The Union Budget 2025 has introduced several amendments related to Tax Collected at Source (TCS) under Section 206C of the Income Tax Act. These changes aim to rationalize definitions, reduce compliance burdens, and provide clarity on tax collection mechanisms. Let’s explore these amendments in detail.
1. Rationalization of “Forest Produce” Definition
Current Scenario: Under sub-section (1) of Section 206C of the Act, a seller is required to collect TCS at 2.5% on the sale of specific goods, including:
- Timber obtained under a forest lease
- Timber obtained by any mode other than under a forest lease
- Any other forest produce (excluding timber and tendu leaves)
Amendment in Budget 2025:
- The term “forest produce” was previously undefined, creating ambiguity in application.
- To bring clarity, the term will now have the same meaning as defined under any State Act in force or the Indian Forest Act, 1927.
- To avoid unnecessary applicability of TCS to traders, only forest produce obtained under a forest lease (excluding timber and tendu leaves) will be covered under TCS.
Revised TCS Rates (Effective April 1, 2025):
| Nature of Goods | Previous Rate | New Rate (Budget 2025) |
|---|---|---|
| Timber obtained under a forest lease | 2.5% | 2% |
| Timber obtained by any mode other than a forest lease | 2.5% | 2% |
| Other forest produce (excluding timber and tendu leaves) obtained under a forest lease | 2.5% | 2% |
2. Increase in Exemption Limit for TCS on LRS (Liberalized Remittance Scheme)
Current Scenario:
- The existing exemption threshold for TCS on LRS transactions is ₹7,00,000.
Amendment in Budget 2025:
- The exemption limit has been increased to ₹10,00,000, reducing the compliance burden for smaller remittances.
- This will be effective from April 1, 2025.
3. TCS on LRS for Education Purposes (Loan from Financial Institutions) Withdrawn
Current Scenario:
- TCS at 0.5% was applicable for remittances exceeding ₹7,00,000 if the remittance was for education purposes (funded via loans from financial institutions).
Amendment in Budget 2025:
- This TCS provision has been completely withdrawn.
- No TCS will be collected on remittances for education purposes funded through loans.
- This will be effective from April 1, 2025.
4. Omission of TCS on Sale of Goods (Section 206C(1H))
Current Scenario:
- Section 206C(1H) required a seller to collect TCS at 0.1% on sales exceeding ₹50 lakhs in a financial year.
- Section 194Q imposed TDS at 0.1% on the buyer for the same transactions, leading to compliance issues.
Amendment in Budget 2025:
- To ease compliance, the TCS provision under Section 206C(1H) has been withdrawn, effective April 1, 2025.
- Now, only TDS under Section 194Q will apply to such transactions.
5. Removal of Higher TDS/TCS for Non-Filers of Income Tax Returns
Current Scenario:
- Sections 206AB and 206CCA imposed higher TDS/TCS rates on non-filers of income tax returns.
- Deductors/collectors faced difficulties in verifying the tax compliance of parties involved.
Amendment in Budget 2025:
- Sections 206AB and 206CCA have been omitted to reduce compliance burdens and capital blockage.
- This will be effective from April 1, 2025.
6. Exemption from Prosecution for Delayed TCS Payment in Certain Cases
Current Scenario:
- Section 276BB provides for prosecution (3 months to 7 years imprisonment and fine) if a person fails to deposit TCS with the government.
Amendment in Budget 2025:
- No prosecution will be initiated if the TCS payment is made before the due date for filing the quarterly TCS statement under Section 206C(3).
- This provides relief to taxpayers who may face minor delays in TCS deposits.
Conclusion
The amendments in Budget 2025 primarily focus on simplifying TCS provisions, reducing compliance burdens, and ensuring clarity in tax collection mechanisms. The rationalization of “forest produce” definition, removal of dual taxation on sale of goods, and relief measures for taxpayers highlight the government’s commitment to ease of doing business. These changes will take effect from April 1, 2025. Taxpayers and businesses must align their compliance processes accordingly to leverage these benefits.
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