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TDS Provisions and Rates under the Income-tax Act, 2025 – Complete Guide (Section 393)
Tax Deducted at Source, or TDS, continues to be one of the most important tax collection mechanisms in India. Under the Income-tax Act, 2025, the TDS framework has been consolidated and reorganized under Section 393, while salary-related withholding sits under Section 392. The new Act came into force on 1 April 2026, and the Income Tax Department has clarified that transactions on or after that date are governed by the 2025 Act, while earlier credit or payment events continue under the repealed 1961 Act.
This simplification matters because businesses no longer have to navigate scattered withholding provisions across multiple sections. Instead, Section 393 presents TDS in a more tabular and structured format, covering three broad buckets: payments to residents, payments to non-residents, and payments to any person in special cases. The Income Tax Department has also confirmed that the rates and thresholds are largely the same as under the old law, while the section has been reorganized for easier compliance.
At Acumen Financial Solutions, we help businesses, founders, and finance teams understand TDS compliance in a practical way so that deductions, deposits, and return filing stay clean, timely, and audit-ready. Learn more at https://acumenca.in.
What Section 393 covers
Section 393 is the core TDS section for non-salary payments under the Income-tax Act, 2025. The provision applies where specified income or sums are credited, paid, or distributed to residents, non-residents, or any person, depending on the nature of the payment and the category of payee. The law requires deduction at the earlier of credit or payment, at the prescribed rate, and subject to the table-specific threshold limits and exceptions.
In practical terms, that means businesses must check three things every time they make a payment: what the payment is, who is receiving it, and whether the threshold limit has been crossed. If any one of these checks is missed, the payer can easily end up with a compliance gap.
Key principles of TDS under Section 393
The most important rule under Section 393 is timing. TDS must be deducted at the time of credit of income to the payee’s account or at the time of payment, whichever is earlier. Even if the amount is credited to a suspense account or another account, it is still treated as credit to the payee for TDS purposes.
The second principle is threshold-based applicability. In many categories, TDS applies only when the payment crosses a specified limit. For some categories, however, the threshold is nil, which means the obligation can arise even without a monetary trigger. The third principle is rate-based deduction: some entries use a fixed percentage, while others use “rates in force,” which means the applicable rate is determined by the Act and related finance provisions.
TDS on payments to residents
For resident payees, Section 393(1) contains the main table of withholding obligations. For example, commission or brokerage other than insurance commission is subject to TDS at 2% with a threshold of ₹20,000. Rent is also covered, with 2% for the use of machinery, plant, or equipment, and 10% for land, building, furniture, or fittings, subject to a monthly threshold of ₹50,000. Transfer of certain immovable property is covered at 1% where the consideration or stamp duty value crosses ₹50 lakh, and certain agreements can attract 10% with nil threshold.
The resident table also includes capital market-related payments. Units of mutual funds, certain specified undertakings, business trust distributions, and investment fund income are generally subject to 10% TDS, with threshold rules depending on the specific entry. Interest income is also covered in multiple forms, including interest on securities and other interest categories, with thresholds such as ₹10,000, ₹50,000, and ₹1,00,000 depending on the payer and nature of interest.
TDS on payments to non-residents
For non-resident payees, Section 393(2) applies. The table includes specific categories such as payments to non-resident sportsmen or entertainers at 20%, and certain approved foreign currency borrowing or rupee-denominated bond interest payments at 5% in specified cases. The department’s guidance also makes it clear that the withholding obligation for non-resident payments applies even where the non-resident has no residence, business place, or other presence in India.
This is important for cross-border businesses because the location of the payer, the nature of the income, and the applicable table entry all matter. A transaction that looks straightforward commercially can still create a withholding exposure under Section 393 if it falls into a non-resident category.
TDS on payments to any person
Section 393(3) covers certain special payments to any person. This category includes winnings from lotteries, crossword puzzles, gambling, betting, online games, and horse races, as well as commission or prize-type payments relating to lottery tickets. For example, winnings from lottery or gambling are subject to TDS at rates in force, with a ₹10,000 threshold for a single transaction in the specified cases. Lottery-ticket commission is taxed at 2%.
This bucket is especially relevant for digital platforms, gaming-related businesses, and businesses dealing in prize-based or event-linked payouts. These payments can carry withholding exposure even when the business does not classify them as traditional vendor or service payments.
