The new Income Tax Act, 2025 comes into effect from 1 April 2026 and brings a major restructuring of TDS and TCS provisions. While most tax rates and thresholds remain unchanged, the way TDS and TCS sections are organized, reported, and configured has changed significantly.
For accountants, tax professionals, finance teams, SMEs, and businesses using TallyPrime, understanding these changes is essential to ensure accurate compliance and reporting. Since TDS and TCS are integral to daily accounting operations, organizations must review their existing processes and prepare for the revised framework.
As businesses move into FY 2026-27, awareness of the new TDS and TCS structure can help support compliance readiness and smoother reporting processes.
Why Are TDS & TCS Changing from 1 April 2026?
The implementation of the Income Tax Act, 2025 introduces a new framework for tax compliance and reporting. One of the key objectives of the new legislation is the simplification of tax laws and the restructuring of various provisions into a more organized format.
Under the earlier system, TDS provisions were spread across multiple sections of the Income Tax Act. Different transaction types were governed by different sections, requiring businesses to identify and apply the appropriate provision for each category.
The new framework seeks to simplify this structure by consolidating various TDS and TCS provisions into a streamlined format. As a result, businesses will need to adapt their accounting and compliance processes accordingly.
These changes also impact accounting and ERP systems, including TallyPrime, as section references, classifications, and reporting requirements must align with the revised legislative framework.
Overview of the New TDS & TCS Structure
Old Structure (Income Tax Act 1961)
Under the earlier Income Tax Act, different categories of transactions were governed by separate sections, including:
- Section 192 – Salary
- Section 194C – Contractors
- Section 194J – Professional Fees
- Section 194H – Commission
- Section 206C – TCS
This structure required businesses to manage multiple classifications and references across various TDS and TCS transactions.
New Structure (Income Tax Act 2025)
Under the new framework, TDS and TCS provisions are organized into a simplified structure:
| New Section | Purpose |
| Section 392 | TDS on Salary |
| Section 393 | All Other TDS Transactions |
| Section 394 | TCS Provisions |
The revised framework consolidates more than 60 TDS-related provisions into a simplified structure, making classification and reporting easier to manage.
Instead of maintaining multiple section references for different transactions, businesses will now operate under a more consolidated framework for TDS and TCS compliance.
Major TDS Changes Every Tally User Should Know
Section 392 – TDS on Salary
Section 392 covers TDS relating to salary-related transactions.
This section includes:
- Salary payments
- PF withdrawals
- Employee-related deductions
Organizations processing payroll and employee-related payments must ensure these transactions are appropriately classified and reported under the new framework.
Section 393 – The New Master TDS Section
Section 393 becomes the primary section governing various non-salary TDS transactions.
The section covers:
- Contractor payments
- Professional fees
- Rent
- Commission and brokerage
- Interest payments
- Purchase of goods
- E-commerce transactions
The objective of this consolidated structure is to simplify administration and reporting across multiple categories of TDS transactions.
Old Section vs New Section Mapping
| Old Section | New Reference |
| 194C | Section 393 |
| 194J | Section 393 |
| 194H | Section 393 |
| 194I | Section 393 |
| 194Q | Section 393 |
Businesses that previously relied on separate section references for these transactions will need to align their accounting records with the new classification framework.
Key TCS Changes Effective from 1 April 2026
Introduction of Section 394
Section 394 introduces a consolidated framework for TCS provisions.
This section replaces the earlier TCS provisions under Section 206C and serves as the primary reference point for TCS-related transactions under the Income Tax Act, 2025.
The revised structure focuses on:
- Consolidated TCS reporting
- Revised transaction classification
- Simplified compliance references
Important TCS Updates
The new framework covers several TCS-related transaction categories, including:
- Overseas remittance transactions
- Foreign tour packages
- Sale of goods
- Scrap and specified goods
Certain TCS categories have been rationalized under a uniform structure, making setup and classification simpler. However, businesses must ensure that their accounting software and reporting processes are updated to reflect the revised framework.
Impact on TallyPrime Users
What Will Change in Tally?
