Tax Deducted at Source (TDS) is one of the most important compliance requirements for businesses and individuals in India. Every year, the government introduces changes to TDS rates, thresholds, and provisions — and FY 2026-27 brings some significant updates that every taxpayer must be aware of. Here is a precise and simple breakdown of everything that has changed.
What is TDS?
TDS or Tax Deducted at Source is a system where the payer deducts tax at the time of making specified payments — such as salary, rent, interest, or professional fees — and deposits it with the government on behalf of the payee. It ensures timely tax collection and prevents tax evasion.
Example: Raj pays Rs. 60,000 as professional fees to a consultant. He must deduct TDS before making the payment and deposit it with the government.
Key TDS Changes
1.New Section 194T — TDS on Partner's Remuneration Starting from April 1, 2025, if a firm makes any payments to its partners, it must deduct TDS at 10% if the payment amount exceeds the threshold limit of Rs. 20,000. These payments include salary, remuneration, bonus, commission, and interest. Note that TDS is not applicable on drawings and capital repayment to partners.
This is a major change for partnership firms and LLPs — partner payments now come under the TDS net for the first time.
2.Revised Threshold Limit
| Section | Nature of Payment | Old Threshold Limit | Revised Threshold Limit |
|---|---|---|---|
| 194A | Interest (other than securities) | ₹40,000 (₹50,000 for senior citizens) | ₹50,000 (₹1,00,000 for senior citizens) |
| 194C | Payments to contractors | ₹30,000 (single) / ₹1,00,000 (aggregate) | ₹50,000 (single) / ₹1,50,000 (aggregate) |
| 194H | Commission or brokerage | ₹15,000 | ₹20,000 |
| 194-I | Rent | ₹2,40,000 | ₹3,00,000 |
| 194J | Professional fees | ₹30,000 | ₹50,000 |
| 194K | Income from mutual funds | ₹5,000 | ₹10,000 |
Example for 194A: A senior citizen earns Rs. 80,000 as interest from her bank FD in FY 2026-27. Since the new threshold is Rs. 1,00,000 — no TDS is deducted. Relief for senior citizens!
Example for 194-I: Mr. Verma pays Rs. 40,000 per month as office rent in FY 2026-27. Since monthly rent does not exceed Rs. 50,000 — no TDS required!
Example for 194J: A company pays Rs. 45,000 as professional fees to a lawyer in FY 2026-27. With the new threshold of Rs. 50,000 — no TDS required!
3.Revised Rates
| Section | Nature of Payment | Old TDS Rate | Revised TDS Rate |
|---|---|---|---|
| 194C | Contractor payments | 1% / 2% | 1% / 1.5% |
| 194H | Commission or brokerage | 5% | 3% |
| 194-I | Rent (plant & machinery) | 2% | 2% (no change) |
| 194-I | Rent (land/building) | 10% | 8% |
| 194J | Professional services | 10% | 8% |
| 194-O | E-commerce participants | 1% | 0.75% |
Example for 194H:A company pays Rs. 1,00,000 as brokerage to an agent in FY 2026-27. TDS is now only Rs. 2,000 at 2% instead of Rs. 5,000 at 5% — saving Rs. 3,000 for the agent!
4.Section 206AB Removed
Section 206AB — which earlier increased the compliance burden for TDS deductors by requiring higher TDS deduction for non-filers — has been removed. (Bajaj Finserv) This is a significant relief for deductors who had to maintain lists of non-filers and apply higher rates.
Example: In FY 2026-27, even if a vendor has not filed ITR, Priya's company simply deducts TDS at the standard 10% on professional fees — no more checking ITR filing status of every vendor!
More Than Just Numbers
TDS compliance for FY 2026-27 is largely taxpayer-friendly — higher thresholds, lower rates, removal of 206AB, and a cleaner legal framework under the new Income Tax Act 2025. But one missed deduction can still cost you heavily. Always deduct correctly, deposit on time, and when in doubt — consult a qualified Chartered Accountant.
