Major Changes in TDS and TCS Rates from 1st October 2024

The Finance Act (No. 2), 2024, introduces significant changes to the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rates under various sections of the Income Tax Act, 1961. Many notification and Circulars related to this are awaited and will arrive soon.

Read Detailed TDS rate chart applicable from 1 October 2024

Detailed Explanation

Section 194D – Insurance Commission:

• The TDS rate on insurance commission paid to individuals or Hindu Undivided Families (HUFs) is proposed to be reduced from 5% to 2%.
• This change will take effect from April 1, 2025.

Insurance commission.

194D. Any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :

Provided that no deduction shall be made under this section from any such income credited or paid before the 1st day of June, 1973:

Provided further that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees.

Section 194DA – Payment in Respect of Life Insurance Policy:

• The TDS rate on payments under life insurance policies is proposed to be reduced from 5% to 2%.
• This change will take effect from October 1, 2024.

Payment in respect of life insurance policy.

194DA. Any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of five per cent till 30 September 2024 and two per cent from 1 October 2024 on the amount of income comprised therein :

Provided that no deduction under this section shall be made where the amount of such payment or, as the case may be, the aggregate amount of such payments to the payee during the financial year is less than one hundred thousand rupees.

Section 194G – Commission, etc on Sale of Lottery Tickets:

• The TDS rate on commission or prizes related to lottery tickets is proposed to be reduced from 5% to 2%.
• This change will take effect from October 1, 2024.

Commission, etc., on sale of lottery tickets.²²

194G. (1) Any person who is responsible for paying, on or after the 1st day of October, 1991 to any person, who is or has been stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remuneration or prize (by whatever name called) on such tickets in an amount exceeding fifteen thousand rupees shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent till 30 September 2024 and two per cent from 1 October 2024

(2) [***]

(3) [***]

Explanation.—For the purposes of this section, where any income is credited to any account, whether called “Suspense Account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

Section 194H – Payment of Commission or Brokerage:

• The TDS rate on commission or brokerage paid to individuals or HUFs is proposed to be reduced from 5% to 2%.
• This change will take effect from October 1, 2024.

Commission or brokerage

194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of five per cent till 30 September 2024 and two per cent from 1 October 2024

Provided that no deduction shall be made under this section in a case where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year to the account of, or to, the payee, does not exceed fifteen thousand rupees :

Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed one crore rupees in case of business or fifty lakh rupees in case of profession during the financial year immediately preceding the financial year in which such commission or brokerage is credited or paid, shall be liable to deduct income-tax under this section:

Provided also that no deduction shall be made under this section on any commission or brokerage payable by Bharat Sanchar Nigam Limited or Mahanagar Telephone Nigam Limited to their public call office franchisees.

Explanation.—For the purposes of this section,—

 (i) “commission or brokerage” includes any payment received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing, not being securities;

(ii) the expression “professional services” means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA;

(iii) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(iv) where any income is credited to any account, whether called “Suspense account” or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly.

Section 194-IB – Payment of Rent by Certain Individuals or HUF:

• The TDS rate on rent paid to individuals or HUFs is reduced from 5% to 2%.
• This change will take effect from October 1, 2024.

Payment of rent by certain individuals or Hindu undivided family.

194-IB. (1) Any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent till 30 September 2024 and two per cent from 1 October 2024 of such income as income-tax thereon.

(2) The income-tax referred to in sub-section (1) shall be deducted on such income at the time of credit of rent, for the last month of the previous year or the last month of tenancy, if the property is vacated during the year, as the case may be, to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

(3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

(4) In a case where the tax is required to be deducted as per the provisions of section 206AA ²⁹[***], such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

Explanation.—For the purposes of this section, “rent” means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.

Section 194M – Payment of Certain Sums by Certain Individuals or Hindu Undivided Family:

• The TDS rate on payments made to individuals or HUFs for carrying out work or providing professional services is proposed to be reduced from 5% to 2%.
• This change will take effect from October 1, 2024.

Payment of certain sums by certain individuals or Hindu undivided family.⁴¹

194M. (1) Any person, being an individual or a Hindu undivided family (other than those who are required to deduct income-tax as per the provisions of section 194C, section 194H or section 194J) responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract, by way of commission (not being insurance commission referred to in section 194D) or brokerage or by way of fees for professional services during the financial year, shall, at the time of credit of such sum or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent till 30 September 2024 and two per cent from 1 October 2024 of such sum as income-tax thereon:

Provided that no such deduction under this section shall be made if such sum or, as the case may be, aggregate of such sums, credited or paid to a resident during a financial year does not exceed fifty lakh rupees.

(2) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

Explanation.—For the purposes of this section,—

(a) “contract” shall have the meaning assigned to it in clause (iii) of the Explanation to section 194C;

(b) “commission or brokerage” shall have the meaning assigned to it in clause (i) of the Explanation to section 194H;

(c) “professional services” shall have the meaning assigned to it in clause (a) of the Explanation to section 194J;

(d) “work” shall have the meaning assigned to it in clause (iv) of the Explanation to section 194C.

