Introduction
TDS provisions are considered to be tedious provisions with quite a number of Sections relating to TDS/TCS with various threshold limits and different rates. While TDS/TCS provisions are important for collection of tax at source for the Government, yet the complexities sometimes result in compliance burden for both Deductor/Collector and the Deductee/Collectee.
However, sweeping changes have been proposed in the Union Budget 2025 relating to simplification and rationalisation of TDS/TCS provisions. These changes mainly relate to rationalisation of threshold limits and changes in TDS/TCS rates. The salient features of the changes proposed are given below:
1. TDS threshold rationalisation:
One of the important proposals relate to increasing the threshold limit of various TDS provisions with a view to reduce compliance burden and to make available more funds in the hands of assessees for working capital needs. The section wise threshold limits revision is as follows:
| Section | Nature | Existing threshold
Rs. |
Proposed threshold
Rs. |
| 193 | Interest on securities | Nil | 10,000/- |
| 194A | Interest other than interest on securities | If interest is received from banks, post office & corporate societies:
50,000/- for senior citizens. 40,000/- in case of others If interest is received from others like NBFC – 5,000/- |
If interest is received from banks, post office & corporate societies:
1,00,000/- for senior citizens. 50,000/- in case of others If interest is received from others like NBFC – 10,000/- |
| 194 | Dividend for an individual shareholder | 5,000/- | 10,000/- |
| 194K | Income in respect of units of mutual fund or specified company or undertaking | 5,000/- | 10,000/- |
| 194B
194BB |
Winning from lottery, crossword puzzles etc.Winnings from horse race |
Aggregated amounts exceeding Rs. 10,000/- during the financial year. | 10,000/- in respect of a single transaction |
| 194D | Insurance Commission | 15,000/- | 20,000/- |
| 194G | Income by way of commission, prize etc on lottery tickets | 15,000/- | 20,000/- |
| 194H | Commission or brokerage | 15,000/- | 20,000/- |
| 194I | Rent | 2,00,000/- during the financial year | 50,000/- p.m. or part of a month |
| 194J | Fee for professional or
technical services, royalty, any sum referred to in clause (va) of Sec. 28 |
30,000/- | 50,000/- |
| 194LA | Income by way of enhanced compensation | 2,50,000/- | 5,00,000/- |
All these proposals will take effect from the 1st Day of April, 2025.
From the above chart it is seen that threshold limits have been proposed to be revised upwards in most of the TDS sections. Even though the threshold increase is not very significant except in the case of rent U/S 194I and in the case of Interest U/S 194A for senior citizens, it will be beneficial both for the Deductor and the Deductee.
The proposal relating to rent U/S 194I is in respect of rent paid for commercial property and is a welcome change. However, It is not applicable to individuals and HUFS whose total sales, gross receipts or turnover from the business or profession carried by them does not exceed 1 Crore rupees in case of business or 50 Lakhs rupees in case of profession and who are responsible for paying rent. This provision is distinct from Section 194-IB which is for rent paid in respect of residential property. In Section 194-IB there is already a provision of TDS @2 % where the rent exceeds Rs. 50,000/- for a month or part of a month during the previous year.
The increase in TDS threshold limit for senior citizens from Rs. 50,000/- to Rs. 1,00,000/- U/s 194A will also benefit most senior citizens.
2. TDS rates rationalisation
It has been proposed to rationalise certain rates of TDS to improve ease of doing business and better compliance by tax payers. TDS rate deductions proposal are as follows:
| Section 194LBC | TDS on income payable by a securitisation trusts to an resident investor | 25% in case of individual & HUF. | 10% for all cases |
| 30% for any other person |
This amendment will take effect from the 1st day of April, 2025
3. TCS rates rationalisation
The applicability of TCS on traders of forest produce has also been rationalised to provide that only such other forest produce(not being timber or tendu leaves) which is obtained under forest lease will be covered under TCS.
The definition of “forest produce” has also been rationalised . To bring clarity regarding the meaning of “forest produce”, it is proposed that “forest produce” shall have the same meaning as defined in any State Act for the time being in force, or in the Indian Forest Act, 1927.
The amended rate for TCS are as under:
| Section | Timber or any other forest | 2% | Presently it is 2.5% for: |
| 206C(1) | produce( not being tendu leaves) obtained under a forest least | i Timber obtained under a forest lease | |
| Timber obtained by any mode other than under a forest lease. | 2% | ii Timber obtained by any mode other than under a forest lease
iii Any other forest produce not being timber or tendu leaves |
This amendment will take effect from 1st day of April, 2025
4. Omission of TCS on sale of specified goods
Sub-section (1H) of section 206C mandates collection of TCS by a seller while section 194Q provides for TDS by a buyer. To facilitate ease of doing business and reduce compliance burden on the taxpayer, it is proposed to omit section 206C(1H) from the 1st day of April, 2025. This is a welcome move as it was difficult for the seller to ascertain whether the purchaser has deducted tax on a particular transaction or not and the seller ,in most cases, could come to know about this only after the end of the financial year. In many cases it resulted in purchaser deducting TDS and seller deducting TCS on the same transaction. So it’s a good welcome move.
5. Removal of higher TDS/TCS for non-filers of income
Section 206AB requires TDS at higher rate when the deductee specified therein is a non-filer of IT return. Similarly section 206CCA requires for collection of TCS at higher rate when the collectee specified therein is a non-filer.
Since it is difficult for the deductor/ collector to verify whether deductee/collectee is a non-filer or not , it is proposed to omit section 206AB and section 206CCA.
6. Exemption from prosecution for delayed payments of TCS in certain cases
Section 276BB provides for prosecution in case of failure to pay TCS to the credit of the Central Govt. It is now proposed to amend section 276BB of the Act to provide that the prosecution shall not be instituted against a person, if the payment of TCS has been made to the credit of the Central Govt. at any time on or before the time prescribed for filing the quarterly statement under provision to sub section (3) of section 206C of the Act in respect of such payment.
Similar provision in the case of TDS is already in place. This time TCS has also been covered.
7. Rationalisation of TCS on remittance under IRS
The threshold of TCS on remittances under RBI’s Liberalised Remittance Scheme (LRS) is raised from Rs 7 lakhs to Rs.10 lakhs. Further, there will be no TCS now for remittance for education pupose if funded by loan.
The following changes are proposed under section 206 C(1G):
a) There will be no TCS on foreign remittance under LRS for educational purpose if the remittance is from the proceeds of education loan. Earlier the threshold was Rs 7 lakh and rate of TCS was 0.5%
b) For foreign remittance under LRS for education purpose (if it is not from proceeds of education loan) and for medical treatment, the threshold has been increased from Rs 7 lakh to Rs 10 lakh. The rate of TCS however, will remain unchanged @ 5%.
Summing Up
From the above discussion it is clear that significant amendments have been proposed in the TDS/TCS provisions regarding rationalisation of threshold limits and rates with a view to reduce complexity and to reduce compliance burden.
Another, best part is that all such amendments have been proposed to take effect from the 1st day of April, 2025 unlike in in the past when different proposals were used to take effect from different dates. However, as the new Income Tax Bill is in the offing, it is to be seen how the various TDS/TCS provisions take shape in the new Income Tax Bill.
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