TDS Changes Effective from 1st April 2025
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) |
(i) Rs. 1,00,000 (Senior Citizen) |
|
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.
Detailed
Explanation of Changes to Specific TDS Sections
1. Section 193 – Interest on Securities
Current Provisions:
- At present, TDS
is deducted on all interest payments on securities,
regardless of the amount.
- This means that
even a small amount of interest earned on securities is subject to tax
deduction at source, creating an administrative burden for both payers and
taxpayers.
Proposed Changes (Effective 1st April 2025):
- A threshold of ₹10,000
per financial year is being introduced.
- TDS will now be
applicable only if the total interest on securities exceeds ₹10,000 in a
year.
- This change
reduces unnecessary tax deductions on small interest earnings and
simplifies compliance for taxpayers.
2. Section 194 – Dividends
Current Provisions:
- If the
dividend paid by a company to an individual shareholder does
not exceed ₹5,000 in a year, no TDS is deducted.
- If the
dividend exceeds this amount, TDS is applicable.
Proposed Changes (Effective 1st April 2025):
- The exemption
limit for TDS deduction on dividends is being doubled from ₹5,000 to ₹10,000.
- Now, TDS
will be deducted only if the total dividend income crosses ₹10,000 in a
financial year.
- This change
aims to provide relief to small investors and reduce tax deductions on
minor dividend payments.
3. Section 194A – Interest Other than on Securities
Current Provisions:
- TDS is
deducted on interest income if it crosses different thresholds for
different taxpayers:
- Senior Citizens: ₹50,000
- Other Individuals: ₹40,000 (if interest is earned from a bank,
co-operative society, or post office), otherwise ₹5,000.
Proposed Changes (Effective 1st April 2025):
- The exemption
limit is increased to:
- ₹1,00,000 for Senior Citizens
- ₹50,000 for other individuals (when the payer is a bank, co-operative
society, or post office).
- ₹10,000 for other cases.
- This
adjustment ensures that taxpayers earning moderate interest income are not
subjected to unnecessary tax deductions.
4. Sections 194B & 194BB – Winnings from Lottery,
Crossword Puzzle, and Horse Racing
Current Provisions:
- TDS is
deducted when total winnings from lotteries, crossword puzzles, or horse
racing exceed ₹10,000 in a financial year.
- This means
that multiple smaller winnings below ₹10,000 can accumulate without
triggering TDS.
Proposed Changes (Effective 1st April 2025):
- Instead of
looking at the annual aggregate, TDS will
now be deducted per transaction exceeding ₹10,000.
- This change
ensures that individuals cannot avoid TDS by splitting their winnings into
smaller amounts.
5. Sections 194D, 194G, and 194H – Insurance
Commission, Lottery Commission, and Brokerage
Current Provisions:
- TDS applies
when commissions from insurance policies, lottery ticket sales,
or brokerage services exceed ₹15,000 in a financial year.
Proposed Changes (Effective 1st April 2025):
- The exemption
limit is raised to ₹20,000 for all three categories.
- This change
benefits small agents, lottery distributors, and brokers who receive lower
commissions, reducing their tax burden.
6. Section 194-I – Rent
Current Provisions:
- TDS is
deducted when the total rent paid in a financial year
exceeds ₹2,40,000.
Proposed Changes (Effective 1st April 2025):
- TDS will now
be applicable if the rent exceeds ₹50,000 per month
(or part of a month).
- This means
that tenants who pay high monthly rent will face monthly TDS deductions,
rather than waiting for annual calculations.
- This change
aligns the rent threshold with current market conditions and ensures
timely tax collection.
7. Section 194J – Professional or Technical Fees
Current Provisions:
- TDS applies
when professional or technical fees exceed ₹30,000 in a financial
year.
Proposed Changes (Effective 1st April 2025):
- The threshold
is increased to ₹50,000.
- This benefits
freelancers, consultants, and professionals, ensuring that small payments
are not unnecessarily taxed.
8. Section 194K – Income in Respect of Units
Current Provisions:
- TDS applies
to income
earned from mutual funds, specified companies, or unit trusts
when it exceeds ₹5,000 in a year.
Proposed Changes (Effective 1st April 2025):
- The threshold
is doubled to ₹10,000.
- This provides
relief to small investors and reduces the frequency of TDS deductions on
minor earnings.
9. Section 194LA – Compensation for Acquisition of
Immovable Property
Current Provisions:
- If an
individual receives compensation for land or property
acquisition, TDS is deducted when the amount exceeds ₹2,50,000.
Proposed Changes (Effective 1st April 2025):
- The exemption
limit is increased to ₹5,00,000.
- This ensures
that individuals receiving small compensations are not burdened with
unnecessary TDS deductions.
Removal of
Higher TDS/TCS for Non-Filers of Income Tax Returns (Sections 206AB and 206CCA)
Current Provisions:
- Section 206AB: Imposes higher TDS rates for
individuals who have not filed their income tax returns.
- Section 206CCA: Imposes higher TCS (Tax Collected at Source) rates
for non-filers.
- These
provisions created difficulties for businesses and tax deductors because
verifying tax return filings was a complex and time-consuming process.
Proposed Changes (Effective 1st April 2025):
- The
government will remove Sections 206AB and 206CCA
entirely.
- This means higher
TDS/TCS rates for non-filers will no longer be applicable.
- This
simplification will reduce compliance burdens for businesses and ensure
smoother tax administration.
Conclusion
These
amendments are aimed at simplifying tax compliance, reducing unnecessary TDS
deductions, and aligning tax laws with current economic conditions.
Key Takeaways from the Changes Effective 1st April
2025:
✅ Higher exemption limits
across multiple sections, reducing tax burdens on small earnings.
✅ Lower TDS rates in specific
cases to encourage investment and financial growth.
✅ More logical TDS application,
such as per-transaction taxation for lottery winnings.
✅ Elimination of higher TDS/TCS for non-filers,
making compliance easier for businesses.
These
reforms mark a significant step towards a simpler, more taxpayer-friendly
system. Businesses, professionals, and investors will all benefit from the
streamlined tax deduction process
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.
DISCLAIMER
Airfinac.com, its author/writer and associates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.