Simplifying TDS Rules with Section 393

Section 393 of the Income Tax Act 2025 introduces a unified framework for tax deducted at source (TDS) on non-salary payments in India, effective April 1, 2026. It consolidates various existing provisions into a streamlined structure, outlining specific rates and thresholds for payments to residents and non-residents, enhancing compliance and clarity.

Section 393 of India’s new Income-tax Act, 2025, establishes the core framework for TDS on a wide range of payments (other than salaries). It shifts away from multiple scattered provisions and instead presents TDS rules in a tabular and consolidated format, making compliance more systematic.

At its core, the section mandates that any person making specified payments must deduct tax before releasing or crediting the amount, subject to prescribed conditions.

Structural overview of Section 393

As prescribed in Chapter 19 of the Income-tax Act, 2025, Section 393 serves as the new “umbrella” for nearly all non-salary TDS provisions, replacing several fragmented sections from the 1961 Act (like 194A, 194C, 194H, etc.).  

The section is divided into three distinct parts based on the recipient category

1. Payment to residents—This covers most domestic transactions such as rent, interest, contracts, etc.
2. Payment to non-residents—This applies to cross-border payments with specific rates
3. Payment to any person—This covers special transactions like winnings, cash withdrawals

TDS rates and thresholds under Section 393

TDS on payments to residents

Section 393(1) lays down a comprehensive, table-driven framework for TDS on payments made to residents. The provision applies when specified types of income are credited or paid during the tax year and requires the payer to deduct tax at prescribed rates once the threshold limits are crossed. The deduction is triggered at the earlier of credit or payment, ensuring timely tax collection.

In terms of other specified payments, Section 393 captures several modern and residual transaction types:

1. Life insurance proceeds (taxable portion): Two percent beyond INR 100,000
2. Purchase of goods: 0.1 percent on amounts exceeding INR 5 million
3. Business perquisites/benefits: 10 percent beyond INR 20,000
4. E-commerce transactions: 0.1 percent on gross sales facilitated by platforms
5. Virtual digital assets (e.g., crypto): 1 percent with no threshold

These provisions are supported by priority rules, ensuring that where multiple TDS provisions could apply, only the most relevant one is enforced.

TDS on payments to non-residents

Section 393(2) governs the TDS on payments made to non-residents, including foreign companies. The provision applies where specified incomes are credited or paid during the tax year, requiring the payer to deduct tax at prescribed rates.

The obligation arises at the earlier of credit or payment, except in certain cases where a deduction is triggered specifically at the time of payment. Importantly, the provision has a wide jurisdictional scope; TDS may apply irrespective of whether the non-resident has a presence in India.

Key categories of payments and TDS rates

TDS on payments to any person (special cases)

Section 393(3) governs TDS on specific categories of payments that apply universally, irrespective of whether the recipient is a resident or non-resident. These provisions typically cover event-based or transaction-specific incomes, such as winnings, cash withdrawals, and certain statutory payments, where tax is required to be deducted at the point of payout.

Unlike routine business payments, TDS in this category is generally linked to individual transactions or defined events, with clearly prescribed thresholds and timing rules.

Situations where TDS is not required

Section 393 provides a detailed list of exemptions where TDS need not be deducted. These include payments to:

• Government schemes or statutory funds, RBI, and certain exempt entities
• Specific institutions like insurance companies in defined cases
• Certain small taxpayers (e.g., low-value e-commerce participants)

Additionally, exemptions apply to specific types of income such as certain interest payments, dividends, and contractor payments under prescribed conditions.

Declaration for non-deduction

Individuals whose total income is below the taxable limit can submit a declaration stating nil tax liability. Upon receiving such a declaration, the payer is not required to deduct TDS. However, the payer must forward this declaration to the tax authorities within the prescribed timeline.

Comparative analysis: Section 393 (Income-tax Act, 2025) vs. Section 194 (Income-tax Act, 1961)

The transition from the Income-tax Act, 1961, to the Income-tax Act, 2025, reflects a structural recalibration of the TDS regime. While Section 194 under the 1961 framework governed dividend-specific withholding, Section 393 introduces a consolidated, system-driven provision that integrates multiple categories of payments into a unified compliance structure.

Section 194 functioned within a fragmented ecosystem of over 40 independent TDS provisions. Section 393 reduces interpretational silos and duplication.

FAQs: Section 393 of the Income-tax Act, 2025 — Key provisions and interpretation

Q. Have there been any changes to TDS rates or threshold limits?

No. The rates of TDS and applicable thresholds remain largely consistent with those prescribed under the Income-tax Act, 1961. The reform is structural in nature and does not alter the underlying tax incidence.

Q. From what date does Section 393 become operational?

Section 393 applies to transactions where the earlier of credit or payment occurs on or after April 1, 2026. Transactions falling prior to this date continue to be governed by the provisions of the Income-tax Act, 1961.

Q. What are the compliance requirements for quoting section references post-transition?

For transactions executed on or after April 1, 2026, deductors are required to quote the relevant table entry under Section 393. Continued reference to provisions under the 1961 Act (e.g., Sections 194C, 194J) may result in system-level validation errors and necessitate corrective filings.

Q. How are ongoing or transitional contracts treated?

For contracts spanning the transition period:

• Payments or credits up to March 31, 2026 are governed by the 1961 Act
• Payments or credits on or after April 1, 2026 fall within the ambit of Section 393

The determining criterion remains the earlier of credit or payment, consistent with the prior regime.

Q. Does Section 393 provide for declarations similar to Forms 15G and 15H?

Yes. Section 393(6) enables eligible recipients to furnish a declaration that their estimated total income for the tax year is nil, thereby permitting non-deduction of tax at source. The eligibility conditions remain aligned with those under the earlier framework.

Q. Do circulars and administrative instructions issued under the 1961 Act remain valid?

Yes. Circulars, notifications, and instructions issued under the previous Act continue to remain in force, provided they are not inconsistent with the provisions of the 2025 Act. This ensures interpretational continuity and administrative consistency.

Q. What is the overarching policy objective of Section 393?

Section 393 is intended to streamline and rationalize the TDS framework by consolidating multiple provisions into a unified structure. The provision enhances clarity, reduces compliance complexity, and aligns withholding obligations with a more standardized and scalable legislative design.