Income Tax Department has issued a FAQ on amendments proposed to provisions related to Tax Deduction at Source (TDS) and related procedures
(a) No TDS on interest awarded by Motor Accidents Claims Tribunal to an individual as per the provision of Section 393(4)
Q.1 Is there any provision for deduction of tax at source in respect of interest on compensation amount awarded by Motor Accidents Claims Tribunal (MACT)?
Ans. Yes. Section 393(4) [Table: Sl. No 7] of the Income-tax Act, 2025 provides that no tax shall be deducted at source on such interest, if the aggregate amount received during the year does not exceed Rs. 50000.
Q.2 Whether the interest on compensation is taxable under the Income-tax Act, 2025 presently? Ans: Yes, presently interest on compensation is taxable under section 278 of the Income-tax Act, 2025.
Q.3 What changes are proposed in this regard in the Finance Bill, 2026?
Ans: It is proposed that interest awarded by MACT will not be taxable in the hands of individual or his legal heir. It is also proposed that no tax shall be deducted at source on any interest amount awarded by the MACT, if such interest is credited or paid to an individual.
Q.4 Whether there is any change in respect of a person other than an individual with respect to the applicability of TDS when such interest income is received?
Ans: No. In case of a person other than an individual, the existing provisions of the Incometax Act, 2025 will continue and any interest amount exceeding Rs. 50000 will be liable for TDS.
Q.5 From which date will the above amendment be effective?
Ans: The amendments are proposed to be made effective from 1st April, 2026.
(b) Including “supply of manpower” within the ambit of definition of “work” for the purposes of TDS as defined in section 402(27) of the Income-tax Act, 2025
Q.1 Which provisions of the Income-tax Act, 2025 deals with TDS rate on contract and fee for professional services?
Ans: Section 393(1) [Table: Sl. No. 6(i)] of the Income-tax Act, 2025 provide for rate of TDS on payment to contractors. Whereas section 393(1) [Table: Sl. No. 6(iii)] of the Income-tax Act, 2025 provide for rate of TDS on fee for professional service.
Q.2 What are the rates at which TDS shall be made under the aforesaid section?
Ans: Under section 393(1) [Table: Sl. No. 6(i)] of the Income-tax Act, 2025, TDS shall be deducted @2%, if the payee is resident individual or HUF and @1%, if payee is a person other than individual and HUF. TDS rates under section 393(1) [Table: Sl. No. 6(iii)] of the Income-tax Act, 2025 is 2% and 10%. However, TDS shall be done @10% in respect of fee for professional services.
Q.3 What changes are proposed in the Finance Bill, 2026 with regard to rate of TDS on supply of manpower?
Ans: It is proposed that the definition of “work” may be extended to include “supply of manpower” within its ambit so as to provide clarity that rate of TDS for supply of manpower shall be governed by the provisions of section 393(1) [Table: Sl. No. 6(i) and (ii)] of the Income-tax Act, 2025.
Q.4 From which date will the above change be effective? Ans: The amendments are proposed to be made effective from 1st April, 2026
(c) Simplified procedure for small taxpayers to obtain certificate of lower or nil deduction of tax at source under section 395 of the Income-tax Act, 2025
Q.1 What is the present provision under the Income-tax Act, 2025 for obtaining certificate for deduction of income-tax at a lower rate or no deduction of income-tax?
Ans: As per the present provisions, the payee has to make an application before the Assessing Officer. Subsequent to the application, if the Assessing Officer is satisfied that the total income of the recipient justifies deduction at any lower rates or no deduction, he/she issues a certificate. However, the process for issuance of such certificates is uniform both for cases involving small amounts as well as large amounts
Q.2 What is the change proposed vide Finance Bill, 2026?
Ans: For small taxpayers, it is proposed that the application for issuance of certificates for lower rate or nil deduction of tax may be made electronically to the prescribed income-tax authority. The prescribed income-tax authority shall examine the application electronically and issue the certificate subject to fulfilment of conditions as may be prescribed, or reject the application if prescribed conditions are not fulfilled or the application is incomplete.
Q.3 Who can make application to the prescribed income-tax authority under the proposed changes?
Ans: The category of taxpayers and other related conditions will be prescribed by the Board by making rules in this regard.
Q.4 Who will be the prescribed income-tax authority to whom application can be made?
Ans: Such authority will be prescribed by the Board by making rules in this regard.
Q.5 Can a person file application before Assessing Officer as well as to prescribed incometax authority?
Ans: No. The application can be filed either before the Assessing Officer or to the prescribed income-tax authority.
Q.6 From which date will the above amendment be effective?
Ans: The amendments are proposed to be made effective from 1st April, 2026
(d) Ease of compliance to the investors filing declaration for no deduction of tax under section 393(6) of the Income-tax Act, 2025
Q.1 What is the existing procedure for furnishing a declaration for no deduction of tax under section 393(6) of the Income-tax Act, 2025? A
ns: At present, the taxpayer has to furnish a declaration for no deduction of tax to the person responsible for paying (hereinafter referred as the “deductor”) any income of the nature specified in section 393(6) of the Income-tax Act, 2025.
