The Income Tax Rules 2026 introduce comprehensive transition guidelines for TDS compliance during the shift from the Income Tax Act, 1961 to the Income Tax Act, 2025. According to the latest FAQs from the Income Tax Department, the governing Act depends on when the "earlier of the event of credit or payment" occurs. If the earlier event occurs on or before March 31, 2026, the Income Tax Act, 1961 applies, while payments after April 1, 2026 fall under the Income Tax Act, 2025. For ongoing contracts with monthly payments, deductors apply the old Act for all payments up to and including March 31, 2026, and the new Act from April 1, 2026 onwards. Systems require updating to reflect new section numbering, terminology, and reporting requirements under the Income Tax Act, 2025.
The Income Tax Rules 2026 have introduced significant consolidations across multiple tax forms to streamline compliance under the new Income-tax Act, 2025. According to reports from Upstox, Form No. 132 now serves as the comprehensive TDS certificate, merging Forms 16B, 16C, 16D & 16E into one unified document. This form is issued for tax deducted at source on specific transactions involving payment of rent, transfer of immovable property, technical services, or transfer of Virtual Digital Assets (VDA). The form must be issued by the dedctor after depositing TDS and serves as proof for the deductee to claim TDS credit while filing ITR. Form 16 has been replaced by Form 130 for salaried employees, with Form 16A becoming Form 131 and Form 27D becoming Form 133. Any certificate issued as Form 16 for Tax Year 2026-27 will be technically non-compliant.
The new rules have simplified PAN application processes through Forms 93, 94, 95, and 96, replacing the earlier Forms 49A and 49AA. As reported by Upstox, Form 93 is for Individual (Citizen of India), Form 94 for Non-Individual Indian Entities, Form 95 for Individual (Non-Citizen), and Form 96 for Foreign Entities. PAN is a unique identifier required for tax filing and financial transactions, with applications filed online or through authorized centres requiring proof of identity, address, and date of birth/incorporation.
The new rules introduce Form No. 168 as the Annual Information Statement (AIS), replacing the earlier Form 26AS. As reported by Upstox, this detailed statement includes TDS, investments, taxes paid, and more, along with Taxpayer Information Summary (TIS) for simplified ITR filing. The Form No. 121 declaration for no TDS has been consolidated from Forms 15G and 15H into a single form, applicable to incomes like interest, dividends, rent, and must be submitted to payers before income is credited. The Form 3CD tax audit report has been replaced by Form 26 under the new Act, with TDS/TCS disclosure now spread across Clauses 49, 50, and 51 with a dedicated Schedule, requiring exact counts of unreported transactions for large enterprises. During the transition, the Annual Information Statement will be generated separately for each assessment/tax year - AIS for AY 2026-27 and Form No. 168 for Tax Year 2026-27.
Section 400(2) of the Income Tax Act, 2025 is amended to restore the binding nature of CBDT guidelines on both tax authorities and deductors. From April 1, 2026, CBDT circulars on TDS and TCS, including those on perquisites (194R) and virtual digital assets (194S), carry mandatory compliance weight. The TDS/TCS correction statement filing window is reduced to two years from the end of the financial year in which the original statement was due. Manpower services supply is now explicitly included as "work" under Section 194C with TDS rates of 1% for resident individuals or HUF, and 2% for all others. TCS rate changes from April 1, 2026 bring several categories to a flat 2% rate, including coal, lignite, iron ore, LRS for education and medical purposes, and overseas tour packages, removing previously higher rates and threshold-based slabs.
The Finance Act 2026 has introduced significant changes to income tax refund procedures effective from April 1, 2026. According to RSM India, the Act revised Section 536(2)(g) of the Income Tax Act, 2025 to provide that for Tax Year 2025-26 and previous years, the relevant provisions of the Income Tax Act, 1961 will continue to apply for computing interest. However, the rate of interest applicable on or after April 1, 2026 will be governed by the Income Tax Act, 2025. This ensures a clear demarcation between applicability of provisions and rates, thereby simplifying computation and avoiding dual referencing. The Finance Act 2026 also provides that tax refunds due under either the Income Tax Act, 1961 or the Income Tax Act, 2025, may be set off against any amount payable under either of the Acts. This enables cross-utilisation of refunds and demands across both legislations, helping to improve administrative efficiency and reduce taxpayer hardship. The amendment takes effect from March 30, 2026 for the Income Tax Act, 1961; and from April 1, 2026 for the Income Tax Act, 2025.
