Review of TDS/TCS Amendments in Budget 2025

Budget 2025

Review of TDS/TCS Amendments in Budget 2025

Budget 2025

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:

1. Revision of TDS Threshold Limits

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:

Budget 2025
SectionNature of IncomeExisting Threshold (Rs.)Proposed Threshold (Rs.)
193Interest on securitiesNil10,000/-
194AInterest other than securities50,000/- (Senior Citizens) 40,000/- (Others) 5,000/- (NBFC)1,00,000/- (Senior Citizens) 50,000/- (Others) 10,000/- (NBFC)
194Dividend5,000/-10,000/-
194KIncome from Mutual Funds5,000/-10,000/-
194BWinnings from lottery, crossword puzzles10,000/- (Aggregated annually)10,000/- (Single transaction)
194BBWinnings from horse races10,000/-10,000/-
194DInsurance Commission15,000/-20,000/-
194GCommission on lottery tickets15,000/-20,000/-
194HCommission/Brokerage15,000/-20,000/-
194IRent2,00,000/- (Annually)50,000/- (Monthly)
194JProfessional/Technical Fees30,000/-50,000/-
194LACompensation on land acquisition2,50,000/-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.

2. Adjustment of TDS Rates

The Budget also proposes rationalizing certain TDS rates to enhance taxpayer compliance and ease of business. Notably, the changes include:

SectionNature of IncomeExisting TDS RateProposed TDS Rate
194LBCIncome from securitization trusts (Resident Investors)25% (Individual & HUF) 30% (Others)10% for all cases

This change will also take effect from April 1, 2025.

3. Amendments to TCS Provisions

a) Revisions in TCS on Forest Produce

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:

SectionNature of IncomeExisting TCS RateProposed 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%

 

b) Elimination of TCS on Certain Sales Transactions

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.

4. Abolition of Higher TDS/TCS Rates for Non-Filers

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.

5. Exemption from Prosecution for Delayed TCS Payments

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.

6. Modification of TCS on Foreign Remittances Under LRS

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.

Read More: Union Budget 2025: Key Tax, GST & MSME Updates Explained

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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Income Tax Update: ITR-U Filing Deadline Extended to 48 Months

ITR-U

Income Tax Update: ITR-U Filing Deadline Extended to 48 Months

ITR-U

The Indian government has extended the deadline for filing updated income tax returns (ITR-U) from 24 months to 48 months. This change, proposed in Budget 2025 by Finance Minister Nirmala Sitharaman, allows taxpayers more time to rectify errors, disclose omitted income, and comply with tax regulations.

Understanding ITR-U and Section 139(8A)

Introduced in 2022, the updated return facility under Section 139(8A) of the Income Tax Act, 1961, enables taxpayers to correct inaccuracies in previously filed returns or file a return if they had missed doing so. It applies in cases where income was omitted, losses or refunds were misrepresented, or the required threshold for filing a return was exceeded but no return was submitted.

With nearly 90 lakh taxpayers voluntarily updating their income and paying additional taxes since its introduction, the government has now expanded the timeframe to encourage further compliance.

Key Highlights of the Extended ITR-U Filing Timeline

  • Time Limit Extended: The window for filing an updated return has been extended from 24 months to 48 months from the end of the relevant assessment year.

  • Additional Tax Payable: Taxpayers filing an updated return must pay an additional tax, which increases over time:

    • Within 12 months: 25% of the total tax and interest due.

    • Within 24 months: 50% of the total tax and interest due.

    • Within 36 months: 60% of the total tax and interest due.

    • Within 48 months: 70% of the total tax and interest due.

  • Example: For the financial year 2023-24, the updated return can now be filed until March 31, 2029, instead of March 31, 2027.

How to File ITR-U

To file an updated return, follow these steps:

  1. Download Form ITR-U from the Income Tax Department’s website.

  2. Log in to the e-filing portal and select “Updated Return (ITR-U).”

  3. Enter the necessary details, including additional income and tax payable.

  4. Calculate and pay any applicable additional tax.

  5. Submit the form and verify the return using Aadhaar OTP, net banking, or DSC.

Restrictions on Filing ITR-U

Certain taxpayers are not eligible to file ITR-U, including those who:

  • Have already filed a revised return.

  • Intend to report a loss or zero income.

  • Seek to modify a previously claimed refund.

  • Aim to reduce their tax liability.

  • Are under investigation or assessment under Sections 132, 133A, or 132A.

  • Have no additional tax liability due to TDS or losses.

Impact on Taxpayers

Certain taxpayers are not eligible to file ITR-U, including those who:

  • Have already filed a revised return.

  • Intend to report a loss or zero income.

