Income Tax Act, 2025: Complete guide to TDS and TCS changes (effective April 1, 2026)

The Income Tax Act, 2025 replaces the Income Tax Act, 1961 on April 1, 2026, as notified under the Income-tax Rules, 2026 (G.S.R. 198(E), dated March 20, 2026).

If you manage TDS or TCS—whether as a business owner or a chartered accountant—this transition changes how you classify transactions, deduct tax, and file returns.

This guide explains the changes clearly and shows you how to update your setup in Zoho Books to stay compliant.

What changes under the Income Tax Act, 2025

The update focuses on structure, classification, and compliance workflows.

Here are the confirmed changes:

• TDS provisions are consolidated under Section 393.

• TCS provisions are restructured under Section 394.

• Existing sections are renumbered.

• Certain sections are split into multiple categories.

• Section 194LD is removed after March 31, 2026.

• New TDS and TCS return forms are introduced.

• Select TCS rates are revised (effective April 1, 2026).

TDS rates remain unchanged based on the available information.

TDS changes explained

TDS moves to Section 393 

All TDS provisions now fall under Section 393, replacing the earlier 194-series structure.

• Section 393(1) and 393(3) apply to resident payments.

• Section 393(2) applies to non-resident payments.

This requires you to map existing transactions to the new structure.

Renumbered and split sections 

Several existing sections are either renumbered or split into more specific categories.

The following sections are split and require manual review:

• 194S

• 194J(b)

• 194A

• 194C

• 194LC(ic)

• 196C

• 196B

Each of these now corresponds to more granular classifications, depending on the nature of the payment.

Deprecated section 

Section 194LD (interest on certain bonds and government securities payable to FIIs/QFIs) is removed and will not apply after March 31, 2026.

New TDS return forms 

From April 1, 2026, the following forms apply:

TCS changes explained

TCS moves to Section 394(1) 

Section 206C is replaced with a structured table under Section 394(1).

Each collection type now has:

• A distinct sub-item

• A numeric collection code starting from 1068

New TCS return form 

Form 143 replaces Form 27EQ for quarterly TCS returns.

TCS rate changes (Budget 2026) 

The following rate revisions apply from April 1, 2026:

Why this matters for businesses and CAs

This is not a rate change; it is a classification and compliance change. If you continue using the existing setup after March 31, 2026:

• TDS may be deducted under invalid sections.

• Transactions may be mapped incorrectly.

• Returns may be filed with incorrect classifications.

These issues can lead to reconciliation gaps and compliance risks.

How Zoho Books helps you stay compliant

Zoho Books provides a guided update to align your organisation with the Income Tax Act, 2025.

What happens when you update 

TDS updates 

• Renumbered sections appear under Settings > Direct Taxes.

• Existing TDS rates: 

  • End on March 31, 2026.

• New TDS rates:

  • Are created automatically.

  • Start from April 1, 2026.

• Updates apply to:

  • Recurring invoices

  • Recurring bills

  • Vendor TDS mappings (where applicable)

• You can download affected recurring transactions in .xls format.

TCS updates 

• Existing TCS rates are deprecated after March 31, 2026.

• New TCS rates are created with updated percentages.

• Updated rates are available from April 1, 2026.

What requires manual action

Automation does not cover all scenarios. You need to review the following sections.

Split TDS sections 

Transactions linked to these sections require manual mapping:

• 194S

• 194J(b)

• 194A

• 194C

• 194LC(ic)

• 196C

• 196B

You must select the correct section based on the nature of the payment.

Deprecated section 

• Remove or replace Section 194LD wherever it is used.

System limitations 

• A new TDS rate will not be created if the existing rate ends before April 1, 2026.

• Vendor-level mappings for split or deprecated sections are not updated automatically.

Steps to update TDS and TCS in Zoho Books

1. Log in to your Zoho Books organisation.

2. Click View Details in the banner on the homepage.

3. Review the changes shown in the pop-up.

4. Click Update Now.

    

After this, your organisation will be aligned with the Income Tax Act, 2025.

Recommended checklist for a smooth transition

Before updating:

• Download recurring transactions with TDS.

• Identify transactions linked to split or deprecated sections.

• Review vendor-level mappings.

After updating:

• Verify new TDS and TCS rates.

• Update transactions requiring manual mapping.

• Ensure deprecated sections are not in use.

Final word

The Income Tax Act, 2025 introduces a new structure for TDS and TCS compliance.

Updating your setup before April 1, 2026 ensures your transactions, deductions, and filings align with the new framework. Early action helps you avoid mapping errors and keeps your compliance process consistent.