CBDT FAQ Deep-Dive on Income-tax Act 2025 TDS Transition: Q4 FY 2025-26 Statement Filing Mechanics Under Section 536 Saving Clause Before the May 31, 2026 Deadline
Key Takeaways
- The CBDT’s 99-page FAQ on the Income-tax Act 2025 contains a dedicated TDS chapter that governs how Q4 FY 2025-26 statements (Form 24Q for salaries, Form 26Q for resident non-salary, Form 27Q for non-residents, Form 27EQ for TCS) must be filed before the May 31, 2026 due date.
- Q4 FY 2025-26 is the last quarter that sits entirely within the repealed Income-tax Act 1961 timeline. Section 536 saving clause expressly preserves the deductor’s obligation to file these statements under the 1961 regime, even though the filing window opens on April 1, 2026 under the new Act.
- Deductors must use the Section 1961 form schemas and Sections 200/206C numbering for Q4 statements. The new Income-tax Act 2025 section numbering applies only from Q1 of Tax Year 2026-27 onwards (quarter ending June 30, 2026; due July 31, 2026).
- Form 16 (salary TDS certificate) and Form 16A (non-salary TDS certificate) for FY 2025-26 must continue to cite the Income-tax Act 1961 sections under the saving-clause shield. The new Act sections appear only on Form 16/16A issued for FY 2026-27 onwards.
- Default penalty exposure remains under Section 234E (fee), Section 271H (penalty), Section 276B (prosecution) of the 1961 Act for Q4 lapses. Section 536(13) saves the subordinate notifications (Rule 31A, Rule 37BA) that operationalise these penalties.
Why This FAQ Deep-Dive Matters: The May 31 Deadline Is 19 Days Away
The CBDT released a 99-page FAQ document titled “Interplay and Transition” on the Income-tax Act 2025 in late April 2026. Our anchor advisory at Tax Update India’s CBDT 99-Page FAQ guide walked through the umbrella saving clause under Section 536. This Q&A deep-dive narrows the lens to the TDS transition chapter because the Q4 FY 2025-26 TDS statement deadline is May 31, 2026, which is 19 days away as of publication. Every CA portfolio firm in India has a Q4 deduction workflow to close out, and the FAQ resolves a cluster of operational questions that were raising panic on professional WhatsApp groups in early May 2026.
The core anxiety: deductors made deductions in March 2026 under the Income-tax Act 1961, but the statements are being filed in May 2026 under a window that opens after April 1, 2026, the effective date of the new Income-tax Act 2025. Which Act governs the form, the schema, the section numbering, the penalty, and the certificate? The CBDT’s answer is unambiguous: the Act under which the income arose, which means the 1961 Act for Q4 FY 2025-26, preserved by Section 536’s saving clause. This article translates the FAQ’s 22 TDS questions into a practitioner workflow you can run before May 31.
Section 536 Saving Clause: How It Protects Q4 FY 2025-26 TDS Compliance
Section 536 of the Income-tax Act 2025 is a 22-sub-clause saving provision that operates as a continuity bridge between the repealed 1961 Act and the new Act. Sub-clauses 8 through 13 specifically address the TDS continuum:
- Section 536(8): Deduction obligations that crystallised on or before March 31, 2026 continue under the 1961 Act regime, including the section number, rate, threshold, and exemption certificate framework.
- Section 536(9): Statements due in respect of pre-April 1, 2026 deductions must be filed in the form prescribed under the 1961 Act read with Rule 31A of the 1961 Rules.
- Section 536(10): Defaults, fees, and prosecutions for pre-April 1 statements remain governed by Sections 234E, 271H, and 276B of the 1961 Act. The new Act provisions (TDS chapter in the 2025 Act has its own renumbered penalty articles) apply only to post-April 1, 2026 deductions.
- Section 536(11): Tax credit (TDS reflected in Form 26AS, AIS, and TIS) carries forward seamlessly across the two regimes. Deductee returns for AY 2026-27 will pick up TDS credit from both Q1-Q3 FY 2025-26 statements (filed earlier) and Q4 FY 2025-26 statements (filed by May 31, 2026), all under the 1961 schema.
- Section 536(12): Refund claims arising from excess TDS deducted in FY 2025-26 are processed under Section 244A of the 1961 Act, including interest calculations.
- Section 536(13): All subordinate notifications, circulars, and rules (CBDT Notification 30/2016, the Rule 31A schema, Rule 37BA credit allocation, the TRACES portal SOPs) continue in force for the Q4 transition window.