  • Seek to modify a previously claimed refund.

  • Aim to reduce their tax liability.

  • Are under investigation or assessment under Sections 132, 133A, or 132A.

  • Have no additional tax liability due to TDS or losses.

Read More: Union Budget 2025: Key Tax, GST & MSME Updates Explained

While this extension promotes voluntary compliance, the steep additional tax—ranging from 25% to 70%—may pose a significant financial burden. Many experts believe that a uniform 25% additional tax would have been sufficient as a deterrent while still encouraging timely compliance.

Nonetheless, this amendment provides a crucial opportunity for taxpayers to rectify past errors and adhere to tax laws without severe penalties. Staying informed about these changes and ensuring accurate tax filing will help individuals and businesses maintain compliance with evolving tax regulations.

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Union Budget 2025: Key Tax, GST & MSME Updates Explained

Budget 2025

Union Budget 2025: Key Tax, GST & MSME Updates Explained

Budget 2025

The Union Budget 2025 introduces significant updates impacting income tax, GST, and MSMEs, aiming to simplify compliance, boost economic activity, and ease the financial burden on taxpayers. Below are the major highlights:

Income Tax Reforms

1. Revised Tax Slabs (New Regime for FY 2025-26)

Total Income (INR)Tax Rate
Up to 4,00,000Nil
4,00,001 – 8,00,0005%
8,00,001 – 12,00,00010%
12,00,001 – 16,00,00015%
16,00,001 – 20,00,00020%
20,00,001 – 24,00,00025%
Above 24,00,00030%

  • No tax for income up to INR 12,00,000, provided there are no capital gains.

  • Salaried individuals can avail of a standard deduction of INR 75,000, making income up to INR 12,75,000 tax-free.

  • Rebate under Section 87A: 100% of tax payable or INR 60,000, whichever is lower.

2. Updated Return Filing (Section 139(8A))

  • Taxpayers can now file updated returns within 48 months instead of 24 months.

  • Additional tax levied based on delay:

    • 12-24 months: 50%

    • 24-36 months: 60%

    • 36-48 months: 70%

  • Filing after 36 months is restricted if a show cause notice is issued.

3. Key Tax Exemptions & Reforms

  • Self-occupied Property: Up to two properties can now claim “Nil Annual Value,” removing deemed rental income.

  • National Saving Scheme (NSS): Withdrawals made after August 29, 2024, are tax-exempt.

  • Small Charitable Trusts: Registration period extended from 5 years to 10 years for trusts with total income not exceeding INR 5 crore.

4. TDS & TCS Rationalization

  • TDS Rate Reduction:

    • Insurance commission: Reduced from 5% to 2%.

    • Income from securitization trust: Reduced to 10% from 25-30%.

  • Threshold Increases:

    • Interest on securities: INR 10,000 (previously Nil)

    • Interest (other than securities): INR 1,00,000 for senior citizens, INR 50,000 for others

    • Dividend income: INR 10,000 (previously INR 5,000)

  • TCS on Sale of Goods: Removed to reduce compliance burden.

  • No higher TDS for non-filers (Sections 206AB & 206CCA omitted) unless PAN is unavailable.

  • Liberalized Remittance Scheme (LRS) Limit: Increased from INR 7 lakh to INR 10 lakh.

5. Virtual Digital Assets (Crypto-Taxation)

  • “Crypto-assets” are officially categorized as Virtual Digital Assets (VDA) under tax laws, ensuring stricter regulation and compliance.

GST Reforms

  • Reduced Pre-Deposit for Appeals:

    • E-way bill penalties: Lowered from 25% to 10% of penalty.

    • Other penalties: Previously Nil, now 10% of penalty.

  • Credit Note Adjustments: Output tax liability can only be reduced if the recipient reverses the corresponding Input Tax Credit.

Budget 2025

MSME Reforms

1. Revised MSME Classification

TypeOld Investment Limit (INR Cr)Old Sales Limit (INR Cr)New Investment Limit (INR Cr)New Sales Limit (INR Cr)
Micro152.510
Small105025100
Medium50250125500

This will expand MSME coverage, ensuring faster payments within 15 days under Section 43B(h) of the Income Tax Act.

Read More: Key Highlights of Union Budget 2025 – 2026

2. Business-Friendly Reforms

  • New Income Tax Bill: Expected by February 2025 to enhance middle-class spending.

  • Fast-Track Company Mergers: Proposed to improve efficiency and ease of doing business.

The Budget 2025 introduces major tax reliefs, eases GST compliance, and strengthens MSME support, fostering economic growth. The changes in tax slabs, exemptions, and compliance reductions are designed to encourage investment and spending, making the new fiscal year more business-friendly.

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