Changes in TDS Compliance Effective from April 1, 2025 – Key Highlights

The Finance Act, 2025 has introduced several noteworthy changes to the Tax Deducted at Source (TDS) framework under the Income Tax Act, 1961, with the intent to ease compliance and reduce the administrative burden on businesses and tax professionals. Effective from April 1, 2025, these amendments are particularly significant and this article highlights the major TDS-related amendments and their implications.

1. Omission of Sections 206AB and 206CCA

Previously, Sections 206AB and 206CCA required deductors to apply higher TDS and TCS rates for individuals who had failed to file their income tax returns for the last two consecutive years. This provision often resulted in additional compliance steps for businesses, as they had to verify the filing status of payees before determining the applicable TDS or TCS rate.

Key Change:
Both of these sections have now been omitted, effectively removing the requirement to check the ITR filing status before deducting or collecting TDS/TCS. This is expected to streamline the TDS process and reduce the burden on businesses, particularly those dealing with numerous vendors and clients.

2. Withdrawal of TCS on Sale of Goods (Section 206C(1H))

Section 206C(1H) introduced a provision requiring sellers to collect TCS at the rate of 0.1% on the sale of goods exceeding ₹50 lakh in a financial year to a single buyer. This provision was intended to enhance transparency in business transactions, but it created significant compliance challenges for businesses, especially smaller sellers.

Key Change: This provision has now been withdrawn, which means businesses no longer need to collect TCS on the sale of goods. This will simplify the compliance process and reduce the reconciliation issues that arose between buyers and sellers under the previous system.

3. Introduction of Section 194T – TDS on Payments to Partners

A new section, 194T, has been introduced, which requires TDS at the rate of 10% to be deducted on payments made to partners in the form of:

• Remuneration
• Interest on capital
• Commission or bonus

Threshold: TDS will apply if the total payments to any partner exceed ₹20,000 in a financial year.

Key Implication: This change will affect many CA firms, especially those operating in the partnership model. Previously, such payments were not subject to TDS, but with the introduction of this provision, CA firms must now ensure that they are deducting TDS correctly on payments made to partners, in line with the new requirements.

4. Increased TDS Thresholds for Various Payments

To reduce the compliance burden on individuals and businesses, the government has increased the TDS threshold limits for several types of income. These changes will help minimize unnecessary TDS deductions for smaller payments.

Here are the revised TDS thresholds:

Key Implication: These revised thresholds will help reduce the number of small transactions subject to TDS, ensuring that businesses are not withholding tax unnecessarily. The updated limits are particularly beneficial for smaller taxpayers and individuals who receive income in smaller amounts.

Conclusion

The changes to TDS compliance under the Finance Act, 2025, are designed to ease the burden on both businesses and tax professionals. The omission of Sections 206AB and 206CCA will simplify compliance for many taxpayers, while the introduction of Section 194T brings new obligations for partnership firms. Furthermore, the increased thresholds for TDS deductions will reduce the number of small transactions subject to withholding tax, making the process more efficient.

For any queries or further guidance on how these changes affect your practice, feel free to reach out.