Income Tax

Vendor Master Update for New TDS Codes — Income Tax Act 2025

Updated: June 2026 Tax Year 2026-27 Action Required Finance Ops ✓ incometaxindia.gov.in

Reviewed by CA Nikhil Gupta · Last reviewed 26 September 2026

With the Income Tax Act 2025 replacing the 1961 Act effective 1 April 2026, every TDS section number has changed. Section 194C is now Section 393(1), Table Sl. No. 6(i). Section 194J is Table Sl. No. 6(iii). Section 192 is Section 392. For finance teams, this isn't just a statutory curiosity — it directly impacts vendor master configurations in SAP, Oracle, Tally, and every other ERP. Get this wrong and TDS returns are defective, 26AS credits don't match, and vendors face deduction disputes. This guide gives you the complete old-to-new section mapping and a step-by-step update playbook.

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Immediate Action Required for Tax Year 2026-27: The Income Tax Act 2025 came into force on 1 April 2026. All TDS deductions from Tax Year 2026-27 (April 2026 onwards) must reference the new Act's section numbers. ERP vendor masters carrying old section codes (194C, 194J, 194I, etc.) must be updated before your April 2026 TDS return cycle. Delayed updates will result in incorrect TDS returns, TRACES mismatches, and vendor 26AS discrepancies.

Why Vendor Master Update Matters

The vendor master in your ERP stores the TDS section applicable to each vendor/payment type. When you process a payment, the system automatically calculates TDS based on the vendor master configuration. If the master still shows Section 194C but the return must now reference Section 393(1), Table Sl. No. 6(i), the TDS return filed via Form 26Q will contain incorrect section codes.

The downstream consequences are serious:

Form 26AS / AIS mismatch: The TDS credit reflected in a vendor's 26AS will reference a section that no longer exists, creating confusion during their ITR filing
TRACES rejection: TDS returns with section codes not recognised by the updated TRACES system will be flagged as defective
Lower deduction certificate issues: Vendors holding lower deduction certificates (Form 13 / now Form 33 under new Act) issued under old section numbers will face problems
Internal audit findings: Statutory auditors will flag ERP master data that doesn't match the applicable law

Complete TDS Section Mapping — Old Act to New Act

The following table maps the major TDS/TCS sections of the Income Tax Act 1961 to the Income Tax Act 2025, with the payment code notified for each entry. Rates and thresholds are those in force for Tax Year 2026-27, including the higher thresholds brought in by the Finance Act 2025 (for example 194A, 194, 194D, 194H, 194I, 194J and 194LA).

