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Income tax in India can be collected or paid at different stages during the year. Depending on the nature of income or transaction, tax may be deducted at source (TDS), collected at source (TCS), paid in advance by the taxpayer, or paid as self-assessment tax before filing the Income Tax Return (ITR).
Understanding the difference between these types of tax payments helps taxpayers correctly calculate their tax liability, claim available tax credits and avoid interest for short payment or delayed payment of tax.
Which Income-tax Act applies to your tax payment?
| Payment relates to | Applicable law | Portal selection |
|---|---|---|
| FY 2025-26 / AY 2026-27 | Income-tax Act, 1961 | Assessment Year 2026-27 |
| Income earned during 1 April 2026 to 31 March 2027 | Income-tax Act, 2025 | Tax Year 2026-27 |
For example, if you are paying self-assessment tax for FY 2025-26 while filing your return in 2026, you should select AY 2026-27 and the Income-tax Act, 1961. However, advance tax on income earned during FY 2026-27 is governed by the Income-tax Act, 2025.
What is Tax Deducted at Source (TDS)?
Tax Deducted at Source, commonly known as TDS, is a mechanism under which the person making certain specified payments deducts tax before making the payment to the recipient and deposits that tax with the Central Government.
TDS may apply to payments such as salary, interest, rent, professional fees, contractor payments, commission, purchase of immovable property and certain other specified transactions.
The amount deducted is generally available as a tax credit to the recipient, subject to correct reporting and matching of the tax payment.
TDS provisions under the Income-tax Act, 2025
From 1 April 2026, TDS provisions are primarily consolidated under:
- Section 392 – TDS relating to salary and specified employee-related payments.
- Section 393 – TDS relating to other specified payments including rent, commission, professional fees, contractors, property transactions and other payments.
Accordingly, for transactions on or after 1 April 2026, taxpayers and deductors should use the relevant provision under the Income-tax Act, 2025 instead of continuing to quote older section numbers such as sections 194C, 194H or 194J.
Common TDS rates and thresholds
The following table covers some commonly encountered TDS transactions under the Income-tax Act, 2025 for Tax Year 2026-27:
| Nature of payment | Income-tax Act, 2025 reference | TDS rate | Threshold / condition |
|---|---|---|---|
| Salary | Section 392 | Applicable rates based on estimated taxable salary | Subject to applicable tax liability |
| Commission or brokerage | Section 393(1), Table Sl. No. 1(ii) | 2% | ₹20,000 |
| Rent by specified person – plant, machinery or equipment | Section 393(1), Table Sl. No. 2(ii) | 2% | ₹50,000 per month or part of a month |
| Rent by specified person – land, building, furniture or fittings | Section 393(1), Table Sl. No. 2(ii) | 10% | ₹50,000 per month or part of a month |
| Rent by certain individuals / HUFs | Section 393(1), Table Sl. No. 2(i) | 2% | ₹50,000 per month or part of a month |
| Purchase of immovable property other than agricultural land | Section 393(1), Table Sl. No. 3(i) | 1% of consideration or stamp duty value, whichever is higher | Applicable where prescribed ₹50 lakh condition is satisfied |
| Payment to contractors | Section 393(1), Table Sl. No. 6(i) | 1% for individual/HUF contractor; 2% for other contractors | ₹30,000 for a single payment or ₹1,00,000 aggregate |
| Professional / technical fees and specified royalty | Section 393(1), Table Sl. No. 6(iii) | 2% for specified technical services / specified royalty / call centres; 10% in other specified cases | ₹50,000, subject to specified exceptions |
| Taxable amount under certain life insurance policies | Section 393(1), Table Sl. No. 8(i) | 2% on income comprised in the payment | ₹1,00,000 |
| Payments to partners by a firm | Section 393(3), Table Sl. No. 7 | 10% | ₹20,000 |
| Transfer of Virtual Digital Asset (VDA) | Section 393(1), Table Sl. No. 8(vi) | 1% | Certain exemptions apply where annual consideration does not exceed ₹50,000 for specified individuals/HUFs or ₹10,000 for other persons |
Note: TDS provisions contain several exceptions, special rates, lower-deduction provisions and payer/payee-specific conditions. The applicable provision should therefore be checked for the particular transaction.
What is Advance Tax?
Advance tax is income tax paid during the same financial year in which the income is earned instead of paying the entire tax liability at the time of filing the return. It is therefore commonly described as a “pay-as-you-earn” system.
Under section 404 of the Income-tax Act, 2025, advance tax is generally payable where the estimated advance-tax liability for the financial year is ₹10,000 or more.
While estimating the amount payable, taxpayers should consider their expected taxable income and reduce eligible TDS/TCS and other permitted tax credits.
