY 2025-26 brings substantial TDS rate reductions and threshold increases as per Finance Act 2025, effective from October 1, 2025.
Key Changes and Rate Reductions in FY 2025-26
| Section | Nature of Payment | Previous Rate | New Rate (FY 2025-26) | Effective Date |
|---|---|---|---|---|
| 194H | Commission or Brokerage | 5% | 2% | October 1, 2025 |
| 194-IB | Rent by Individuals/HUF | 5% | 2% | October 1, 2025 |
| 194M | Professional Fees by Individuals/HUF | 5% | 2% | October 1, 2025 |
| 194-O | E-commerce Operator Payments | 1% | 0.1% | October 1, 2025 |
Increased Threshold Limits
| Section | Nature of Payment | Previous Threshold | New Threshold (FY 2025-26) |
|---|---|---|---|
| 194A | Bank Interest (Senior Citizens) | ₹50,000 | ₹1,00,000 |
| 194J | Professional Services | ₹30,000 | ₹50,000 |
| 194-IB | Rent (Annual) | ₹2,40,000 | ₹6,00,000 |
Updated TDS Rate Chart for FY 2025-26
| Section | Nature of Payment | Threshold Limit | TDS Rate (With PAN) | TDS Rate (Without PAN) |
|---|---|---|---|---|
| 192 | Salary | As per Income Tax Slabs | Slab Rates | Slab Rates |
| 194A | Interest (Banks - Senior Citizens) | ₹1,00,000 | 10% | 20% |
| 194C | Contractor Payments | ₹30,000 (Single) / ₹1,00,000 (Annual) | 1% (Individual) / 2% (Others) | 20% |
| 194H | Commission/Brokerage | ₹15,000 | 2% (Reduced) | 20% |
| 194J | Professional Services | ₹50,000 (Increased) | 10% | 20% |
| 194-O | E-commerce Transactions | ₹5,00,000 | 0.1% (Reduced) | 5% |
TDS Deadlines and Due Dates
TDS Payment Deadlines:
- April to February: 7th of following month
- March: 30th April
- Late Payment Interest: 1.5% per month
TDS Return Filing Deadlines:
- Q1 (Apr-Jun): July 31
- Q2 (Jul-Sep): October 31
- Q3 (Oct-Dec): January 31
- Q4 (Jan-Mar): May 31
Practical Examples with New Rates
Example 1: Commission Payment (Section 194H)
- Payment: ₹25,000 commission
- Section: 194H
- New Rate: 2% (reduced from 5%)
- TDS Amount: ₹500 (previously ₹1,250)
- Savings: ₹750 less TDS deduction
Example 2: E-commerce Transaction (Section 194-O)
- Annual Sales: ₹10,00,000
- New Rate: 0.1% (reduced from 1%)
- TDS Amount: ₹1,000 (previously ₹10,000)
- Savings: ₹9,000 annual cash flow improvement
Frequently Asked Questions
Q1: What are the key TDS rate changes for FY 2025-26?
Major rate reductions: Commission/Brokerage (194H) reduced to 2%, Professional fees by individuals (194M) reduced to 2%, E-commerce payments (194-O) reduced to 0.1%, and Rent by individuals (194-IB) reduced to 2%. These changes are effective from October 1, 2025.
Q2: What are the increased threshold limits for FY 2025-26?
Key threshold increases: Bank interest for senior citizens increased to ₹1,00,000, Professional services threshold increased to ₹50,000, and Rent threshold for individuals increased to ₹6,00,000 annually. These provide significant relief to taxpayers.
Q3: When should businesses update their TDS systems for FY 2025-26?
Immediately! The rate changes are effective from October 1, 2025, and businesses must update their systems to avoid over-deduction of TDS. Using old rates will result in excess deduction and compliance issues.
Q4: How does Section 194-O rate reduction impact e-commerce businesses?
The rate reduction from 1% to 0.1% provides a 90% reduction in TDS burden for e-commerce sellers. For annual sales of ₹10 lakhs, TDS reduces from ₹10,000 to just ₹1,000, significantly improving cash flow.