Form-by-Form Q4 FY 2025-26 Filing Map
The deductor’s checklist for the May 31 cutoff varies by form. Use this table to map your client’s deductions:
| Form | Use Case | Schema Source | Section Reference Block | TRACES Reference |
|---|---|---|---|---|
| 24Q | Salary TDS (employees) | Rule 31A 1961 Rules (current Q4 schema) | Section 192 + 192A 1961 Act | Form 16 (Part A from TRACES, Part B from employer) |
| 26Q | Resident non-salary TDS (vendor, professional, rent, interest) | Rule 31A 1961 Rules | Sections 194A through 194T 1961 Act | Form 16A (issued from TRACES) |
| 27Q | Non-resident TDS | Rule 31A 1961 Rules | Sections 195, 196A, 196B, 196C, 196D 1961 Act | Form 16A NR |
| 27EQ | TCS (collection at source) | Rule 31AA 1961 Rules | Section 206C 1961 Act | Form 27D |
All four forms must continue to carry the 1961 Act section codes (192, 194C, 194J, 195, 206C(1H), etc.) when filed for Q4 FY 2025-26. Some practitioners reported in early May that the TRACES bulk-upload utility was rejecting forms with the new 2025 Act section codes. The FAQ confirms this is the correct behavior because the new Act numbering applies only from Q1 of Tax Year 2026-27.
Form 16 and Form 16A Issuance: The Section Citation Question
The FAQ devotes seven questions to the TDS certificate issuance question because employees, vendors, and consultants will receive Form 16 and 16A for FY 2025-26 during June and July 2026, well after the April 1, 2026 effective date of the new Act. Practitioners were unclear whether the certificates should cite the 1961 or the 2025 Act sections.
The CBDT’s position:
- Form 16 for FY 2025-26 (issued by employer by June 15, 2026 under Rule 31): Must cite Section 192 of the Income-tax Act 1961 as the deduction authority, with all challan, BSR, and Section 17 salary categorisations under the 1961 Act numbering.
- Form 16A for FY 2025-26 (issued quarterly by August 15, 2026 for Q4): Must cite Sections 194-series of the Income-tax Act 1961 for the specific deduction (194C contractor, 194J professional, 194I rent, 194A interest, etc.).
- Form 16 for FY 2026-27 onwards (first issuance June 2027): Will cite the renumbered TDS section under the Income-tax Act 2025. The 2025 Act renumbers Section 192 to a new section in Chapter XVII (the TDS chapter) with the same operative substance.
- Form 16 prepared between April and June 2026 for FY 2025-26: Even though issued under the new Act regime, must continue with 1961 Act numbering. This is the most common operational confusion and the FAQ resolves it explicitly.
Default Penalty Map for Q4 Lapses
If a deductor misses the May 31, 2026 cutoff for Q4 FY 2025-26 statements, the penalty exposure remains under the 1961 Act because Section 536(10) preserves the 1961 default framework. Use this map:
| Default | Provision | Quantum | Cap |
|---|---|---|---|
| Late filing fee (Form 24Q/26Q/27Q/27EQ) | Section 234E 1961 Act | Rs 200 per day from the day after due date | Capped at total TDS amount of the statement |
| Penalty for late filing | Section 271H 1961 Act | Rs 10,000 to Rs 1,00,000 per statement (AO discretion) | Not levied if filed within 1 year of due date and fee + tax + interest paid |
| Penalty for incorrect statement (wrong PAN, wrong section, wrong rate) | Section 271H 1961 Act | Rs 10,000 to Rs 1,00,000 | Same as above |
| Prosecution for non-payment of deducted tax | Section 276B 1961 Act | 3 months to 7 years imprisonment + fine | Compoundable on payment of compounding fee |
| Interest on late deposit of tax | Section 201(1A) 1961 Act | 1% per month deduction-to-payment lag; 1.5% per month payment-to-tax-credit lag | No cap |
None of these provisions reduce or expand under the 2025 Act for Q4 statements. The 2025 Act’s renumbered TDS chapter applies from Q1 Tax Year 2026-27 deductions (deductions made April 1, 2026 onwards), with the first statement filing in July 2026.
10-Step Practitioner Workflow Before May 31, 2026
- Pull TRACES Q4 challan data for every client TAN. Verify all March 2026 challans are tagged to the right TAN and the right form (24Q/26Q/27Q/27EQ).
- Reconcile book-side TDS to challan-side TDS. Run a tie-out of book-recorded TDS on AP / payroll ledgers against challans paid. Investigate any variance over Rs 500.
- Validate every PAN in the statement. Use the TRACES bulk PAN validation utility. Invalid PAN attracts higher TDS u/s 206AA 1961 Act and triggers a Section 271H exposure if not corrected pre-filing.
- Lock the section code under the 1961 Act numbering. Do NOT migrate to the new Act section codes for Q4 statements even if your accounting system has been updated.
- Verify lower-deduction certificates. Section 197 1961 Act certificates issued for FY 2025-26 remain valid for Q4 deductions. The 2025 Act’s renumbered lower-deduction provision applies only from FY 2026-27.
- Test the form 24Q Annexure II salary breakup. Run a sample employee’s salary computation under Section 17(1)/(2)/(3) of the 1961 Act with all FY 2025-26 deductions and exemptions. The new Act’s renumbering does not affect this.
- Upload the Q4 statement on TRACES. Use the FVU utility version current as of May 1, 2026 (CBDT typically releases an updated utility before Q4 due date). Confirm the section codes are accepted on the validation pass.
- Acknowledge the token number. File the token number against the client’s compliance tracker. The 15-digit token is your proof of statement filing for Section 234E protection.
