Published 19 October 2026
Most people meet tax deduction at source from the receiving end, as a line on Form 16 or in the annual statement. The difficulty starts on the paying side. A business owner who has hired a contractor, a family buying a flat, or a company paying a foreign consultant has to work out whether the law makes them a deductor, whether they need a separate number for it, and which Act now governs the answer. This guide covers those three questions. The guides that follow deal with depositing the tax, filing statements, issuing certificates and fixing defaults.
Which Act applies
The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026. Its section 536 repeals the 1961 Act but saves “any right, privilege, obligation or liability acquired, accrued or incurred” under it (section 536(2)(b)). In practice this means:
- tax deductible on amounts paid or credited up to 31 March 2026 (financial year 2025-26) is governed by Chapter XVII-B of the 1961 Act, sections 192 to 206AA, and the Income-tax Rules, 1962;
- tax deductible on amounts paid or credited from 1 April 2026 (tax year 2026-27 onwards) is governed by Part B of Chapter XIX of the 2025 Act, sections 392 to 402, and the Income-tax Rules, 2026.
The e-filing portal follows the same split. Its challan user manual tells deductors to choose “Income Tax Act 1961” for payments up to and including AY 2026-27, including the payment for March 2026, and “Income Tax Act 2025” for tax year 2026-27 onwards.
The new structure: one TDS section with three tables
The 1961 Act spread TDS across more than forty sections, from 192 to 196D. The 2025 Act puts salary in section 392 and every other deduction in a single section, section 393, arranged in three tables:
| Table | Covers | Examples of 1961 counterparts |
|---|---|---|
| Section 393(1) | Payments to residents | 193, 194, 194A, 194C, 194H, 194-I, 194-IA, 194-IB, 194J, 194M, 194S |
| Section 393(2) | Payments to non-residents | 194E, 194LB, 194LC, 195, 196A to 196D |
| Section 393(3) | Payments to any person | 194B, 194BA, 194BB, 194N |
Each table names the income or sum (column B), the payer (column C) and the rate and threshold (column D). A provision is now cited by table and serial number. For example, rent paid by an individual who is not a “specified person” is section 393(1) [Table: Sl. No. 2(i)], the counterpart of section 194-IB, and the residuary deduction from “any other sum chargeable” paid to a non-resident is section 393(2) [Table: Sl. No. 17], the counterpart of section 195. Tax collection at source moves to section 394.
Who is a deductor
Column C of each table answers this question. Some entries say “any person”, and some are narrower. The term that does most of the sorting is “specified person”, defined in section 402(37) as:
- any person other than an individual or Hindu undivided family; or
- an individual or HUF whose sales, gross receipts or turnover exceeded Rs 1 crore (business) or Rs 50 lakh (profession) in the tax year immediately preceding the year of payment.
So a company paying rent deducts under Sl. No. 2(ii). A salaried individual paying more than Rs 50,000 a month in rent deducts under Sl. No. 2(i) at 2 per cent. An individual or HUF who is not otherwise required to deduct on contract work, professional fees or commission deducts at 2 per cent under Sl. No. 6(ii), but only once the payments exceed Rs 50 lakh in the year. A buyer of immovable property, other than agricultural land, deducts 1 per cent of the higher of the consideration and the stamp duty value under Sl. No. 3(i), where the threshold of Rs 50 lakh is crossed.
Thresholds, rates and the timing rule (“at the time of credit … or at the time of its payment …, whichever is earlier”, section 393(1)©) are read from the table entry itself. The “person responsible for paying” is defined in section 402(27).
TAN: the obligation
Section 203A of the 1961 Act required every deductor or collector to apply for a tax deduction and collection account number (TAN) and to quote it in challans, certificates and statements (section 203A). The 2025 Act carries this into section 397(1):
“(a) Every person deducting or collecting tax shall apply for allotment of a tax deduction and collection account number to the Assessing Officer within such time as may be prescribed, if that person has not already been allotted such number;”
Clause (b) requires the number to be quoted “in all challans, statements, certificates” under the Chapter. The TAN FAQ on incometaxindia.gov.in adds that one TAN serves for both TDS and TCS, and that a PAN cannot be quoted where a TAN is required.
Who does not need a TAN
Under the 1961 Act, three sections switched off section 203A for their own deductors: sections 194-IA(3) (property purchase), 194-IB(3) (rent by certain individuals and HUFs) and 194M(2) (contract and professional payments by certain individuals and HUFs). Each says, in the same words, that “the provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section”. Section 203A(3) also allowed the Central Government to notify exempt persons.
Under the 2025 Act, section 397(1)© was substituted by the Finance Act, 2026 with effect from 1 October 2026. The clause now says that clause (a) does not apply to:
- a person, in respect of a transaction where he is required to deduct tax under section 393(1) [Table: Sl. No. 2(i), 3(i) or 6(ii)], the counterparts of sections 194-IB, 194-IA and 194M;
- a person referred to in section 393(4) [Table: Sl. No. 12.C(a)], for a transaction where he deducts tax on consideration for a virtual digital asset under section 393(1) [Table: Sl. No. 8(vi)];
- a resident individual or HUF deducting tax on consideration for the transfer of immovable property under section 393(2) [Table: Sl. No. 17], that is, buying property from a non-resident;
- a person notified by the Central Government.
