The Union Budget 2025 presented on 1st February, 2025 proposed certain changes in TDS/TCS Provisions of Income Tax Act,1961. The changes are summarised as follows
For reading changes in Income Tax Act, 1961 other TDS and TCS provisions you may read our other bog. Budget 2025: Changes in Income Tax Act,1961
TDS
To make tax compliance easier for businesses and taxpayers, the government has proposed simplifying some TDS rates and increasing the income limits at which TDS applies.
| Section | Nature of Payment | Existing TDS Rate | Proposed TDS Rate | Existing Threshold (₹) | Proposed Threshold (₹) |
|---|---|---|---|---|---|
| 193 | Interest on securities | 10% | 10% | No threshold | 10,000 |
| 194A | Interest (other than securities) - Banks, Co-op Banks, Post Office Schemes | 10% | 10% | 40,000 (General), 50,000 (Senior Citizens) | 50,000 (General), 1,00,000 (Senior Citizens) |
| 194A | Interest (other than securities) - Other Cases | 10% | 10% | 5,000 | 10,000 |
| 194 | Dividend | 10% | 10% | 5,000 | 10,000 |
| 194B | Winnings from lottery, crossword puzzle, etc. | 30% | 30% | Aggregate winnings exceeding 10,000 in FY | 10,000 per single transaction |
| 194BB | Winnings from horse race | 30% | 30% | Aggregate winnings exceeding 10,000 in FY | 10,000 per single transaction |
| 194D | Insurance commission | 5% | 2% | 15,000 | 20,000 |
| 194G | Commission on lottery tickets | 5% | 5% | 15,000 | 20,000 |
| 194H | Commission or brokerage | 5% | 5% | 15,000 | 20,000 |
| 194-I | Rent | 10% (land/building) / 2% (plant/machinery) | 10% (land/building) / 2% (plant/machinery) | 2,40,000 per year | 50,000 per month |
| 194J | Professional fees, Technical fees, Royalty, Any sum referred to in clause (va) of section 28 i.e. compensation or payments received for contract modifications, restrictions on business activity, or non-compete agreements | 10% | 10% | 30,000 | 50,000 |
| 194K | 194K - Income in respect of units of a mutual fund or specified company or undertaking | 10% | 10% | 5,000 | 10,000 |
| 194LA | Compensation on land acquisition | 10% | 10% | 250,000 | 500,000 |
| 194LBC | Income from securitization trust | 25% (Individual/HUF) / 30% (Others) | 10% | No threshold | No threshold |
TCS
A. Amendments to TCS on Sale of Forest Produce
- Current TCS Provisions Under Section 206C(1): Sellers are required to collect TCS at 2.5% on the sale of:
- Timber obtained under a forest lease
- Timber obtained by any other means
- Other forest produce (excluding timber and tendu leaves)
- Issues Identified & Proposed Changes:
- Definition of “Forest Produce”: The term was unclear, leading to confusion. The definition will now align with the Indian Forest Act, 1927 or relevant State Acts.
- Applicability to Traders: TCS will only apply to forest produce obtained under a forest lease (excluding timber & tendu leaves), simplifying the scope.
- Revised TCS Rates (Effective 1st April 2025):
| Nature of Goods | Existing TCS Rate | Proposed TCS Rate |
|---|---|---|
| Timber obtained under a forest lease | 2.50% | 2.00% |
| Timber obtained by any mode other than a forest lease | 2.50% | 2.00% |
| Other forest produce (excluding timber & tendu leaves) | 2.50% | 2.00% |
These amendments aim to bring clarity and fairness in TCS applicability.
B. Omission of TCS on Sale of Goods (Section 206C(1H))
- Current Provisions (Before Amendment):
- Section 206C(1H): Sellers must collect TCS at 0.1% on the sale of goods where the total consideration exceeds ₹50 lakhs in a financial year.
- Section 194Q: Buyers must deduct TDS at 0.1% on purchases from a resident seller when the total value exceeds ₹50 lakhs.
- Issues Identified:
- TDS and TCS applying to the same transaction creates duplication and compliance issues.
- Verifying whether TDS has been deducted by buyers is practically difficult for sellers.
- Amendment – TCS on Sale of Goods Removed:
- Effective April 1, 2025, TCS under Section 206C(1H) will no longer apply. This eliminates double taxation and reduces the compliance burden on sellers.
- Impact of Amendment:
| Before Amendment | After Amendment (From April 1, 2025) |
|---|---|
| Sellers had to collect TCS @ 0.1% if sales exceeded ₹50 lakhs. | No TCS on sale of goods under Section 206C(1H). |
| Buyers had to deduct TDS @ 0.1% if purchases exceeded ₹50 lakhs. | Only TDS under Section 194Q will apply (if applicable). |
| Both TDS and TCS could apply, creating compliance issues. | Sellers no longer need to verify if buyers deducted TDS. |
- Benefits of the Change:
- Simplifies tax compliance.
- Reduces the need for sellers to verify buyer’s TDS compliance.
- Minimises chances of double taxation.
C. Higher TDS/TCS for Non-Filers of Income Tax Returns
- Current Provisions: Sections 206AB and 206CCA require higher rates of TDS and TCS for non-filers of income-tax returns.
- Issues Raised:
- Deductors and collectors face difficulties in verifying whether the deductees/collectees have filed returns.
- This results in higher rates being applied, leading to blocked capital and increased compliance burdens.
- Proposed Change: To reduce these issues, Sections 206AB and 206CCA are proposed to be omitted.
- Effective Date: These amendments will take effect from April 1, 2025, removing higher TDS/TCS rates for non-filers, streamlining the process, and reducing compliance load.
D. Changes in TCS Threshold and Exemptions for Education Remittances under Section 206C(1G)
This move aims to simplify tax compliance and provide relief to students and their families by reducing tax burden on education remittances.
Proposed Change:
The threshold for collecting TCS on Liberalised Remittance Scheme (LRS) transactions will be raised from ₹7 lakh to ₹10 lakh under Section 206C(1G).
Additionally, TCS on education-related remittances will be removed if the remittance is from a loan obtained from a specified financial institution.
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