Introduction – Main Discussion
With the implementation of the New Income Tax Act, 2025 from 1 April 2026, several structural and procedural changes have been introduced in the tax deduction and collection mechanism. While the expert discussion clarifies that most TDS rates remain unchanged, there are important and specific changes in TCS rates that taxpayers, sellers, buyers, and tax professionals must clearly understand.
The restructuring of sections into consolidated provisions has been accompanied by select upward revisions in TCS rates, particularly for certain categories of goods and transactions. These changes directly affect pricing, cash flow, compliance, and reconciliation.
This article covers only one topic: all rate changes discussed for TDS and TCS under the New Income Tax Act, 2025, strictly based on the expert explanation, without adding any assumptions.
Main Discussion
1. Position of TDS Rates from 1 April 2026
As clearly stated in the expert discussion, there is no major change in TDS rates under the New Income Tax Act, 2025.
- The rates of TDS remain largely the same as applicable under the existing Income Tax Act.
- The core change relates to section renumbering and consolidation, not rate enhancement or reduction.
- Earlier sections such as 192, 194C, 194J, 194I, 194Q, 194S, etc., are now covered under Section 392 (salary) and Section 393 (other than salary).
The expert explicitly highlights that:
- Concepts, thresholds, and rates of TDS continue as earlier
- Only section numbers and reporting structure have changed
Accordingly, no TDS rate increase or decrease has been announced in the discussion.
2. TCS Rate Changes Effective from 1 April 2026 (Section 394)
Unlike TDS, TCS rates have seen significant upward revisions for specific categories. All TCS provisions are now consolidated under Section 394.
TCS Rates Increased from 1% to 2%
The following items have seen a clear rate increase, as highlighted in the expert session:
- Alcohol / liquor for human consumption
Rate increased from 1% to 2% - Tendu leaves
Rate increased from 1% to 2% - Forest produce (including timber)
Rate increased from 1% to 2% - Scrap
Rate increased from 1% to 2% - Minerals
Rate increased from 1% to 2% - Parking lot, toll plaza, and mining contracts
Rate increased from 1% to 2%
These increases directly impact sellers who are responsible for collecting tax at source and buyers whose cash flow gets affected at the transaction level.
3. TCS Rates with No Change Mentioned
The expert discussion specifically clarifies that certain TCS rates remain unchanged:
- Sale of motor vehicles (high-value category)
Continues at 1% - Luxury goods (such as watches, yachts, paintings, collectibles, etc., above the specified value)
Continues at 1%
Since no change was discussed for these categories, the rates continue as per existing practice.
4. TCS Rates for LRS and Tour Programmes (As Stated)
The expert discussion reiterates the following rates, which remain applicable:
- LRS – Education and medical purposes through authorised dealers
2% TCS above the specified threshold - LRS – Other purposes
20% TCS above the specified threshold - Tour program packages
2% TCS, irrespective of the transaction amount
These rates are stated as applicable under the revised structure and form part of the consolidated Section 394.
Practical Impact / Expert View
From a compliance and planning perspective, the expert highlights that:
- TCS rate increases directly affect working capital, especially in sectors dealing with scrap, minerals, and forest produce
- Sellers must update billing systems, ERP, and accounting software to reflect revised rates
- Buyers should be prepared for higher upfront tax collection
- Since TDS rates remain unchanged, the major focus area for professionals should be TCS compliance and reconciliation
The consolidation of provisions simplifies legal referencing, but rate accuracy becomes critical under the new structure.
Conclusion – Key Takeaways
- New Income Tax Act, 2025 is effective from 1 April 2026
- No TDS rate changes discussed; only section restructuring
- TCS rates increased from 1% to 2% for specified goods and contracts
- Motor vehicles and luxury goods TCS remain unchanged at 1%
- LRS and tour package TCS rates continue as stated
- Businesses must update systems and pricing for revised TCS rates
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