The Indian government has proposed significant changes to the Tax Deducted at Source (TDS) provisions under the Income Tax Act, effective from April 1, 2025. These amendments aim to simplify tax compliance, rationalize threshold limits, and reduce TDS rates to improve the ease of doing business.
As a leading Income Tax consultants, PGA & Co. brings you the latest Income Tax updates on the key changes in TDS provisions.
1. TDS Rate Reduction for Section 194LBC
Current Provisions:
- Under Section 194LBC, TDS on income from a securitisation trust is 25% for individuals/HUF and 30% for other entities.
Proposed Change:
- Flat 10% TDS rate for all categories of payees.
- This change acknowledges the structured and regulated nature of the securitisation trust sector.
Effective Date: April 1, 2025.
2. Rationalization of TDS Thresholds
The government has proposed new threshold limits for various sections to align with inflation and current economic conditions.
Updated Threshold Limits for TDS Applicability
| Section | Nature of Payment | Current Threshold (Rs.) | Proposed Threshold (Rs.) |
|---|---|---|---|
| 193 | Interest on Securities | Nil | 10,000 |
| 194A | Interest (excluding securities) | 50,000 (Senior Citizens) / 40,000 (Others) / 5,000 (Others) | 1,00,000 (Senior Citizens) / 50,000 (Others) / 10,000 (Others) |
| 194 | Dividend | 5,000 | 10,000 |
| 194K | Income from Mutual Funds | 5,000 | 10,000 |
| 194B | Winnings from Lottery/Puzzles | Aggregate > 10,000 | Per transaction > 10,000 |
| 194BB | Winnings from Horse Race | Aggregate > 10,000 | Per transaction > 10,000 |
| 194D | Insurance Commission | 15,000 | 20,000 |
| 194G | Commission on Lottery Tickets | 15,000 | 20,000 |
| 194H | Commission or Brokerage | 15,000 | 20,000 |
| 194-I | Rent | 2,40,000 (Annual) | 50,000 (Monthly) |
| 194J | Professional/Technical Fees | 30,000 | 50,000 |
| 194LA | Enhanced Compensation | 2,50,000 | 5,00,000 |
These changes increase exemption limits and reduce compliance burdens for businesses and individuals.
Effective Date: April 1, 2025.
3. Section 194T: TDS on Payment by Partnership Firm to Partners
Current Provisions:
At present, payments made by a firm (partnership firm or LLP) to a partner are not subjected to TDS. TDS applies only to payments made to employees. However, partners receiving remuneration, interest, bonus, or commission were previously exempt from TDS.
Proposed Change:
Budget 2024 introduced Section 194T, making specific payments to partners subject to TDS, effective from April 1, 2025.
Payments Covered Under Section 194T:
- Salary
- Remuneration
- Commission
- Bonus
- Interest on any account (loan or capital account)
Rate & Threshold:
| Condition | TDS Rate | TDS Threshold |
|---|---|---|
| Aggregate payments (interest, bonus, commission, remuneration) | 10% | > Rs. 20,000 in a financial year |
When is TDS Deducted?
- When credited to the partner’s account in the firm’s books.
- When payment is made to the partner.
Practical Implications:
- Partners must plan withdrawals strategically as TDS will now apply.
- Firms may need to close their books earlier to meet the TDS deposition deadline.
- This new provision enhances tax compliance for firms and partners alike.
Effective Date: April 1, 2025.
4. Removal of Higher TDS/TCS for Non-Filers (Sections 206AB & 206CCA)
Currently, Sections 206AB and 206CCA impose a higher TDS/TCS rate on taxpayers who have not filed their Income Tax Returns (ITRs). This creates compliance challenges for businesses that must verify the return-filing status of payees.
Proposed Change:
- Complete removal of Sections 206AB & 206CCA.
- This will simplify TDS/TCS deductions and avoid unnecessary capital blocking for taxpayers.
Effective Date: April 1, 2025.
Conclusion
These Income Tax updates reflect the government’s commitment to reducing complexity and promoting ease of doing business. With reduced TDS rates, higher exemption thresholds, and the removal of complex provisions, these changes will benefit both businesses and individuals.
The introduction of Section 194T will require partners to plan their finances carefully, as TDS deductions will impact cash flows. Firms must also adapt to ensure timely compliance.
At PGA & Co., our expert Income Tax consultants can help you navigate these changes efficiently. Stay informed and compliant with the latest tax regulations by consulting our team.
For personalized tax assistance, contact PGA & Co. today!