No-deduction and lower-deduction situations
Section 393 also contains carve-outs where tax is not required to be deducted in specific circumstances. The law provides a table of no-deduction cases, including selected commission, rent, capital gain, and other situations subject to the stated conditions. The Income Tax Department has also introduced Form No. 121 for declarations under section 393(6) for receipt of certain incomes without deduction of tax.
This matters because many taxpayers assume TDS is automatic in every case. It is not. Businesses should evaluate whether a declaration, certificate, or table-based exemption applies before deducting tax.
TDS forms under the new regime
The reporting framework has also been simplified under the 2025 Act. Form No. 140 is the quarterly statement for resident non-salary TDS payments such as interest, commission, brokerage, professional fees, rent, and similar payments. Form No. 138 is used by employers for salary-related reporting under Section 392 and the specified senior citizen category mentioned in the table. Form No. 141 is the challan-cum-statement now used for reporting and depositing TDS for specified Section 393(1) cases, including the earlier PAN-based forms that have now been merged into one structure.
The department’s transition guidance is clear that for transactions entered into on or after 1 April 2026, diductors should quote the relevant table item of Section 393, not the old section numbers from the 1961 Act. It also confirms that the earlier “credit or payment, whichever is earlier” principle continues to govern the point at which TDS liability crystallizes.
Due dates and transition points
The Income Tax Department has confirmed that TDS deposit timelines continue under the Income-tax Rules, 2026, with no policy change in the timeline itself. As a practical matter, tax deducted in March is still subject to the special due date rules, and transactions before 1 April 2026 remain under the 1961 Act. If tax has already been deducted under the old Act before the transition date, it is not deducted again just because payment is made later.
For finance teams, this transition point is critical. A payment made in March 2026 and one made in April 2026 may look similar in the ledger, but they may fall under different legal regimes depending on when the credit or payment happened. That is why clean cutoff review is essential during transition periods.
Practical compliance checklist for businesses
A strong TDS process under Section 393 should include:
identifying the correct section-table entry before booking the expense
checking whether the payee is resident, non-resident, or covered by a special category
applying the correct threshold limit
deducting tax at the earlier of credit or payment
using the correct reporting form
filing and depositing within the prescribed timelines
maintaining declarations and support documents where no-deduction relief applies
That approach reduces mismatch, interest exposure, and reporting errors. The transition guidance also notes that interest provisions for default in deduction or deposit remain unchanged in substance under Section 398.
Why this matters for growing businesses
For startups, SMEs, ecommerce businesses, and companies with multiple vendors, TDS is rarely just a statutory task. It affects vendor trust, cash flow planning, audit readiness, and the quality of monthly books. A clean TDS process also improves year-end closing because the company does not have to repair avoidable mismatches at the last minute. This is the same reason many businesses now treat tax compliance as part of operational finance, not just filing work.
Frequently Asked Questions
What is TDS under the Income-tax Act, 2025?
TDS is tax deducted by the payer at the time of credit or payment, whichever is earlier, on specified payments covered under Section 393 for residents, non-residents, and other special categories.
Has TDS been simplified in the Income-tax Act, 2025?
Yes. The Income Tax Department has stated that the old TDS sections have been consolidated into Sections 392 and 393, with Section 392 for salaries and Section 393 for other payments.
Do old section numbers still matter for transactions after 1 April 2026?
No. For transactions on or after 1 April 2026, the relevant table item of Section 393 should be quoted instead of old 1961 section numbers.
What is Form 141?
Form 141 is the challan-cum-statement for specified TDS deductions under Section 393(1), replacing earlier separate PAN-based forms for those transactions.
Is the due date for TDS deposit changed under the new Act?
The department has said the deposit timelines continue under the Income-tax Rules, 2026, with no policy change to the basic compliance timing.
Can a declaration allow no TDS deduction in some cases?
Yes. Form 121 is used for declarations under section 393(6) for receipt of certain incomes without deduction of tax, subject to the conditions in the law and rules.
Final note
Section 393 is the new backbone of TDS compliance for non-salary payments under the Income-tax Act, 2025. The structure is more organized than the old system, but the compliance responsibility remains serious. Businesses still need the right section, the right rate, the right threshold, and the right form at the right time.