The Income-tax Act, 2025, introduces a significant overhaul for Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) compliance. Businesses and tax deductors are now required to navigate a new framework for their first-quarter filings of Tax Year (TY) 2026-27, with the crucial deadline set for July 31, 2026. This transition involves entirely new return forms and updated section codes, making accurate preparation more critical than ever.
New Quarterly Return Forms Introduced
A primary change under the revised compliance structure is the introduction of three new quarterly return forms, replacing their predecessors:
- Form 138 now replaces Form 24Q for TDS on salary payments.
- Form 140 replaces Form 26Q for TDS on non-salary payments.
- Form 143 replaces Form 27EQ for Tax Collected at Source (TCS).
All three forms are mandatory for the first quarter of TY 2026-27 and must be submitted by the July 31, 2026 deadline. This change is part of the broader migration to the Income-tax Act, 2025, which has re-organized various provisions and introduced fresh numbering while maintaining the overall compliance structure.
Updated Section Codes for TDS and TCS
In addition to the new forms, deductors must also report transactions using revised section codes prescribed under the Income-tax Act, 2025. For example, Section 192, which previously governed TDS on salary payments, is now reported under Section 1602. Similarly, TDS provisions for commission, rent, contractor payments, professional fees, purchase of goods, and partnership remuneration have all been assigned new section numbers.
TCS provisions have also seen renumbering. For instance, TCS on the sale of scrap, formerly under Section 206C(1), is now reported under Section 1073. Tax experts advise businesses to update their payroll systems, accounting software, and TDS utilities with these new codes well in advance of preparing quarterly statements to prevent filing errors.
Compliance Checklist for Q1 Filing
To ensure a smooth transition and accurate filing by July 31, 2026, tax professionals recommend the following checklist:
- Verify Return Forms: Ensure the correct new forms (138, 140, 143) are used.
- Check Section Codes: Use the updated section numbers from the Income-tax Act, 2025.
- Reconcile Challans: Match deposited tax amounts with collected deductions.
- Split Common Challans: If a single challan covers multiple section codes, correctly allocate amounts across the relevant new forms.
- Meet Due Date: File all Q1 TDS/TCS returns by July 31, 2026.
Chartered Accountant Harshil Sheth highlighted the challenge of common challans, where a single payment covers multiple section codes. Deductors must carefully allocate these amounts between Form 138, Form 140, and Form 143 within their filing utility. Proper classification during challan review can significantly reduce reconciliation time later.
Why Accurate Filing Matters
Despite the changes in format, the responsibility for compliance remains unchanged. Errors such as incorrect section codes, mismatches between challans and returns, or misallocated tax payments can lead to defective filings, notices from tax authorities, or delays in processing TDS credits. Early preparation, updating systems, and thorough reconciliation are crucial for businesses to navigate this new tax landscape smoothly and avoid compliance issues before the July 31 deadline.