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Outbyte Driver Updater FREEFix the driver behind crashes, sound loss and screen glitchesFind Drivers →Outbyte PC Repair FREEClear out junk files and repair common Windows errorsFree Scan →TDS is not one single rule. Salary, bank interest and professional fees are deducted under different payment categories, by different deductors and, from 1 April 2026, under the Income Tax Act, 2025 rather than the Income Tax Act, 1961. Salary has its own provision (section 392 from April 2026); bank interest and professional fees fall within the consolidated non-salary framework in section 393. The date of the relevant credit or payment determines which Act applies, and the recipient must still report the income and claim the TDS credit in the tax return.
The three categories at a glance
| Income received | Typical deductor | Provision for events from 1 April 2026 | What determines the deduction | Recipient’s task |
|---|---|---|---|---|
| Salary | Employer | Section 392 of the Income Tax Act, 2025 | Projected taxable salary and the applicable salary-tax computation for the tax year | Report salary, check the TDS entry in Form 26AS/AIS and claim the credit |
| Bank interest | Bank or other interest payer | Relevant section 393 table item for the interest category | Payee category, type of interest, threshold and rate in force for the transaction | Report interest even when TDS was deducted; reconcile the credit |
| Professional fees | Client, business or other specified payer | Relevant section 393 table item for professional or other specified fees | Nature of payment, payer/payee category, threshold and rate in the applicable table | Report gross professional income and claim the tax deducted |
The Income Tax Department describes the 2025 Act as consolidating the earlier withholding provisions: sections 192 through 194T of the 1961 Act are presented mainly through sections 392 and 393. It says the rates and thresholds are broadly retained, but the exact table item still has to be checked for the parties and payment involved.
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The 1 April 2026 transition rule
The first question is not the rate. It is the date on which the applicable withholding law is fixed.
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Salary paid through 31 March 2026 for financial year 2025–26 remains governed by section 192 of the Income Tax Act, 1961. Salary paid from April 2026 for Tax Year 2026–27 is covered by section 392(1) of the Income Tax Act, 2025. Employers therefore need a fresh salary computation when the new tax year begins, using the employee’s projected income, eligible deductions and selected tax regime.
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Non-salary payments: use the earlier of credit or payment
For bank interest, professional fees and other non-salary payments, the relevant event is the earlier of credit or payment. An event on or before 31 March 2026 uses the 1961 Act; an event on or after 1 April 2026 uses the corresponding 2025 Act provision.
| Credit date | Payment date | Act that governs the TDS event | Practical result |
|---|---|---|---|
| 20 March 2026 | 10 April 2026 | Income Tax Act, 1961 | The March credit is earlier, so the old-law provision applies. |
| 5 April 2026 | 20 April 2026 | Income Tax Act, 2025 | Both events are after the transition date. |
| No earlier credit; payment on 31 March 2026 | 31 March 2026 | Income Tax Act, 1961 | The payment itself occurs before the cutover. |
| No earlier credit; payment on 1 April 2026 | 1 April 2026 | Income Tax Act, 2025 | The first triggering event is on or after the cutover. |
For post-transition non-salary transactions, the deductor should select the applicable section 393 table reference rather than carry forward an old section number. The Income Tax Department has warned that using an obsolete reference can produce system-validation errors even where the underlying withholding calculation is otherwise correct.
How salary TDS differs
Who deducts it
The employer is the deductor. Salary withholding is not selected from the general non-salary table; it has a dedicated provision and a salary-specific computation.
How the amount is worked out
The employer generally estimates the employee’s taxable salary for the year, accounts for the information and deductions that the payroll process is permitted to use, applies the employee’s chosen tax regime and spreads the resulting liability across payroll deductions. The 2026 transition guidance specifically tells employers to reset the calculation for Tax Year 2026–27 instead of automatically continuing the prior year’s section reference or payroll setup.
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What changes at the transition
- Salary paid through 31 March 2026 is handled under section 192 of the 1961 Act.
- Salary paid from April 2026 is handled under section 392(1) of the 2025 Act.
- The employer should update the statutory reference and recompute projected annual income, deductions and regime selection for the new tax year.
Because payroll TDS is an advance collection of the employee’s income-tax liability, the final return remains important. A deduction from salary does not remove the obligation to disclose salary income or to reconcile the amount credited as TDS.
How bank-interest TDS differs
The bank is usually the deductor
Interest paid or credited by a bank is a non-salary payment. The bank applies the section 393 table item that matches the interest category, the payee’s status and the relevant threshold and rate.
The 10% figure has a limited scope
The 2026 Finance Bill rate schedule lists a 10% rate for resident non-company interest income other than interest on securities in the specified rate-in-force category. That figure is not a universal rate for every bank account or every interest recipient. The schedule excerpt does not, by itself, establish the threshold, all account types, exceptions or special cases. Those details must be checked in the current section 393 table and related rules for the exact transaction.
