Union Budget 2026: Complete List of New TDS/TCS Rules, What Increases, What Gets Cheaper, Who Pays More Now?

With extensive modifications to the Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) regime under the new Income Tax Act, 2025, the Union Budget 2026-2027 represents an important overhaul in India's tax compliance system. These changes, which go into effect on April 1, 2026, aim to lessen the burden of compliance for both individuals and businesses.

Budget 2026 - Proposed Changes in TDS and TCS Framework

Here are the proposed changes in the TCS/TDS framework at a glance, as per CA (Dr.) Suresh Surana.

Non-deduction of tax at source on interest awarded by the Motor Accidents Claims Tribunal

• With a view to providing relief to individuals and to mitigate the financial hardship arising from motor accidents, it is proposed to exempt interest on compensation awarded by the Motor Accidents Claims Tribunal from deduction of tax at source in all cases, irrespective of the quantum of such interest.
• This amendment is proposed to take effect from 1 April 2026.

Application of Tax Deduction at Source on Supply of Manpower

• The applicable rate of deduction is 1% where the payment is made to an individual or a Hindu Undivided Family, and 2% in other cases.
• Thus, ambiguity has arisen regarding the appropriate TDS provision applicable to payments for supply of manpower, particularly as to whether such payments should be treated as payments for "work" under section 393(1) [Table, Sl. No. 6(i) or 6(ii)] or as fees for professional or technical services under section 393(1) [Table, Sl. No. 6(iii)].
• In order to provide clarity and ensure uniform application of the TDS provisions, it is proposed to expressly include "supply of manpower" within the scope of the definition of "work" under section 402(47) (corresponding to 194C of ITA 1961). Consequently, payments for supply of manpower shall be subject to tax deduction at source in accordance with section 393(1) [Table, Sl. No. 6(i)] or section 393(1) [Table, Sl. No. 6(ii)], as applicable, thereby removing interpretational uncertainty.

Enabling electronic application and issuance of certificates for deduction of tax at Lower or nil rates

• Section 395 of the ITA 2025 (corresponding to Section 197 of ITA 1961) governs the issuance of certificates for deduction of tax at source (TDS) at nil or lower rates.
• In order to simplify the compliance process and reduce the administrative burden, particularly for small taxpayers, it is proposed to enable electronic filing of applications for issuance of certificates for deduction of income-tax at lower or nil rates. In accordance with the proposed framework, the payee may submit the application electronically before a prescribed income-tax authority, which may issue the certificate subject to fulfilment of such conditions as may be prescribed, or reject the application where the prescribed conditions are not satisfied or where the application is found to be incomplete.
• This amendment is proposed to take effect from 1 April 2026.

Relaxation from Requirement to Obtain Tax Deduction and Collection Account Number (TAN) in Case of Purchase of Immovable Property from a Non-Resident

• Section 397(1)(a) of the ITA 2025 (corresponding to Section 203A of ITA 1961) mandates that every person responsible for deducting or collecting tax shall apply to the Assessing Officer for allotment of a Tax Deduction and Collection Account Number (TAN). Clause (c) of the said sub-section prescribes specific circumstances in which a person is exempted from the requirement of obtaining a TAN.
• Currently, a buyer of immovable property from a resident seller is not required to obtain a TAN for the purposes of tax deduction at source. However, where the seller is a non-resident, the buyer is presently required to obtain a TAN in order to deduct tax at source on the consideration paid. This requirement results in an additional compliance obligation for resident individual buyers and Hindu Undivided Families (HUFs), particularly where the transaction is a one-time property purchase.
• In order to mitigate this compliance burden, it is proposed to amend section 397(1)(c) to provide that a resident individual or a Hindu Undivided Family shall not be required to obtain a TAN for deducting tax at source in respect of consideration paid on transfer of immovable property under section 393(2) [Table, Sl. No. 17], even where the transferor is a non-resident.
• This amendment is proposed to take effect from 1 October 2026.

Binding Nature of Guidelines Issued for Implementation of TDS/TCS Provisions

• Section 400(2) of the ITA 2025 (corresponding to Section 206C of ITA 1961) empowers the Board, with the prior approval of the Central Government, to issue guidelines for the purpose of removing difficulties in giving effect to the provisions relating to tax deduction at source (TDS) and tax collection at source (TCS). The said guidelines are required to be laid before each House of Parliament.
• The corresponding provisions under the Income-tax Act, 1961 expressly provided that such guidelines shall be binding both on the income-tax authorities and on the person responsible for deducting or collecting income-tax. However, section 400(2) of the ITA 2025 does not currently incorporate an explicit provision conferring binding force on such guidelines.
• In order to align section 400(2) with the legislative intent and the corresponding provisions of the Income-tax Act, 1961, it is proposed to clarify that any guidelines issued for removing difficulties in the implementation of the TDS/TCS provisions shall be binding on the income-tax authorities as well as on the persons liable to deduct or collect income-tax.
• Accordingly, section 400(2) is proposed to be amended to expressly provide for the binding nature of such guidelines.
• This amendment shall take effect from 1 April 2026.