The Finance Bill, 2025 introduces significant amendments to the Tax Deduction at Source (TDS) and Tax Collected at Source (TCS) provisions under the Income Tax Act. These changes, set to come into effect on 1st April 2025, aim to streamline the tax compliance process, improve ease of doing business, and reduce the compliance burden on taxpayers. The following article provides a detailed overview of these proposed changes, including updates on TDS and TCS rates, new thresholds, and the rationale behind these reforms.
Click here to read Change in TDS from 1st April 2025
Click here to read Change in TDS from 1st April 2025
The Finance Bill 2025 proposes changes to the existing rates for TCS under specific sections of the Income Tax Act. Below are the key updates:
| Section of the Act | Existing TCS Rate | New TCS Rate from 1 April 2025 |
|---|---|---|
| Section 206C(1) (TCS on timber and forest produce under a forest lease or otherwise) | 2.5% | 2% |
| Section 206C(1G) (TCS on remittance under LRS for education, financed by a loan from financial institutions) | 0.5% after Rs. 7 lakh | Nil (Threshold increased from ₹7,00,000 to ₹10,00,000) |
Removal of TCS on Specified Goods (Section 206C(1H))
- Under Section 206C(1H), sellers were required to collect TCS at 0.1% on the sale of goods exceeding ₹50 lakh in a financial year.
- Section 194Q also mandates buyers to deduct TDS on payments made for goods exceeding ₹50 lakh, creating the possibility of double tax compliance (both TDS and TCS) for the same transaction.
To reduce this overlap and confusion:
- TCS under Section 206C(1H) will no longer apply from 1st April 2025.
- If the buyer is liable to deduct TDS under Section 194Q, and the buyer has complied with the TDS provisions, there will be no need for TCS under Section 206C(1H).
This change will reduce the compliance burden for both buyers and sellers and ensure that there is no overlap of TDS and TCS on the same transactions.
Removal of Higher TDS/TCS for Non-Filers of Income Tax Returns
- Section 206AB and Section 206CCA currently impose higher TDS/TCS rates on individuals and entities that have not filed their income tax returns in the previous year.
- However, verifying whether a person is a non-filer at the time of tax deduction or collection can be cumbersome and error-prone.
To reduce this burden:
- Both Section 206AB and Section 206CCA will be omitted from the Income Tax Act, starting 1st April 2025.
- This change will eliminate the higher tax rates for non-filers, making compliance simpler and reducing the risk of errors in TDS/TCS collection.
Exemption from Prosecution for Delayed Payment of TCS
- Section 276BB currently provides for prosecution in cases where a person fails to pay TCS to the credit of the Central Government within the prescribed time. This can result in rigorous imprisonment.
In an effort to provide relief to taxpayers:
- Section 276BB will be amended to allow an exemption from prosecution for delayed payment of TCS, as long as the tax has been deposited before the deadline for filing the quarterly statement under Section 206C(3).
This provision will reduce the likelihood of criminal prosecution for inadvertent delays in TCS remittance, provided the payment is made before the statutory deadline.
The tax reforms announced in the Budget 2025, especially the rationalization of TDS and TCS rates and provisions, are significant steps towards simplifying the tax compliance process. By removing redundant provisions, reducing rates, and raising thresholds, the government is working towards creating a more business-friendly environment while also improving overall tax compliance. These changes, effective from 1st April 2025, will likely result in smoother transactions, fewer compliance hassles, and a more transparent system for businesses and individuals alike.
Taxpayers should stay updated and ensure timely compliance with the revised provisions to avoid any confusion or penalties after the new provisions come into effect.
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TCS on LRS is at present 20% above 7 lakhs and not 0.5% . The thresh hold limit is proposed to increase to 10 lakhs in this year’s budget proposal.
TAXATION IS BEST OF SUBJECT
Suppose customer does not deposit TDS although they cross threshold sales limit of Rs.10 Cr what will be duty of Company selling the material. Since TCS deduction 0.1% been withdrawn from 1.4.25 there is no obligation taking declaration from customer about status TDS/TCS.