Businesses and tax filers prepare to file first-quarter data TDS and TCS returns for tax year (TY) 2026-27 You will need to adapt to a new compliance framework under the Income Tax Act 2025. The first quarterly filing under the new law introduces revised return forms, new department codes and updated reporting requirements, making accurate reconciliation more important than ever.
Tax professionals say filers should learn about the changes ahead of time on July 31, 2026, to avoid filing errors and last-minute compliance issues.
The new return forms replace the old formats
One of the biggest changes this year is the introduction of new quarterly returns forms.
Under the amended framework:
Form 138 replaces Form 24Q for TDS deducted from salary payments.
Form 140 replaces Form 26Q for TDS on non-salary payments.
Form 143 replaces Form 27EQ for Taxes Collected at Source (TCS).
All three forms for the first quarter of TY 2026-27 must be submitted by July 31, 2026.
Must read: TDS deducted from salary but missing in form 26AS? What the law says about your tax liability
The new forms are part of the migration to the Income Tax Act 2025, which reorganized provisions and introduced new section numbering while retaining the overall compliance structure.
New department codes for TDS and TCS
Along with the new forms, deductees will also have to report transactions using new departmental codes mandated under the Income Tax Act of 2025.
For example, the former Section 192 TDS governing salary payments is now reported under Section 1602. Likewise, new section numbers have been assigned to TDS provisions relating to commission, rent, contractor payments, professional fees, purchase of goods and partnership awards.
The TCS provisions have also been renumbered. For example, a TCS on the sale of scrap, which was previously covered under section 206C(1), is now reported under section 1073.
Tax experts advise companies to ensure their payroll systems, accounting software and TDS utilities are updated with the revised department codes before preparing quarterly statements.
Q1 TDS/TCS Return File (TY 2026-27): Key Changes at a Glance
| details | Old frame | New Framework (Income Tax Law, 2025) |
|---|---|---|
| Returns salary TDS | Form 24S | Form 138 |
| Non-salary TDS returns | Form 26S | Form 140 |
| TCS is back | Form 27EQ | Form 143 |
| Q1 return due date | July 31 | July 31, 2026 |
| Applicable law | Income Tax Law, 1961 | Income Tax Law of 2025 |
| Section references | Old section numbers | New section codes |
Major TDS/TCS section code changes
| Nature of payment | Old section | New section | TDS/TCS rate |
|---|---|---|---|
| salary | 192 | 1602 | Slab rates |
| Commission/brokerage | 194 AH | 1606 | 2% |
| Rent (land/building) | 194 I (A) | 1609 | 10% |
| Rent (plant and machinery) | 194 I (B) | 1610 | 2% |
| Professional and technical fees | 194 EGP | 1627 | 10% |
| Contractor payments | 194 EGP | 1623 | 1%/2% |
| Purchase goods | 194 s | 1631 | 0.1% |
| Partner’s salary/commission | 194T | 1667 | 10% |
| TCS scrap sale | 206C(1) | 1073 | 2% |
Pre-submission compliance checklist
| Checklist | Action is required |
|---|---|
| Check the return form | Use Form 138, 140, or 143, as appropriate |
| Check department codes | Use the new section numbers under the Income Tax Act 2025 |
| Matchmaking challenge | Matching the deposited tax with the deductions collected |
| Dividing the common challenge | Allocate amounts correctly if a challenge covers multiple department codes |
| Meet the deadline | The Q1 TDS/TCS file returns by July 31, 2026 |
Watch out for the common challenge
Chartered accountant Harshil Sheth highlighted another practical challenge that borrowers may face while filing first quarter returns.
If tax is filed for multiple department codes using a single form, additional reconciliation may be needed before returns are filed.
According to Sheth, the challan amount needs to be properly allocated between Form 138, Form 140 and Form 143, as the tax return filer needs to determine which portion of the tax payment relates to each return.
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Taxpayers are advised to carefully review the challenge details while downloading payment records, as proper classification at this stage can save significant time in reconciliation later.
Why accurate deposit matters
Although return formats have changed, compliance responsibility remains the same. Incorrect department codes, mismatches between challans and returns, or errors in allocation of tax payments can lead to defective filings, notices, or delays in processing of TDS balances.
Tax professionals recommend reconciling deduction records with challans before preparing quarterly returns and verifying that each deduction is assigned to the correct form and department code.
As the first quarterly filing under the new income tax law begins, companies that prepare early and update their systems are likely to find this transition smoother. Completing reconciliations in advance and ensuring the correct use of revised forms and department codes can help avoid unnecessary compliance issues before the July 31, 2026 deadline.