Payment Nature	Old Section (Act 1961)	New Reference (Act 2025)	Payment Code	Rate	Threshold
Salary	192	Section 392	1001 (Government employees) / 1002 (others)	Slab rates	Basic exemption limit
Premature EPF withdrawal	192A	Section 392	1004	10%	₹50,000
Interest on securities	193	Section 393(1), Table Sl. No. 5(i)	1019	10%	As per the table entry
Dividend	194	Section 393(1), Table Sl. No. 7	1029	10%	₹10,000 per year
Interest other than on securities	194A	Section 393(1), Table Sl. No. 5(ii) and (iii)	1020–1022	10%	₹1,00,000 (senior citizens, bank/post office/co-operative), ₹50,000 (other depositors there), ₹10,000 (other payers)
Winnings from lottery, crossword, card game	194B	Section 393(3), Table Sl. No. 1	1058 / 1059	30%	₹10,000 in a year
Online gaming winnings	194BA	Section 393(3), Table Sl. No. 2	1060 / 1061	30%	No threshold
Winnings from horse race	194BB	Section 393(3), Table Sl. No. 3	1062	30%	₹10,000 in a year
Payment to contractors	194C	Section 393(1), Table Sl. No. 6(i)	1023 (individual/HUF) / 1024 (others)	1% (individual/HUF) / 2% (others)	₹30,000 single payment / ₹1,00,000 in a year
Insurance commission	194D	Section 393(1), Table Sl. No. 1(i)	1005	2% (individual payee)	₹20,000 in a year
Life insurance policy proceeds (taxable part)	194DA	Section 393(1), Table Sl. No. 8(i)	1030	2%	₹1,00,000
NSS withdrawal	194EE	Section 393(3), Table Sl. No. 6	1066	10%	₹2,500
Commission or brokerage	194H	Section 393(1), Table Sl. No. 1(ii)	1006	2%	₹20,000 in a year
Rent — plant, machinery, equipment	194I(a)	Section 393(1), Table Sl. No. 2(ii)	1008	2%	₹6,00,000 in a year (₹50,000 a month)
Rent — land, building, furniture	194I(b)	Section 393(1), Table Sl. No. 2(ii)	1009	10%	₹6,00,000 in a year (₹50,000 a month)
Rent by individual/HUF not subject to audit	194IB	Section 393(1) table — confirm code in your TDS utility	—	2%	₹50,000 a month
Transfer of immovable property (other than agricultural land)	194IA	Section 393(1) table — confirm code in your TDS utility	—	1%	Consideration of ₹50 lakh or more
Joint development agreement — cash consideration	194IC	Section 393(1), Table Sl. No. 3(ii)	1011	10%	No threshold
Technical services, call centre, film royalty	194J(a)	Section 393(1), Table Sl. No. 6(iii)	1026	2%	₹50,000 in a year
Professional services; director's fees (non-salary)	194J(b)	Section 393(1), Table Sl. No. 6(iii)	1027 (professional) / 1028 (director)	10%	₹50,000 in a year (no threshold for director's fees)
Income from mutual fund units	194K	Section 393(1), Table Sl. No. 4(i)	1013	10%	₹10,000 in a year
Income from business trust (REIT/InvIT)	194LBA	Section 393(1), Table Sl. No. 4(ii)	1014–1016	10%	As per the table entry
Income from Category I/II AIF units	194LBB	Section 393(1), Table Sl. No. 4(iii)	1017	10%	As per the table entry
Compensation on compulsory acquisition of land	194LA	Section 393(1) table — confirm code in your TDS utility	—	10%	₹5,00,000 in a year
Cash withdrawal above threshold	194N	Section 393(3), Table Sl. No. 5	1064 / 1065	2% (higher for non-filers)	Above ₹1 crore in a year (ITR filers)
E-commerce operator payment to seller	194O	Section 393(1), Table Sl. No. 8(v)	1035	0.1%	₹5 lakh per seller in a year
Purchase of goods	194Q	Section 393(1), Table Sl. No. 8(ii)	1031	0.1%	₹50 lakh in a year (buyer turnover above ₹10 crore)
Benefit or perquisite in business/profession	194R	Section 393(1), Table Sl. No. 8(iv)	1033 / 1034	10%	₹20,000 in a year
Virtual digital asset transfer	194S	Section 393(1), Table Sl. No. 8(vi)	1037 / 1038	1%	₹50,000 (specified persons) / ₹10,000 (others)
Salary, remuneration, commission, bonus or interest paid by a firm to a partner	194T	Section 393(3), Table Sl. No. 7	1067	10%	₹20,000 per partner in a year
Payments to non-residents	195	Section 393(2)	Per payment type	Per Act or DTAA rate	No threshold
Tax collected at source (TCS)	206C	Section 394	See TCS code list	Per table entry	Per table entry

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Source: Section 392 (salary), Section 393 (other payments, with the table serial numbers shown) and Section 394 (tax collected at source) of the Income Tax Act 2025, read with the section codes notified by CBDT with the Income-tax Rules, 2026 (20 March 2026). TDS and TCS provisions now sit together in Sections 390–402 of the new Act (Chapter XIX), against Chapter XVII-B of the 1961 Act. Table serials and codes follow the published CBDT code list; the drop-down in your TDS statement utility is the final check before you file.

Step-by-Step Vendor Master Update — SAP, Tally & Others

Phase 1: Audit Current Vendor Master

Extract vendor master TDS report: Pull a full vendor master extract showing current Section, Rate, and Threshold configured for each vendor/withholding tax type. In SAP: Transaction FK10N or MM60 with withholding tax fields. In Tally: Go to Accounts Info → Ledgers → export with TDS nature of payment.

Classify by payment type: Group vendors by their TDS section (all 194C vendors, all 194J vendors, all 194I vendors, etc.). This creates update batches. Most companies have 90% of vendors clustered in 194C (contractors), 194J (professional fees), and 194I (rent).

Identify exceptions: Flag vendors with lower deduction certificates (Form 13/new Form 33), NIL deduction certificates, or DTAA-based deductions. These need individual review — the section reference in their certificates may need re-examination.

Phase 2: Configure New Section Codes in ERP

SAP S/4 HANA / SAP ECC: Navigate to SPRO → Financial Accounting → Accounts Receivable and Accounts Payable → Business Transactions → Withholding Tax → Extended Withholding Tax → Calculation → Withholding Tax Codes. Create new withholding tax codes for each new Act section (e.g., WT code "Z93C" for Section 393(1), Table Sl. No. 6(i) (payment codes 1023/1024) to replace "194C"). Set rate = same as before. Then mass-update vendor master using transaction XK99 (FI01/FK01 change) to assign new WT codes.