Section 194-O – Payment of Certain Sums by E-commerce Operator to E-commerce Participant:

• The TDS rate on payments made by e-commerce operators to e-commerce participants is proposed to be reduced from 1% to 0.1%.
• This change will take effect from October 1, 2024.

Payment of certain sums by e-commerce operator to e-commerce participant.⁴⁴

194-O. (1) Notwithstanding anything to the contrary contained in any of the provisions of Part B of this Chapter, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of one per cent till 30 September 2024 and 0.1% from 1 October 2024 of the gross amount of such sales or services or both.

Explanation.—For the purposes of this sub-section, any payment made by a purchaser of goods or recipient of services directly to an e-commerce participant for the sale of goods or provision of services or both, facilitated by an e-commerce operator, shall be deemed to be the amount credited or paid by the e-commerce operator to the e-commerce participant and shall be included in the gross amount of such sale or services for the purpose of deduction of income-tax under this sub-section.

(2) No deduction under sub-section (1) shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of an e-commerce participant, being an individual or Hindu undivided family, where the gross amount of such sale or services or both during the previous year does not exceed five lakh rupees and such e-commerce participant has furnished his Permanent Account Number or Aadhaar number to the e-commerce operator.

(3) Notwithstanding anything contained in Part B of this Chapter, a transaction in respect of which tax has been deducted by the e-commerce operator under sub-section (1), or which is not liable to deduction under sub-section (2), shall not be liable to tax deduction at source under any other provision of this Chapter:

Provided that the provisions of this sub-section shall not apply to any amount or aggregate of amounts received or receivable by an e-commerce operator for hosting advertisements or providing any other services which are not in connection with the sale or services referred to in sub-section (1).

(4) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty.

(5) Every guideline issued by the Board under sub-section (4) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and on the e-commerce operator.

(6) For the purposes of this section, e-commerce operator shall be deemed to be the person responsible for paying to e-commerce participant.

Explanation.—For the purposes of this section,—

(a) “electronic commerce” means the supply of goods or services or both, including digital products, over digital or electronic network;

(b) “e-commerce operator” means a person who owns, operates or manages digital or electronic facility or platform for electronic commerce;

(c) “e-commerce participant” means a person resident in India selling goods or providing services or both, including digital products, through digital or electronic facility or platform for electronic commerce;

(d) “services” includes “fees for technical services” and fees for “professional services”, as defined in the Explanation to section 194J.

Section 194F – TDS on Payments on Repurchase of Units by Mutual Fund or UTI:

• Section 194F, which requires TDS on payments made on repurchase of units by mutual funds or UTI, is proposed to be omitted.
• This change will take effect from October 1, 2024.

Ease in Claiming Credit for TCS Collected/TDS Deducted by Salaried Employees:

The amendment to Section 192(2B) allows salaried employees to take into account any tax deducted or collected under Chapters XVII-B or XVII-BB (TDS or TCS) for the purpose of calculating the TDS on their salary income. This change will simplify the compliance process for employees and reduce the need for refunds.

watch below video to know the other TDS changes for salaried employees:

TDS on Payments to Partners – New Section 194T

• A new section 194T is proposed to be inserted to require TDS on payments of salary, remuneration, interest, bonus, or commission to partners of a partnership firm.
• The TDS rate will be 10% for aggregate payments exceeding Rs. 20,000 in a financial year.
• This change will take effect from April 1, 2025.

TCS on Notified Goods:

• The existing provisions of Section 206C(1F) require TCS on the sale of motor vehicles valued over Rs. 10 lakh.
• The amendment extends this TCS requirement to other luxury goods notified by the Central Government.
• This change will take effect from January 1, 2025.

will be notified by separate notification

TDS on Sale of Immovable Property:

• The amendment clarifies that for TDS purposes under Section 194-IA, the consideration for transfer of immovable property should be calculated on an aggregate basis, even if there are multiple buyers or sellers involved.
• This change will take effect from October 1, 2024.

TDS on Floating Rate Savings (Taxable) Bonds (FRSB) 2020:

• The amendment extends the TDS provisions to cover interest payments on FRSB 2020 and other specified securities.
• The TDS rate will be applicable on interest payments exceeding Rs. 10,000.
• This change will take effect from October 1, 2024.

Other Important Changes:

Excluding Sums Paid Under Section 194J from Section 194C:

• The amendment clarifies that payments covered under Section 194J (fees for professional or technical services) are not considered “work” for the purposes of TDS under Section 194C. This prevents double taxation in such cases.

Extending the Scope for Lower Deduction/Collection Certificate:

• The amendment extends the eligibility for lower deduction certificates to include payments made under Section 194Q (TDS on purchase of goods) and Section 206C(1H) (TCS on sale of goods).
• This provides relief to taxpayers facing losses and reduces the compliance burden.

Notification of Exempt Persons from TCS:

• The amendment allows the Central Government to notify certain persons or classes of persons who are exempt from TCS under Section 206C.
• This will benefit entities that are exempt from income tax but face difficulties due to TCS requirements.

These rationalizations of TDS rates and the introduction of new TDS provisions are expected to improve the efficiency of tax collection, reduce compliance burdens for taxpayers, and promote better tax governance.

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