Q5: What is the difference between Section 194J and 194M?
Section 194J applies to all deductors at 10% for professional services, while Section 194M applies only to individual and HUF deductors at the reduced rate of 2%. Companies must still use 194J at 10%.
Q6: Are there any penalties for non-compliance with TDS rules?
Yes, penalties include: Late deduction interest (1% per month), Late payment interest (1.5% per month), Late filing fee (₹200 per day), and Non-compliance penalty equal to the amount not deducted/paid.
Q7: What documents are required for TDS compliance?
Essential documents include TAN registration, Form 16/16A certificates, TDS returns, bank challans, PAN verification records, and supporting invoices for all transactions.
Q8: How often should TDS be deposited to the government?
TDS must be deposited by the 7th of the following month for deductions made during April to February, and by April 30th for March deductions. Late deposits attract 1.5% monthly interest.
Q9: Can TDS be revised after filing returns?
Yes, corrections can be made through the TRACES portal by filing correction statements. However, it's better to ensure accuracy in original filings to avoid compliance issues.
Q10: What is the impact of not having PAN on TDS rates?
If the payee doesn't provide PAN, TDS is deducted at 20% (higher rate) instead of the prescribed rates. This significantly increases the tax burden, making PAN compliance essential.
Q11: Are there any exemptions available for TDS deduction?
Yes, exemptions include payments below threshold limits, payments to government entities, certain agricultural payments, and cases where valid lower deduction certificates are obtained from income tax authorities.
Q12: How does TDS apply to foreign payments?
Foreign payments are subject to different TDS provisions under various sections (195, 196A, etc.) with rates depending on the nature of payment and applicable Double Taxation Avoidance Agreements (DTAA).
Q13: What is the procedure for obtaining lower deduction certificates?
Lower deduction certificates can be obtained by filing Form 13 with the Assessing Officer, providing justification for lower rate based on estimated income and tax liability for the financial year.
Q14: How to reconcile TDS with Form 26AS?
Regular reconciliation involves matching TDS deducted as per books with Form 26AS, identifying mismatches, verifying PAN details, and rectifying errors through correction statements or direct communication with deductors.
Q15: What are the digital compliance requirements for TDS?
Digital compliance includes online TDS deposit through NSDL/authorized banks, electronic filing of TDS returns, digital issuance of TDS certificates, and maintaining electronic records for audit purposes.
Q16: How do the new TDS rates affect cash flow for businesses?
The reduced rates significantly improve cash flow for payees, especially in e-commerce (90% reduction), commission payments (60% reduction), and rental transactions. Businesses should update systems to reflect these benefits immediately.
Q17: What steps should be taken to ensure TDS compliance in FY 2025-26?
Key steps include: updating TDS calculation systems with new rates, training finance teams, implementing enhanced reconciliation processes, maintaining proper documentation, and seeking professional guidance for complex transactions.
Q18: Are there industry-specific TDS requirements?
Yes, different industries have specific requirements: e-commerce (Section 194-O), construction (194-IA for property purchase), financial services (various sections for different instruments), and professional services (194J/194M based on deductor type).
Q19: What is the role of TRACES portal in TDS compliance?
TRACES (TDS Reconciliation Analysis and Correction Enabling System) facilitates online TDS return filing, TDS certificate download, challan status verification, correction statement filing, and annual information return processing.
Q20: How to handle TDS on advance payments?
TDS on advance payments is generally deducted at the time of payment or credit, whichever is earlier. Proper documentation and adjustment in final bills is essential to avoid double deduction and ensure compliance.
Conclusion
TDS compliance for FY 2025-26 brings welcome relief with reduced rates and increased thresholds, but requires immediate system updates to ensure compliance. The significant rate reductions in key categories like commission, professional fees, and e-commerce transactions will improve cash flows for recipients while maintaining the government's revenue collection system.
Immediate Action Items:
- Update TDS calculation systems with new rates effective October 1, 2025
- Apply increased thresholds for applicable categories
- Review past transactions for potential over-deductions
- Train finance teams on the updated compliance requirements
- Implement enhanced reconciliation processes