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What a depositor should check
- Identify the financial year or tax year in which the bank credited or paid the interest.
- Check whether the bank’s event occurred before or after 1 April 2026; for non-salary items, the earlier credit-or-payment event controls.
- Confirm that the bank used the payee category and interest type applicable to the account.
- Compare the bank’s TDS entry with Form 26AS and the Annual Information Statement (AIS).
- Include the full interest income in the return and claim only the TDS amount actually appearing in the tax records.
How professional-fee TDS differs
The client or business payer deducts it
Professional fees are paid by a client, company, firm or other specified payer, not necessarily by an employer or bank. They fall within the non-salary specified-payment framework. The deductor must identify the section 393 table item that corresponds to the professional service and the payer/payee combination.
Why a generic rate answer is unsafe
The applicable section 393 tables are organized around the payment category and provide the relevant payer, payee, threshold and rate. The material available for this explanation does not establish a complete current professional-fee threshold-and-rate table. It would therefore be misleading to quote one percentage as if it applied to every consultant, freelancer, firm or company.
Before deducting, the payer should verify the current table entry for the service, the recipient’s status and the date of the earlier credit or payment event. For a transaction on or after 1 April 2026, the payer should report the new Act’s section 393 reference, not an old 1961 Act section number.
Gross income and TDS credit are separate questions
A professional receiving a payment should record the professional income according to the applicable tax rules, even if the client paid less than the invoice because TDS was withheld. TDS is a credit against tax; it is not a reduction of the income that was earned. The credit should be claimed only after checking that it appears correctly in Form 26AS or AIS.
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The Income Tax Department directly addresses the common question: “Do I need to file returns if tax has been deducted by my employer / bank?” The answer is that TDS deduction does not by itself discharge the recipient’s reporting obligation.
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- Collect the income figures. Keep the salary, interest or professional-fee amount that was actually earned or credited, not merely the net amount received after TDS.
- Check Form 26AS. Use it to verify the TDS reported against the taxpayer’s account.
- Review AIS. Compare the AIS information with payroll, bank and client records and investigate mismatches.
- Disclose the income in the return. Salary, interest and professional receipts belong in the relevant income category even where tax was withheld.
- Claim the matching TDS credit. Claim the amount supported by the tax records and correct discrepancies with the deductor before finalising the return where possible.
- Keep the underlying evidence. Retain payslips or payroll records, bank statements, invoices and client statements so that the gross income and deduction can be reconciled.
A practical decision process for a new payment
- Classify the income. Ask whether the payment is salary, interest or a professional fee. Do not classify it solely by the recipient’s occupation: a professional may also earn salary or bank interest.
- Identify the deductor. Employer points to salary rules; bank points to interest rules; client or business payer points to the professional-fee or other specified-payment table.
- Find the triggering event. For non-salary income, compare the credit date and payment date and use the earlier one.
- Apply the correct Act. Events through 31 March 2026 use the 1961 Act; events from 1 April 2026 use the 2025 Act. Salary has the separate section 192-to-392 transition.
- Check the exact table item. Confirm payee category, payment type, threshold and rate. The 10% interest figure cannot be extended to cases for which the schedule does not establish it.
- Use the current reporting reference. For a post-1 April 2026 non-salary event, choose the relevant section 393 table reference to avoid validation errors.
- Reconcile after filing. Match the deduction to Form 26AS and AIS and claim the credit while reporting the gross income.
Common mistakes and how to fix them
Carrying an old section number into a new-year transaction
Problem: A deductor continues using a 1961 Act reference for a payment or credit from 1 April 2026 onward.
Fix: Reclassify the payment under the applicable section 393 table item, or section 392 for salary, and correct the reporting reference before submission.
Using the payment date alone for a professional fee or interest credit
Problem: The payer ignores an earlier credit entry and applies the law based only on the later bank transfer.
Fix: Compare both dates. The earlier credit-or-payment event fixes the Act for non-salary TDS.
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Treating the 10% interest figure as universal
Problem: A depositor assumes every bank-interest payment is subject to 10% TDS with the same threshold.
Fix: Verify the current section 393 category, payee status, interest type, threshold and exceptions. The Finance Bill figure is limited to the specified resident non-company interest category.
Assuming deduction means no return is needed
Problem: The recipient omits salary, interest or professional income because tax was already withheld.
Fix: Report the income, check Form 26AS and AIS, and claim the TDS credit separately.
Bottom line
Salary TDS is a dedicated employer calculation: section 192 of the 1961 Act applies through 31 March 2026, and section 392(1) of the 2025 Act applies from April 2026. Bank interest and professional fees are non-salary payments handled through the relevant section 393 table item. For those payments, the earlier of credit or payment controls the transition date. Exact thresholds and rates depend on the payer, payee and payment category, so a single generic percentage is not a safe answer. In every category, withholding is only a tax credit: disclose the income and reconcile the deduction in Form 26AS and AIS.
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