Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions are integral to the tax system, ensuring tax collection at the source of income. However, the complexity of multiple sections, varying threshold limits, and diverse tax rates often leads to compliance challenges for both deductors/collectors and deductees/collectees.
The Union Budget 2025 has introduced significant amendments aimed at simplifying and rationalizing TDS/TCS provisions. These changes primarily focus on revising threshold limits and modifying tax rates to reduce compliance burdens and improve ease of doing business. Below are the key changes proposed:
One of the major amendments includes increasing the threshold limits across various TDS provisions to alleviate the compliance burden and enhance liquidity for taxpayers. The revised section-wise threshold limits are as follows:
| Section | Nature of Income | Existing Threshold (Rs.) | Proposed Threshold (Rs.) |
|---|---|---|---|
| 193 | Interest on securities | Nil | 10,000/- |
| 194A | Interest other than securities | 50,000/- (Senior Citizens) 40,000/- (Others) 5,000/- (NBFC) | 1,00,000/- (Senior Citizens) 50,000/- (Others) 10,000/- (NBFC) |
| 194 | Dividend | 5,000/- | 10,000/- |
| 194K | Income from Mutual Funds | 5,000/- | 10,000/- |
| 194B | Winnings from lottery, crossword puzzles | 10,000/- (Aggregated annually) | 10,000/- (Single transaction) |
| 194BB | Winnings from horse races | 10,000/- | 10,000/- |
| 194D | Insurance Commission | 15,000/- | 20,000/- |
| 194G | Commission on lottery tickets | 15,000/- | 20,000/- |
| 194H | Commission/Brokerage | 15,000/- | 20,000/- |
| 194I | Rent | 2,00,000/- (Annually) | 50,000/- (Monthly) |
| 194J | Professional/Technical Fees | 30,000/- | 50,000/- |
| 194LA | Compensation on land acquisition | 2,50,000/- | 5,00,000/- |
These revisions will take effect from April 1, 2025. While the threshold increases are not significantly high except for rent (Section 194I) and interest (Section 194A for senior citizens), they are still expected to ease compliance for taxpayers. The revision in Section 194I specifically benefits commercial property rentals, with exemptions for individuals and HUFs under a certain turnover threshold.
The Budget also proposes rationalizing certain TDS rates to enhance taxpayer compliance and ease of business. Notably, the changes include:
| Section | Nature of Income | Existing TDS Rate | Proposed TDS Rate |
| 194LBC | Income from securitization trusts (Resident Investors) | 25% (Individual & HUF) 30% (Others) | 10% for all cases |
This change will also take effect from April 1, 2025.
The Budget proposes a more precise definition of “forest produce” by aligning it with the Indian Forest Act, 1927, and State Acts. Additionally, changes in TCS rates include:
| Section | Nature of Income | Existing TCS Rate | Proposed TCS Rate |
| 206C(1) | Timber (Forest Lease) | 2.5% | 2% |
| 206C(1) | Timber (Other than Forest Lease) | 2.5% | 2% |
| 206C(1) | Other Forest Produce (Non-Tendu Leaves) | 2.5% | 2% |
Currently, Section 206C(1H) mandates sellers to collect TCS while Section 194Q requires buyers to deduct TDS. To reduce compliance challenges, Section 206C(1H) will be omitted from April 1, 2025. This resolves the common issue where both the buyer and seller deduct TDS/TCS on the same transaction.
Sections 206AB (TDS) and 206CCA (TCS) require higher tax rates for non-filers of income tax returns. Since verifying a deductee’s or collectee’s compliance status is cumbersome for taxpayers, these sections will be omitted from April 1, 2025.
Section 276BB currently allows for prosecution in cases of delayed TCS payments. The amendment ensures no prosecution if TCS is deposited before the due date for filing the quarterly statement under Section 206C(3). This aligns TCS provisions with similar relaxations already available for TDS.
The Budget also revises TCS applicability on remittances under the RBI’s Liberalized Remittance Scheme (LRS):
Education Remittances:
No TCS if funded by an education loan (Earlier: 0.5% TCS above Rs. 7 lakh)
If not funded by an education loan, the threshold increases from Rs. 7 lakh to Rs. 10 lakh, with the 5% TCS rate remaining unchanged.
Medical Remittances:
The TCS threshold has been increased from Rs. 7 lakh to Rs. 10 lakh.
The Budget 2025 proposes significant amendments to TDS/TCS provisions, aiming to reduce complexities and compliance burdens. Notable changes include higher threshold limits, rationalized tax rates, and simplified procedures for deductors and collectors. Unlike previous years, where different provisions took effect on different dates, all these changes will uniformly come into force from April 1, 2025. However, with the proposed new Income Tax Bill on the horizon, it remains to be seen how these provisions will be integrated into the new tax framework.
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