The Income Tax Act of India mandates Tax Deducted at Source (TDS) on various payments made to individuals and entities. TDS is deducted at source by the payer before making the payment to the payee. However, there have been concerns regarding the complexity and multiple rates of TDS under various sections, especially when it comes to thresholds and the different rates applicable to individuals and other entities. To improve ease of doing business and compliance for taxpayers, the government has proposed rationalizing TDS provisions effective from 1st April 2025. This includes both a reduction in certain rates and an increase in the threshold limits for applicability.
This article covers the various proposed changes, focusing on rate reductions, threshold rationalizations, and the removal of higher TDS/TCS provisions for non-filers of tax returns.
TDS Rate Reduction for Section 194LBC
Section 194LBC of the Income Tax Act deals with the taxation of income from a securitisation trust. Presently, the TDS rate is 25% for individuals or Hindu Undivided Families (HUF) and 30% for other payees.
Proposed Changes:
- The TDS rate under section 194LBC will be reduced to 10% for all categories of payees.
- This reduction is based on the fact that the securitisation trust sector is sufficiently organized and regulated.
Effective Date: 1st April 2025.
Rationalization of TDS Thresholds
TDS provisions under various sections have different thresholds, meaning tax is deducted only when the payment exceeds a certain amount. The proposed rationalization aims to adjust these thresholds to bring them in line with inflation and current economic conditions.
Updated Thresholds for Various Sections:
| S. No. | Section | Current Threshold | Proposed Threshold |
|---|---|---|---|
| 1. | 193 – Interest on Securities | Nil | Rs. 10,000 |
| 2. | 194A – Interest other than on Securities | (i) Rs. 50,000 (Senior Citizen) (ii) Rs. 40,000 (Others) when payer is bank, co-operative society, post office (iii) Rs. 5,000 (Others) | (i) Rs. 1,00,000 (Senior Citizen) (ii) Rs. 50,000 (Others) when payer is bank, co-operative society, post office (iii) Rs. 10,000 (Others) |
| 3. | 194 – Dividend for Individual Shareholder | Rs. 5,000 | Rs. 10,000 |
| 4. | 194K – Income in respect of units of Mutual Funds, Specified Companies, or Undertakings | Rs. 5,000 | Rs. 10,000 |
| 5. | 194B – Winnings from lottery, crossword puzzle, etc. | Aggregate of amounts exceeding Rs. 10,000 during the financial year | Rs. 10,000 for a single transaction |
| 6. | 194BB – Winnings from Horse Race | Aggregate of amounts exceeding Rs. 10,000 during the financial year | Rs. 10,000 for a single transaction |
| 7. | 194D – Insurance Commission | Rs. 15,000 | Rs. 20,000 |
| 8. | 194G – Income by way of Commission on Lottery Tickets | Rs. 15,000 | Rs. 20,000 |
| 9. | 194H – Commission or Brokerage | Rs. 15,000 | Rs. 20,000 |
| 10. | 194-I – Rent | Rs. 2,40,000 during the financial year | Rs. 50,000 per month or part of a month |
| 11. | 194J – Fee for Professional or Technical Services | Rs. 30,000 | Rs. 50,000 |
| 12. | 194LA – Income by way of Enhanced Compensation | Rs. 2,50,000 | Rs. 5,00,000 |
Effective Date: 1st April 2025.
Changes to Specific Sections
Section 193 – Interest on Securities
- Current: No threshold for interest on securities for TDS.
- Proposed: TDS will be deducted only when the interest on securities exceeds Rs. 10,000 in a financial year.
Section 194 – Dividends
- Current: TDS is not deducted if dividends do not exceed Rs. 5,000 in a year.
- Proposed: TDS will not be deducted if dividends do not exceed Rs. 10,000 in a year.
Section 194A – Interest Other than on Securities
- Current: TDS thresholds differ for senior citizens and other taxpayers.
- Proposed: Increase in thresholds to Rs. 1,00,000 for senior citizens and Rs. 50,000 for others when the payer is a bank, cooperative society, or post office.
Section 194B and Section 194BB – Winnings from Lottery, Crossword Puzzle, and Horse Racing
- Current: Aggregate amount exceeding Rs. 10,000 for both sections.
- Proposed: TDS will apply on a single transaction exceeding Rs. 10,000.
Section 194D, 194G, and 194H – Insurance Commission, Commission on Lottery Tickets, and Commission/Brokerage
- Current: Rs. 15,000 threshold for TDS application.
- Proposed: Increase the threshold for TDS deduction to Rs. 20,000.
Section 194-I – Rent
- Current: TDS applies when the total rental income exceeds Rs. 2,40,000 in a year.
- Proposed: TDS will apply if the rent exceeds Rs. 50,000 per month or part of a month.
Section 194J – Professional or Technical Fees
- Current: TDS is applicable if the payment exceeds Rs. 30,000.
- Proposed: Increase the threshold to Rs. 50,000 for professional or technical services.
Section 194K – Income in Respect of Units
- Current: TDS applies if income exceeds Rs. 5,000.
- Proposed: Increase the threshold to Rs. 10,000 for income in respect of units.
Section 194LA – Enhanced Compensation on Acquisition of Immovable Property
- Current: TDS is deducted if the amount exceeds Rs. 2,50,000.
- Proposed: TDS will be deducted if the amount exceeds Rs. 5,00,000.
Effective Date for All Amendments: 1st April 2025.
Removal of Higher TDS/TCS for Non-Filers of Income Tax Returns (Sections 206AB and 206CCA)
Current Provisions:
- Section 206AB: Imposes a higher rate of TDS for non-filers of income tax returns.
- Section 206CCA: Imposes a higher rate of TCS for non-filers.
These provisions create difficulties for the deductor/collector, as it is often difficult to verify whether a taxpayer has filed their returns, resulting in unnecessary application of higher rates and blocking of capital for the taxpayer.
Proposed Change:
- The government has proposed to omit Sections 206AB and 206CCA entirely, thus eliminating the higher rates of TDS/TCS for non-filers of income tax returns.
Effective Date: 1st April 2025.
The changes proposed in the TDS provisions aim to simplify the tax compliance process for both individuals and businesses. The rationalization of thresholds, reduction in rates, and removal of complex provisions like higher TDS/TCS for non-filers of returns will reduce the compliance burden for taxpayers and the deductors/collectors.
These amendments, effective from 1st April 2025, mark an important step towards making the tax deduction process more efficient, transparent, and user-friendly, and will likely benefit a large number of taxpayers across various sectors.
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