Introduction

Tax Deducted at Source (TDS) is one of the most critical compliance pillars for businesses operating in India. Every year, the Finance Act brings amendments — but Budget 2025-26, effective from April 2026, has introduced sweeping TDS changes that touch almost every category of payment. From reduced timelines to revised thresholds and new sections, businesses must update their compliance processes immediately to avoid penalties and interest.

This guide breaks down the key TDS changes for 2026-27, who is affected, and what actions you need to take.

1. Revised TDS Thresholds — More Transactions Now Covered

One of the most impactful changes is the reduction in TDS exemption thresholds across several sections. Previously, smaller payments could escape TDS deduction. Under the new rules:

Section 194A (Interest): The threshold for interest paid by banks and cooperative societies has been revised. Senior citizens continue to get a higher exemption, but non-senior individuals will see more interest payments subject to TDS.

Section 194C (Contractors): The aggregate annual limit for contractor payments, beyond which TDS applies, has been tightened. Businesses making regular small contractor payments that previously escaped TDS now need to track cumulative payments carefully.

Section 194J (Professional/Technical Services): The 2% rate for technical services and the 10% rate for professional services remain, but the threshold before TDS kicks in has been modified, pulling more service providers into the TDS net.

2. Reduced Deposit Timelines

The government has historically given deductors until the 7th of the following month to deposit TDS. The 2026-27 rules tighten this in specific scenarios:

For TDS deducted in March (year-end), the deposit deadline for certain sections is now the 30th of April, maintaining the existing rule. However, the CBDT has signaled stricter enforcement, and late deposit interest at 1.5% per month is being levied more aggressively through automated processing.

For government deductors, TDS must be deposited on the same day as deduction — there is no 7-day grace period.

Non-government deductors must ensure TDS is deposited by the 7th of the next month for all months except March.

3. TDS on Salary — Section 192 Changes

Employers must factor in the new tax regime as the default for FY 2026-27 unless an employee explicitly opts for the old regime. This affects:

How you calculate the estimated annual income and the TDS to be deducted from salary each month. Many employees switching to the new regime will see a different tax liability, and employers must collect fresh declarations at the start of the year and allow a mid-year revision if the employee's choice changes.

Form 12BB — the declaration submitted by employees — must be collected and retained by every employer.

4. New TDS Sections Introduced

Section 194T (Payments to Partners): One of the landmark changes for 2026-27 — a new section requires firms to deduct TDS at 10% on payments to partners (salary, commission, bonus, interest, or remuneration) exceeding ₹20,000 in a year. This is a completely new compliance obligation for partnership firms and LLPs that previously had no TDS obligation on partner payments.

Section 194-IA (Immovable Property): TDS at 1% continues on purchase of property above ₹50 lakhs, but stricter reporting requirements via Form 26QB are being enforced. Buyers failing to deposit TDS on property transactions now face automatic notices via AIS.

5. Higher TDS for Non-Filers of ITR

Section 206AB continues to apply — if a deductee has not filed income tax returns for two prior years AND their TDS/TCS in those years exceeded ₹50,000, TDS must be deducted at twice the applicable rate or 5%, whichever is higher.

The TRACES portal's compliance check tool must be used to verify each vendor/payee's filing status before making large payments. This is particularly important for businesses with large vendor bases.

6. TDS Returns — Revised Quarterly Deadlines

Filing Form 24Q (salary), 26Q (non-salary), 27Q (non-residents), and 27EQ (TCS) on time is mandatory. Delays attract a penalty of ₹200 per day under Section 234E, with a maximum cap equal to the TDS amount.

For 2026-27, the due dates are: Q1 (April–June) — 31st July; Q2 (July–September) — 31st October; Q3 (October–December) — 31st January; Q4 (January–March) — 31st May.

Late filing beyond these dates also triggers disallowance of the expense under Section 40(a)(ia) — meaning the business expense for which TDS was deducted late will not be allowed as a deduction, increasing taxable income.

Common Mistakes to Avoid in 2026-27

Missing the new Section 194T obligation on partner payments is already causing compliance gaps in many firms. Not verifying vendor PAN status before deduction — TDS at 20% applies if the deductee doesn't provide a valid PAN. Failing to issue Form 16/16A on time also attracts penalties. Incorrect challan mapping (wrong section codes) creates mismatches in 26AS/AIS that generate demand notices.

How Gadhia Associate Can Help

TDS compliance in 2026-27 is more complex than ever. At Gadhia Associate, our experienced CA team handles end-to-end TDS management — from monthly deduction calculations and challan filing to quarterly return preparation and Form 16/16A issuance. We also conduct TDS health checks for businesses to identify past defaults and rectify them before they attract notices.

Whether you are a startup, an established business, or a partnership firm navigating the new Section 194T obligations, we provide clear, timely, and accurate compliance support. Contact Gadhia Associate today to ensure your TDS compliance is error-free in 2026-27.