Tally Prime / Tally ERP 9: Go to Gateway of Tally → Accounts Info → Statutory Info → TDS Nature of Payments. Create new Nature of Payment entries for each new section (e.g., "Contractors - Sec 393(1) Sl. 6(i)"). Then update each ledger under Accounts Info → Ledgers → alter → TDS Applicable → select new nature of payment. Tally typically releases an update patch for this — check Tally's Knowledge Base at tallysolutions.com for the Income Tax Act 2025 compatibility update.

Oracle Fusion / NetSuite: Update the Tax Withholding Type configuration. For Oracle Fusion: Navigator → Setup and Maintenance → Tax → Withholding Tax Rates. Create new rates linked to new Act section references. Then update supplier/payable records via mass update or FBDI template for large vendor sets.

Testing before go-live: Process test transactions in a sandbox/test environment. Verify that (a) TDS is calculated at the correct rate, (b) the withholding tax certificate generated references the new section, and (c) the TDS return generation tool picks up the new section code correctly.

Case Study: Precision Autoparts Ltd — 1,200-Vendor Master Migration

Manufacturing Company, Pune — Tax Year 2026-27 Transition

Precision Autoparts processes payments to ~1,200 active vendors across contractor, professional, and rent categories. Their SAP ECC had all vendor masters configured under old 1961 Act section codes. Here's how they executed the transition in 3 weeks:

Week 1 — Audit: Pulled vendor master via SAP report RFWT0010. Found 680 vendors under 194C, 210 under 194J, 90 under 194I, 40 under 194H, rest miscellaneous. Identified 12 vendors with lower deduction certificates.
Week 2 — Configuration: Created new withholding tax keys in SPRO. Mapped 194C → 393(1) Sl. 6(i) (codes 1023/1024), 194J-technical → Sl. 6(iii) (code 1026) at 2%, 194J-professional → Sl. 6(iii) (code 1027) at 10%, 194I(a) → Sl. 2(ii) (code 1008), 194I(b) → Sl. 2(ii) (code 1009), 194H → Sl. 1(ii) (code 1006). Total 9 new WT keys created.
Week 3 — Mass update & testing: Used XK99 to mass-update vendor masters. Ran test payment cycles for 15 sample vendors. Verified TDS certificates generated correctly. Ran a parallel April 2026 payables cycle with old and new codes to cross-check amounts.

The 12 vendors with lower deduction certificates were individually reviewed with their CA. Since the Act allows transition of certificates, no fresh applications were needed for TY2026-27 — the existing certificates were endorsed with the new section reference.

Vendors Updated

1,200

New WT Keys Created

Transition Timeline

3 weeks

Lower Cert Cases

12 (individually reviewed)

TDS Return Filing — Section Codes in Form 26Q

Form 26Q (TDS on non-salary payments) requires the deductor to mention the Section under which TDS was deducted for each deductee transaction. From Tax Year 2026-27 onwards, this must reflect new Act section codes.

TRACES / RPU Update Timeline

The TRACES portal and the Return Preparation Utility (RPU) issued by NSDL are updated by the Income Tax department to accept new section codes. Check the following:

NSDL's RPU version for Q1 Tax Year 2026-27 (April–June 2026) — download from tin.tin.nsdl.com
TRACES portal update announcements — check under traces.gov.in → Latest Updates
If your TDS return software (Saral TDS, Winman, ClearTDS) is third-party, ensure it has been updated to reflect new section codes

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Transition Period Guidance: CBDT typically issues a circular during major transitions clarifying whether old section codes will be accepted in TDS returns for a transitional period. For FY2025-26 (April 2025–March 2026) TDS returns still filed under the old Act — file with old section codes. For Tax Year 2026-27 (April 2026 onwards) — use new Act section codes. Watch for CBDT circulars on the official incometaxindia.gov.in website for any relaxation or extended timelines.

Lower Deduction Certificates — Impact and Transition

Vendors holding Form 13 certificates (lower/NIL TDS) issued under the 1961 Act may face questions about validity after 1 April 2026. The general principle under transitional provisions is:

Certificates issued for FY2025-26 remain valid for that year's payments
For Tax Year 2026-27, fresh applications may need to reference the new Act section numbers
CBDT transitional circulars will clarify the specific procedure — vendors should file fresh Form 13 applications (now under new Act section references) via the TRACES portal early in Tax Year 2026-27

✅ Vendor Master Update Compliance Checklist

Extract current vendor master TDS section codes from ERP (SAP/Tally/Oracle)
Map each vendor to the new section using the old-to-new table above
Create new withholding tax codes/keys in ERP for all new Act sections
Handle split sections (e.g., 194J split into code 1026 for technical services and call centres and code 1027 for professional services)
Mass-update vendor masters with new section codes (effective 1 April 2026)
Test payment cycles in sandbox before live transactions
Identify all vendors with lower deduction certificates (Form 13)
Advise lower-cert vendors to file fresh Form 13 under new Act sections
Update TDS return software to latest version (RPU/FVU from NSDL)
Configure new section codes in TDS return preparation tool
Verify that withholding tax certificates issued post-April 2026 reflect new section numbers
Brief accounts payable team on the section changes and their implications
Review any vendor contracts quoting old TDS section numbers — update if needed
Download CBDT transition circular when published and circulate internally

