The story
CA Anand manages a mid-sized practice in Gurugram. On 15 April he processed the first month’s payroll TDS for a corporate client for TY 2026-27. His payroll software had been updated to Section 392 in place of Section 192. He deposited the challan; the payment was accepted; everything looked clean.
Three days later the client’s payroll manager called — the TDS credit was not appearing. The challan had the correct new section number, but the Nature Code field had been left at the software default, so the system used a generic placeholder instead of the specific code required under Section 393’s table for that payment type.
The dual-law practice problem
Every Indian tax practice is currently running two legal frameworks at once.
Framework 1 (ITA 1961): FY 2025-26 ITR filings due July 2026, all pending assessments, all litigation filed before 1 April 2026, all Section 195 TDS deducted before 1 April on NRI payments, all Form 16 certificates for FY 2025-26, and all Form 3CD audit reports for FY 2025-26.
Framework 2 (ITA 2025): TY 2026-27 payroll TDS under Section 392, new vendor payments under Section 393 with Nature Codes, TCS under Section 394, the new Form 138 quarterly return (replacing Form 24Q), and the new Form 26 audit report (replacing Form 3CD).
The risk in a dual-law environment is cross-contamination — applying the new Act’s references to old-Act matters, or vice versa. For July 2026 ITR filing covering FY 2025-26, old section numbers must be used: Tab 1 on the portal, Form 16 as issued, old section numbers throughout.
The seven errors — with the correct position on each
| # | What practitioners are doing | Correct position |
|---|---|---|
| 1 | Software updated to Section 393 but the Nature Code left at default — challan deposits under the right section but the wrong Nature Code, so credit doesn’t map at TRACES. | Every Section 393 payment type needs a specific Nature Code (1001–1067). Build an old-section → new-Nature-Code mapping table and verify software config before the first deposit. |
| 2 | Generating TY 2026-27 Q1 salary TDS certificates labelled Form 16 — employees may face e-filing mismatches. | Form 130 replaces Form 16 for TY 2026-27 certificates. Form 16 remains correct for FY 2025-26 year-end certificates due 15 June 2026. Configure each year separately. |
| 3 | Applying the Form 3CD Clause 34 structure to TY 2026-27 audit reports. | Form 26 replaces Form 3CD; TDS disclosure moves to Clauses 49/50/51 and needs the exact count of unreported TDS transactions plus amounts. The governing form depends on the year audited, not the filing date. |
| 4 | Advising clients that CBDT circulars on TDS scope are advisory and can be departed from with disclosure. | Section 400(2) ITA 2025 restores the mandatory binding nature of CBDT guidelines on deductors from 1 April 2026. Review and update any advisory letter making the old argument. |
| 5 | Citing ITA 2025 sections in assessment responses for AY 2022-23/23-24/24-25 because the notice arrived after 1 April 2026. | Governing law follows the year the income was earned, not the notice date. All pre-April-2026 matters: ITA 1961 exclusively. Tag every matter file at opening. |
| 6 | Continuing to advise FII/QFI clients on interest TDS under Section 194LD for payments after 1 April 2026. | Section 194LD is deprecated from 1 April 2026 with no direct equivalent — identify the applicable provision per instrument. Also: MACT interest to natural persons is now fully exempt; update insurance and legal-firm clients. |
| 7 | Managing LDC applications through the old manual Form 13 workflow without checking automated eligibility. | The LDC process is being automated with predefined eligibility rules. Where a client historically got LDC easily but fails the algorithmic criteria, manual escalation applies — build this into the Q1 TY 2026-27 workflow now. |
The concurrent-practice operating protocol
For partner-level review — five actions before your next Monday-morning client call:
- Tag every active matter file as ITA 1961 (all pre-April-2026 income years) or ITA 2025 (TY 2026-27 onwards) — for assessment, litigation and advisory files. The governing Act is determined at matter-opening, not submission.
- Audit your TDS processing. Confirm your software has both the correct section (392/393/394) and the correct Nature Code for each payment category. Don’t assume the vendor default is right — verify against the official CBDT notification.
- Confirm your Form 16 generation timeline. FY 2025-26 year-end Form 16 (due 15 June 2026) is under ITA 1961 and correct as Form 16; any TY 2026-27 certificates must be Form 130. The dual-form environment needs separate configuration.
- Update advisory letters and litigation positions. Any submission citing CBDT circulars as non-binding for deductors must be updated for TY 2026-27 — that position no longer holds under Section 400(2) ITA 2025.
- Communicate specific changes to the relevant clients: Section 194LD deprecation to FII/QFI clients; MACT interest exemption to insurance and legal-firm clients; the Tab 1 / July 2026 filing protocol to all business-owner clients.
Counterpoint — what ITA 2025 gets right
The section consolidation is a genuine improvement: thirty-seven TDS sections mapped to three, with Nature Codes providing the granularity, is more manageable once configured correctly. Form 26’s requirement for exact transaction counts needs system investment but reduces the audit-report ambiguity that currently draws disproportionate scrutiny. And the automated LDC process, once fully operational, will cut administrative overhead for high-volume vendor-payment clients. The transition disruption is real — the destination is more workable than where we came from.
The practice that maps this first will be ahead all year
The error pattern is predictable: challans with wrong Nature Codes, Form 16 issued for TY 2026-27 certificates, Form 3CD structure applied to Form 26 requirements, and litigation responses citing the wrong Act. Each is correctable; none is complicated once the mapping is done. Practices that build the dual-law protocol now — tagging matters, configuring software, briefing clients — will file the June and July cycle without interruption. The ones that don’t will spend August correcting April through July.
Stay compliant. Stay protected. — WeConsult India