Two changes follow. Before 1 October 2026 the clause exempted “a person who is required to deduct tax” under the listed entries. The substituted text attaches the exemption to the transaction, so a person who has a TAN-free transaction does not escape TAN for other deductions. The clause also adds a new exemption for resident individuals and HUFs buying property from non-residents. Before 1 October 2026 such a buyer needed a TAN. The PAN-based challan-cum-statement, however, has not been extended in step. At the time of writing, the Income-tax Rules, 2026 (as notified on 20 March 2026) provide Form No. 141 only for section 393(1) [Table: Sl. Nos. 2(i), 3(i), 6(ii) and 8(vi)] (rules 218(3) and 219(5)), and this guide has not traced an amendment extending that form, or prescribing another PAN-based route, for purchases under section 393(2) [Table: Sl. No. 17]. Until the Rules provide one, the statute removes the TAN requirement for such a buyer, but the Rules do not yet say how he pays and reports the tax without one.
For the TAN-free transactions in section 393(1), tax is paid and reported through a single PAN-based challan-cum-statement, Form No. 141, which replaces Forms 26QB, 26QC, 26QD and 26QE. The Form No. 141 FAQ states that “Filing is to be done using PAN of the deductor”. The next guide covers it.
Applying for a TAN
The forms. Under rule 114A of the 1962 Rules the application was made in Form No. 49B. Rule 216 of the Income-tax Rules, 2026 splits it in two:
- Form No. 134 for a Government entity, meaning an entity of the Central or a State Government or a local authority, but not a company or a statutory or autonomous body (rule 216(6));
- Form No. 135 for everyone else.
Rule 216(2) also allows an application through a common application form notified by the Central Government, such as an incorporation form.
What to have ready. For Form No. 135, the FAQ lists proof of identity, proof of address and proof of date of birth or incorporation, which are the documents rule 216(5) borrows from the PAN rules. PAN is mandatory for non-Government applicants, and an LLP number or Corporate Identity Number is required where it applies. For Form No. 134 the FAQ lists the Accounts Office Identification Number (AIN) and a certificate from the PAO, ZAO, DTO or CDDO.
When. Rule 216(4) requires the application “prior to the deduction or collection of tax”, and otherwise “within thirty days from the end of the month in which the tax was deducted or collected”. Rule 114A(3) of the 1962 Rules gave one month from the end of the month of deduction.
Where and how. The FAQ describes two routes: offline at authorised PAN centres, or online through Protean or the MCA portal. The fee is Rs 77 including GST. An application cannot be edited after final submission. Details are changed by a correction request once the TAN is allotted, and the allotment letter is sent to the registered e-mail address.
What a missing or wrong TAN costs
| Default | 1961 Act | 2025 Act |
|---|---|---|
| Failure to apply for or quote a TAN | Rs 10,000, section 272BB(1) | Rs 10,000, section 468(1) |
| Quoting a TAN known or believed to be false | Rs 10,000, section 272BB(1A) | Rs 10,000, section 468(2) |
Under the 2025 Act no penalty under section 468 is imposed if the person proves reasonable cause (section 470). Penalties for tax years beginning before 1 April 2026 may still be imposed under the 1961 Act (section 536(2)(d)).
A deductor also needs a valid PAN from the payee
Section 397(2), the counterpart of section 206AA, requires every deductee to give the deductor a valid PAN. Without one, tax is deducted at the highest of three rates: the rate in the relevant provision, the rate in force, or 20 per cent (5 per cent for section 393(1) [Table: Sl. No. 8(ii) or 8(v)]). A declaration for no deduction is invalid without a PAN, and no lower-deduction certificate is granted without one. Section 206AB of the 1961 Act, the higher rate for non-filers, was omitted by the Finance Act, 2025 from 1 April 2025 and has no counterpart.
Summary
- Fix the Act by the date of payment or credit: up to 31 March 2026, Chapter XVII-B of the 1961 Act; from 1 April 2026, sections 392 to 402 of the 2025 Act.
- Find the payment in section 392 (salary) or in the section 393 tables, and read the payer, rate and threshold from columns C and D.
- Check whether the payer is a “specified person” under section 402(37).
- If the transaction is outside the section 397(1)© exemptions, apply for a TAN in Form No. 135 (or Form No. 134 for a Government entity) before deducting, and in any case within thirty days from the end of the month of deduction.
- Collect a valid PAN from each payee.
- Quote the TAN on every challan, statement and certificate.
The next guide, Deducting and Depositing TDS, covers the due dates for paying the tax, the challans, and the interest and disallowance that follow a late deduction or a late payment.