Special Situations in Vendor Master Update

194J Split — Technical vs Professional Services

The old Section 194J had two rates: 2% for technical services and 10% for professional services. Many ERP systems had a single 194J vendor code with both sub-types. Under the new Act, these map to:

Technical services (e.g., IT maintenance, AMC) → Section 393(1), Sl. No. 6(iii), code 1026 @ 2%
Professional services (e.g., CA fees, legal fees, consultancy) → Section 393(1), Sl. No. 6(iii), code 1027 @ 10%
Call centre payments → Section 393(1), Sl. No. 6(iii), code 1026 @ 2%

If your vendor master has a generic "194J" entry used for both, you must now split it into separate codes. This is the most common configuration error finance teams encounter during the transition.

194C — Contractor Payments

The contractor TDS section maps cleanly: 194C → Section 393(1), Table Sl. No. 6(i), with payment code 1023 for individual/HUF contractors and 1024 for all others. Rates are unchanged: 1% for individual/HUF contractors, 2% for company/firm contractors. The threshold structure (₹30,000 per payment, ₹1 lakh aggregate) is preserved. Validate that your ERP has vendor type (individual vs company) correctly configured — this drives the rate selection.

194I — Rent Split

Section 194I had two sub-clauses. The new Act keeps them as two payment codes under 393(1), Table Sl. No. 2(ii): 1008 for plant/machinery/equipment (2%) and 1009 for land/building/furniture (10%). Separately, 194IB (rent paid by individuals above ₹50K/month) has its own table entry — confirm its code in your TDS utility. Ensure your property/equipment rent vendors are segregated correctly.

Vendor Master Update — Key Takeaways

All TDS sections change from 1 April 2026 — old 194C, 194J, 194I etc. are replaced by new Act numbers
Rates and thresholds remain the same — only section numbers change
ERP vendor master update is mandatory before processing April 2026 TDS payments
194J requires special attention — split into technical (2%) and professional (10%) sub-types in new Act
Lower deduction certificate vendors need fresh Form 13 applications referencing new Act sections
Monitor TRACES portal and RPU utility updates for return-filing software readiness
Watch for CBDT transitional circular on old section code acceptance in returns

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Frequently Asked Questions

The key TDS section changes are: Section 194C (contractors) → Section 393(1), Table Sl. No. 6(i); Section 194I (rent) → Sl. No. 2(ii); Section 194J (professional/technical fees) → Sl. No. 6(iii); Section 194H (commission) → Sl. No. 1(ii); Section 194A (interest) → Sl. No. 5; Section 194Q (goods purchase) and 194O (e-commerce) → Sl. No. 8; Section 192 (salary) → Section 392. Each entry also has a payment code, for example 1023/1024 for contractors. The rates and thresholds remain the same. All ERP systems must be updated to reflect new section numbers from Tax Year 2026-27.

TDS challan codes (ITNS 281) and BSR codes used for challan deposit have not changed. The CBDT/TIN-NSDL payment system still uses the same challan format. What changes is the section number quoted in TDS returns (Form 26Q, 27Q, 24Q) and in the vendor master of your ERP. The payment infrastructure remains the same. However, the Section codes in the TDS return annexure must reflect new Act section numbers from Tax Year 2026-27 onwards.

If you file TDS returns with old section numbers (e.g., 194C instead of 393(1) Sl. 6(i)) after the transition date, the return may be treated as defective or incorrect. The Income Tax department's TDS reconciliation system (TRACES) will be updated to accept new section codes. During the transition period, CBDT may issue clarifications on whether old section codes will continue to be accepted in returns. Practically, for FY2025-26 returns filed before April 2026 — use old codes. For Tax Year 2026-27 returns — use new Act codes. Monitor CBDT circulars and the RPU/FVU utility updates for official guidance.

Sources: Income Tax Act 2025 (incometaxindia.gov.in/income-tax-act-2025) — Chapter XIX, Sections 390–402 (TDS/TCS provisions); CBDT Press Releases on Income Tax Act 2025 transition; TRACES portal (traces.gov.in); TIN-NSDL RPU utilities (tin.tin.nsdl.com).

Disclaimer: This article is for educational and operational guidance only. TDS provisions are governed by the Income Tax Act 2025 and CBDT circulars. Finance teams should consult their ERP implementation partner and a Chartered Accountant for specific configuration guidance. Finin2min is not a tax advisory service. Section mappings are based on the Act as published; verify against official CBDT notifications for any amendments.

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