TDS on Payments to Residents – Income Tax Act 2025 Explained

The Income Tax Act, 2025 introduces a structured and simplified framework for Tax Deducted at Source (TDS) on various payments made to residents. Earlier, TDS provisions were scattered across multiple sections of the Income Tax Act, 1961, mainly under the Section 194 series.

To make compliance easier, the new law consolidates these provisions into a systematic table under Section 393, which clearly specifies the nature of payment, threshold limit, and applicable TDS rate.

TDS is a mechanism where tax is deducted at the time of making certain payments such as commission, rent, interest, professional fees, or purchase of property. The person making the payment (called the deductor) is responsible for deducting tax and depositing it with the government.

This system ensures regular tax collection, reduces tax evasion, and improves transparency in financial transactions.

Key Payments Covered Under TDS (Payments to Residents)

The Income Tax Act 2025 requires TDS deduction on several types of payments, including:

1. Commission or Brokerage

Payments made as commission or brokerage to agents or intermediaries are subject to TDS.This includes:

• Insurance commission
• Brokerage for sale or purchase of goods
• Commission paid to agents for facilitating business transactions.

2. Rent Payments

TDS applies to rent payments for:

• Land or building
• Plant and machinery
• Furniture and fittings

If the rent amount exceeds the prescribed threshold, the payer must deduct tax before making the payment.

3. Purchase of Immovable Property

When a buyer purchases immovable property exceeding ₹50 lakh, the buyer must deduct 1% TDS before paying the seller.
This provision helps the government track high-value real estate transactions.

4. Interest Income

TDS is applicable on interest income such as:

• Bank fixed deposits
• Post office deposits
• Corporate bonds or securities

However, the law provides higher threshold limits for senior citizens.

5. Contractor Payments

Payments made to contractors for carrying out any work or service are subject to TDS once the payment exceeds the prescribed limit.

6. Professional or Technical Services

TDS must be deducted on payments made for professional services such as:

• Legal services
• Medical services
• Consultancy
• Engineering and technical services

7. Dividend Payments

Domestic companies must deduct TDS before distributing dividends to shareholders once the threshold limit is crossed.

8. E-Commerce Transactions

E-commerce operators are required to deduct TDS when making payments to sellers using their online platforms.

9. Benefits or Perquisites from Business

If a business provides gifts, incentives, or benefits to dealers or distributors, TDS must be deducted if the value exceeds the specified limit.

10. Virtual Digital Assets (Cryptocurrency)

The law also includes provisions for cryptocurrency transactions, where TDS must be deducted on the transfer of virtual digital assets.

TDS Rate Chart FY 2026-2027 As per Income Tax Act 2025

Table Sl. No.	New Section (IT Act 2025)	Nature of Payment	Threshold Limit	TDS Rate	Old Income Tax Act Section
1(i)	Sec 393	Insurance Commission (remuneration for soliciting/procuring business, including renewals)	₹ 20,000	Rates in force	194D
1(ii)	Sec 393	Commission or Brokerage (other than insurance commission)	₹ 20,000	Rates in force	194H
2(i)	Sec 393	Rent (Paid by non-specified persons)	₹ 50,000 per month	2%	194-IB
2(ii)	Sec 393	Rent (a) Plant, machinery, or equipment	₹ 50,000 per month	2%	194-I
2(ii)	Sec 393	Rent (b) Land, building, furniture, or fittings	₹ 50,000 per month	10%	194-I
3(i)	Sec 393	Purchase of Immovable Property	₹50,00,000	1%	194IA
3(ii)	Sec 393	Certain contractual payments under agreement	Nil	10%	194IC
3(iii)	Sec 393	Compensation on compulsory acquisition of property	₹5,00,000	10%	194LA
4(i)	Sec 393	Mutual Fund Units Income	₹10,000	10%	194K
4(ii)	Sec 393	Business Trust distributed income	Nil	10%	194LBA
4(iii)	Sec 393	Investment fund income	Nil	10%	194LBB
4(iv)	Sec 393	Securitisation Trust Income	Nil	10%	194LBC
5(i)	Sec 393	Interest on Securities	₹10,000	Rates in force	193
5(ii)	Sec 393	Bank / Post Office Interest	₹50,000 / ₹1,00,000 (Senior Citizen)	10%	194A
6(i)	Sec 393	Payment to Contractor	₹30,000 single / ₹1,00,000 aggregate	1% / 2%	194C
6(ii)	Sec 393	Work / service payments by Individual or HUF	₹50 lakh turnover condition	2%	194M
6(iii)	Sec 393	Professional / Technical Services	₹50,000	2% / 10%	194J
7	Sec 393	Dividend Distribution	Nil	10%	194
8(i)	Sec 393	Life Insurance Policy Payment	₹1,00,000	2%	194DA
8(ii)	Sec 393	Purchase of Goods	₹50,00,000	0.10%	194Q
8(iii)	Sec 393	Specified Senior Citizen Scheme deduction	As applicable	Rates in force	194P
8(iv)	Sec 393	Benefit / Perquisite from Business	₹20,000	10%	194R
8(v)	Sec 393	E-commerce transactions	Nil	0.10%	194O
8(vi)	Sec 393	Transfer of Virtual Digital Assets (Crypto)	Nil	1%	194S

 

Conclusion

The TDS Rate Chart prepared under the Income Tax Act, 2025 serves as a comprehensive guide to the provisions governing Tax Deducted at Source on payments made to residents. By consolidating multiple TDS provisions that were previously spread across various sections of the Income-tax Act, 1961, the new Act presents them in a clear, structured format. This makes it easier for taxpayers, businesses, and professionals to identify the nature of payment, applicable threshold limits, and the corresponding TDS rates.

The chart helps deductors quickly determine when TDS is required to be deducted and at what rate, thereby reducing the chances of errors and non-compliance. It also improves transparency in financial transactions such as commission payments, rent, professional fees, contractor payments, interest income, property transactions, e-commerce payments, and digital asset transfers.

Sources: Income Tax Act 2025

Please read this also: 10 big Changes in New Income Tax Act 2025