- Plan Form 16 / 16A issuance dates. Form 16 (salary) due by June 15, 2026; Form 16A (non-salary) for Q4 due by August 15, 2026. Use the TRACES download path with the 1961 Act section citations.
- Document the Section 536 saving-clause reliance in your working papers. A short memo to the file confirming that Q4 FY 2025-26 was filed under 1961 Act provisions under Section 536(8) and (9) of the 2025 Act will protect you in any future audit query.
FAQ
Q: Our client’s accounting software was upgraded in April 2026 and now uses the new Income-tax Act 2025 section codes. Can we file Q4 FY 2025-26 with these new codes?
No. Q4 FY 2025-26 must be filed with the Income-tax Act 1961 section codes (192, 194C, 194J, 194I, 195, 206C, etc.) under Section 536(8) and (9) of the 2025 Act. If your accounting system has been updated, manually map the codes back to the 1961 numbering for the TRACES upload. The new Act codes are valid only for deductions made on or after April 1, 2026 (Q1 of Tax Year 2026-27, due July 31, 2026).
Q: What happens if we miss the May 31, 2026 deadline by 10 days?
You pay Section 234E fee at Rs 200 per day for 10 days (Rs 2,000), capped at the total TDS amount of the statement. You may also face a Section 271H penalty between Rs 10,000 and Rs 1,00,000 at AO discretion. Section 271H exemption applies if you file within one year of the due date AND have paid the tax, interest, and fee. Section 276B prosecution risk arises only if the deducted tax was not paid to the government, not merely for late statement filing.
Q: Our employee asked whether Form 16 for FY 2025-26 will cite the new Act sections. What do we tell them?
Form 16 for FY 2025-26 will cite Section 192 of the Income-tax Act 1961 as the deduction authority and reference Section 17 of the 1961 Act for salary categorisation. The new Income-tax Act 2025 sections will appear on Form 16 only from FY 2026-27 onwards, which the employee will receive in June 2027. The Section 80C / Chapter VI-A deduction labels on the FY 2025-26 Form 16 will also remain under the 1961 chapter VI-A nomenclature.
Q: Can we issue Form 16A for Q4 FY 2025-26 to a non-resident under Form 27Q before May 31?
Form 16A for Q4 FY 2025-26 is due 15 days after the statement due date, i.e., June 15, 2026 for Q4 statements filed by May 31. You can issue earlier if the statement is filed earlier, but the TRACES system will not generate a Form 16A until the corresponding statement is processed (typically 24 to 72 hours after upload). The non-resident’s home-country tax filing may need this certificate by their own deadlines, so prioritise Q4 27Q filings for NR clients.
Q: A deductor made an excess deduction in March 2026 and wants to claim a refund. Which Act governs?
The 1961 Act governs. Under Section 536(12), refunds of excess TDS deducted before April 1, 2026 are processed under Section 244A of the 1961 Act, including interest. File the refund claim under Form 26B with the AO of the deductor’s TAN.
Q: We have a Section 197 lower-deduction certificate valid until March 31, 2026 for a client. Does it cover Q4 deductions?
Yes. Section 197 certificates issued under the 1961 Act for FY 2025-26 are valid for the entire FY including Q4 (January 1 to March 31, 2026). Deductions made under the certificate’s rate are protected. A fresh Section 197 certificate is needed under the 2025 Act renumbered provision for FY 2026-27 deductions.
Q: What if the TRACES portal rejects a Q4 statement upload with a “section code invalid” error?
Check three things: (1) the FVU utility version is current (typically v8.4 or higher for Q4 FY 2025-26); (2) the section codes in the .txt file are the 1961 Act numbering (not the 2025 Act numbering); (3) the deductor TAN is correctly registered. If all three are correct and the error persists, raise a TRACES ticket and retain the timestamp as evidence of attempted filing within the due date for Section 234E protection.
Practitioner Takeaway
Q4 FY 2025-26 is the last TDS quarter under the Income-tax Act 1961. Section 536 of the new Income-tax Act 2025 builds a saving-clause bridge that lets you file these statements under the old Act’s section numbering, schema, and penalty regime even though the statutory filing window opens after April 1, 2026. The May 31, 2026 deadline is 19 days away. Lock the 1961 section codes, complete the TRACES upload, file the token number to your compliance tracker, and plan Form 16 / 16A issuance for June and August. Companion reading at our CBDT 99-page FAQ master guide and the related Income-tax Act 2025 issuance advisory.
Talk to an Expert
If your TDS portfolio spans multiple TANs, NR deductees, or complex Section 197 certificates, the Q4 FY 2025-26 transition is the right time to lock down section codes and statement filing SOPs. Talk to an Expert at Tax Update India for a portfolio review and Q4 filing dry-run before the May 31 deadline. Schedule a quick call here.
Disclaimer: This article summarises Tax Update India’s reading of the CBDT 99-page FAQ on the Income-tax Act 2025 Transition (April 2026) and Section 536 of the Income-tax Act 2025. It is general guidance, not legal advice. Verify the latest CBDT notifications, circulars, and TRACES utility version before filing. The Section 536 saving clause provisions may be further interpreted by CBDT clarifications between May and July 2026.