The introduction of Sections 392, 393, and 394 may require businesses to review several aspects of their TallyPrime setup.
Key areas include:
- New section mapping
- Updated tax classifications
- Return filing requirements
- Masters and ledger configuration
As reporting references change, businesses must ensure that accounting records reflect the correct tax classifications.
Areas Businesses Must Review
Businesses should review the following areas before FY 2026-27:
- Expense Ledgers
- Party Ledgers
- TDS Nature of Payment
- TCS Masters
- Voucher Entry Processes
- Return Filing Setup
A detailed review of these configurations can help minimize compliance issues and reporting mismatches.
Tally Configuration Checklist for FY 2026-27
Step 1: Update TallyPrime Version
Businesses should ensure that they are using the latest statutory release applicable for FY 2026-27.
Updated releases help align accounting processes with changing statutory requirements and support compliance-related updates.
Step 2: Verify TDS Nature of Payment
Review TDS classifications relating to:
- Contractor payments
- Professional fees
- Rent
- Commission
These categories should be reviewed and aligned with the new TDS framework.
Step 3: Verify TCS Categories
Review TCS-related classifications for:
- Sale transactions
- Foreign remittances
- Specific goods
Proper classification will support accurate reporting and compliance.
Step 4: Validate Tax Reports
Businesses should verify:
- TDS computation
- TCS computation
- Exception reports
- Return filing reports
Regular validation can help identify discrepancies before returns are filed.
Changes in TDS & TCS Forms and Compliance Reporting
Earlier Forms
The earlier framework included forms such as:
- Form 16
- Form 16A
- Form 26Q
- Form 27Q
- Form 27EQ
New Reporting Framework
The new framework introduces changes in compliance references and reporting structures.
Key areas include:
- New compliance references
- Updated form numbers
- New section references in returns
Businesses filing returns from Tax Year 2026-27 onwards must ensure that the new section references are correctly quoted while preparing and submitting returns.
Proper reporting under the revised structure will be essential for maintaining compliance and avoiding filing-related issues.
Common Challenges Businesses May Face
Challenge 1: Incorrect Section Mapping
One of the most common issues may arise from incorrect mapping of old section references to the new framework.
Challenge 2: Legacy Ledger Configurations
Existing ledgers and masters may still contain references aligned with the earlier structure, requiring review and updating.
Challenge 3: Employee Training
Accounting and finance teams will need to understand the revised framework and apply the correct classifications during transaction processing.
Challenge 4: Return Filing Errors
Incorrect section references may lead to filing errors and compliance-related complications.
Challenge 5: Mismatch Between Old and New Tax Codes
Businesses may face temporary reconciliation challenges when transitioning from older classifications to the revised framework.
Best Practices for Smooth Transition
Businesses can prepare for FY 2026-27 by adopting the following practices:
- Update TallyPrime before FY 2026-27.
- Conduct an internal compliance review.
- Re-map TDS and TCS ledgers.
- Train accounting staff.
- Validate tax reports monthly.
- Monitor statutory updates from Tally.
Conclusion
The transition to the Income Tax Act, 2025 marks one of the biggest structural changes in India’s TDS and TCS framework in recent decades. While tax rates largely remain the same, the introduction of Sections 392, 393, and 394 will require businesses to update their accounting processes, compliance procedures, and TallyPrime configurations.
Early preparation can help organizations reduce filing errors, compliance risks, and reporting mismatches in FY 2026-27. By reviewing ledgers, updating classifications, validating reports, and ensuring software readiness, businesses can prepare for a smoother transition to the new framework.
Frequently Asked Questions (FAQ)
1. Have TDS rates changed from 1 April 2026?
Mostly no. The major change is the restructuring of sections and reporting requirements.
2. Which section replaces Section 194C?
Contractor payments now fall under Section 393 through the new tabular framework.
3. Which section replaces Section 206C?
Section 394 replaces the earlier TCS provisions under Section 206C.
4. Will TallyPrime support the new TDS/TCS sections?
Tally typically releases statutory updates to align with tax law changes. Users should install the latest release applicable for FY 2026-27.