Q.2 What changes are proposed in the Finance Bill, 2026 in this regard? Ans: It has been proposed that the taxpayer may file the declaration u/s 393(6) of the Incometax Act, 2025 to the depository, as defined in section (2)(e) of the Depositories Act, 1996, for following nature of income:
(i) Income from units of a mutual fund
(ii) Interest from securities
(iii) Dividends The depository will make available the declaration filed with it to the deductor.
Q.3 Whether a person who does not hold its units and securities in the depository can make declaration to the depository?
Ans: No. A person can only make declaration to the depository, if (i) the units and securities are held in the depositories and (ii) such securities are listed on a recognized stock exchange
Q.4 What will be the procedure and manner to file a declaration with the depository?
Ans: The procedure and manner for filing the declaration with the depository and making available such declaration to the deductor will be provided by making rules in this regard.
Q.5 Will the depository provide necessary enablement to file the declaration with it?
Ans: Yes, the depositories will make necessary arrangements to ensure that the declaration is filed with them.
Q.6 Will the deductor be mandated to consider the declaration made available to it by the depository?
Ans: Yes, the deductor is mandated to consider the declaration received from the depository.
Q.7 Is there any change with regard to delivering the declaration to the Department?
Ans: Yes, two changes are proposed in this regard.
(i) The deductor will furnish declaration received to the prescribed income-tax authority and not to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner
(ii) The deductor will be required to deliver the declaration received by it on quarterly basis and not on monthly basis.
Q.8 What will be the impact of the proposed changes?
Ans: The taxpayer will not have to file separate declaration with different entities and instead it can file the declaration with the depository. It will ease the compliance burden of the taxpayers. The deductor will receive declaration from a single source i.e. depository and will have to deliver declarations received on quarterly basis. This will make compliance easier for the deductors.
Q.9 From which date will the above change be effective?
Ans: The amendments are proposed to be made effective from 1st April, 2027.
(e) No TAN requirement for deducting TDS where seller of the immovable property is a nonresident under section 397 of the Income-tax Act, 2025
Q.1 Who are required to obtain TAN under the Income-tax Act?
Ans: Section 397(1) of the Income-tax Act, 2025 provides that every person, deducting or collecting tax shall apply for the allotment of a Tax Deduction and Collection Account Number (TAN). However, clause (c) of the said section provides for the cases where a person is not required to obtain TAN for deducting TDS.
Q.2 Whether a resident individual or Hindu undivided family (HUF) is required to obtain TAN, where he is required to deduct tax on any consideration for sale of immovable property and the seller of the property is a resident?
Ans: No. In case the seller of the immovable property is a resident, the resident individual or HUF is not required to obtain TAN for deduction of income-tax. In such cases, the buyer deducts tax using his PAN and reports the deduction quoting the PAN of seller in the challan-cum-statement that is filed with the department.
Q.3 What is the present provision in respect of transaction on immoveable property is the buyer is a resident and the seller is a non-resident?
Ans: In case the seller of the immovable property is a non-resident, the resident individual or HUF is required to obtain TAN for deduction of income-tax.
Q.4 What is the change proposed with regard to obtaining TAN in the Finance Bill, 2026?
Ans: It is proposed that the resident individual or HUF will not be required to obtain TAN where TDS is required to be deducted by him on any consideration for the transfer of any immovable property and the seller of the property is a non-resident. In such cases, the buyer will now deduct tax using his PAN and shall report the deduction quoting the PAN of seller in the challan-cum-statement that is filed with the department. Therefore, the process of tax deduction and reporting shall now be similar irrespective of whether seller is a resident or a non-resident
Q.5 How will it benefit the taxpayers?
Ans: It will reduce compliance burden on the resident individual and HUF as they will not be required to obtain TAN for such transaction and can deduct income-tax based on his PAN.
Q.6 What would be the process of tax deduction at source in the absence of TAN?
Ans: The taxpayer can deduct tax at source by furnishing PAN based challan cum statement as may be notified. The process of tax deduction and reporting shall now be similar irrespective of whether seller is a resident or a non-resident
Q.7 From which date will the above amendment be effective?
Ans: The amendments are proposed to be made effective from 1st October, 2026
(f) decriminalisation of offences related to TDS defaults
Q.1 What offences have been fully decriminalised?
Ans. If a person fails to pay the tax deducted at source or ensure the payment of such tax, in case of winnings from Lottery or crossword puzzle etc as required under section 476(1)(b)(i) of the Income-tax Act, 2025 and if a person fails to pay and ensure payment of tax deducted at source in case of benefits or perquisite under section 476(1)(b)(ii) of the Income-tax Act, 2025 then the punishment for these offences is rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years, and with fine. These offences are proposed to be fully decriminalized.
In similar manner, if a person fails to pay tax deducted at source or ensure payment of tax in case of winnings from online games under section 476(1)(b)(i) of the Income-tax Act, 2025 and consideration from virtual digital asset under section 476(1)(b)(ii) of the Income-tax Act, 2025 then these offences attract punishment of rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years, and with fine. In these cases, winnings from online games and consideration from virtual digital asset which are wholly in kind are also proposed to be excluded from criminal liability related to prosecution in case of failure to pay tax or ensure payment of tax.
Q.2 Will compounding be continued to be available for all offences? Ans: Yes, there is no change in compounding of offences.
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