Advance Tax due dates for Tax Year 2026-27
Section 408 of the Income-tax Act, 2025 provides the following instalment schedule:
| Due date | Cumulative advance tax payable |
|---|---|
| On or before 15 June | At least 15% |
| On or before 15 September | At least 45% |
| On or before 15 December | At least 75% |
| On or before 15 March | 100% |
Any advance tax paid on or before 31 March is treated as advance tax paid during that financial year.
Advance Tax for presumptive taxation
An assessee declaring eligible presumptive business income under the provisions specified in section 58(2) of the Income-tax Act, 2025 is generally required to pay the entire advance-tax liability on or before 15 March of the relevant financial year.
Who is not required to pay Advance Tax?
A resident senior citizen aged 60 years or more during the relevant tax year is not required to pay advance tax if the individual does not have income chargeable under the head “Profits and gains of business or profession”.
Further, a taxpayer whose estimated advance-tax liability is below ₹10,000 is not required to pay advance tax.
What if income such as capital gains arises unexpectedly?
Certain income, such as capital gains, may not be possible to estimate accurately at the beginning of the year. When such income arises, the taxpayer should recompute the estimated tax liability and pay the appropriate tax in the remaining advance-tax instalments in accordance with the applicable provisions.
What happens if Advance Tax is not paid correctly?
Failure to pay sufficient advance tax or delay in paying instalments may result in interest. Under the Income-tax Act, 2025, the corresponding provisions include:
- Section 424 – interest for short payment or non-payment of advance tax.
- Section 425 – interest for deferment of advance-tax instalments.
How to pay Advance Tax online?
Advance tax can be paid through the Income Tax e-Filing portal using the e-Pay Tax facility.
For Tax Year 2026-27, taxpayers should ensure that the Income-tax Act, 2025 and the correct Tax Year 2026-27 are selected while making the payment.
What is Self-Assessment Tax?
Self-assessment tax is the balance tax payable by a taxpayer after calculating the final taxable income and reducing taxes already paid or available as credit.
Broadly, a taxpayer calculates:
Tax on total income + applicable interest and fees − TDS − TCS − Advance Tax − eligible tax credits = balance Self-Assessment Tax payable
If an amount remains payable, the taxpayer should discharge the applicable self-assessment tax liability in accordance with the law governing the relevant year.
Under the Income-tax Act, 1961, self-assessment is governed by section 140A. Under the Income-tax Act, 2025, the corresponding provision is section 266.
For AY 2026-27: Even if self-assessment tax is paid after 1 April 2026, tax relating to FY 2025-26 continues to be governed by section 140A of the Income-tax Act, 1961. Select Assessment Year 2026-27 while making the payment.
What is Tax Collected at Source (TCS)?
Tax Collected at Source (TCS) is tax collected by a seller, authorised dealer, licensor or other specified person from the buyer or payer in certain transactions. The amount collected is deposited with the Central Government and is generally available as tax credit to the person from whom it was collected, subject to applicable conditions.
From 1 April 2026, TCS is primarily governed by section 394 of the Income-tax Act, 2025.
Common transactions covered by TCS under the Income-tax Act, 2025
| Transaction | TCS rate |
|---|---|
| Alcoholic liquor for human consumption | 1% |
| Tendu leaves | 5% |
| Specified timber / forest produce | 2% |
| Scrap | 1% |
| Coal, lignite or iron ore | 1% |
| Sale of motor vehicle where sale consideration exceeds ₹10 lakh | 1% |
| Liberalised Remittance Scheme (LRS) exceeding ₹10 lakh – education or medical treatment | 5%, subject to applicable exceptions |
| LRS exceeding ₹10 lakh – purposes other than education or medical treatment | 20% |
| Overseas tour programme package | 5% up to ₹10 lakh and 20% on the amount exceeding ₹10 lakh |
| Parking lot, toll plaza, mine or quarry for business purposes | 2% |
The earlier TCS provision on general sale of goods under section 206C(1H) of the Income-tax Act, 1961 was withdrawn with effect from 1 April 2025.
TDS vs TCS vs Advance Tax vs Self-Assessment Tax
| Type | Who pays / collects? | When? |
|---|---|---|
| TDS | Tax is deducted by the payer | At the prescribed time of payment / credit |
| TCS | Tax is collected by the specified seller / collector | On specified transactions |
| Advance Tax | Paid directly by the taxpayer | During the financial year |
| Self-Assessment Tax | Paid directly by the taxpayer | After final tax computation for the return |
Important points to remember
- TDS and TCS are generally tax credits and should be considered while determining the final tax payable.
- Check whether your payment relates to AY 2026-27 or Tax Year 2026-27 before selecting the applicable Act on the Income Tax e-Filing portal.
- Advance tax may be payable even where TDS has already been deducted if the remaining estimated tax liability is ₹10,000 or more.
- Do not wait until the return filing date to pay advance tax if you are liable to pay it during the year.
- Rates, thresholds and conditions may vary depending on the payer, recipient, nature of payment and applicable tax year.
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