TDS and TCS Changes Effective from 1st April 2025 – Simplified

Effective from 1st April 2025, the TDS and TCS framework under the Income Tax Act, 1961 has been significantly revised to streamline compliance and address overlapping provisions. This comprehensive update includes the introduction of new sections, removal of certain existing ones, upward revision of threshold limits, and adjustments in applicable tax rates. Let us understand the key changes in tax deducted at source and tax collected at source effective from 1^st April 2025 in detail.

Focus Areas of TDS and TCS Changes Effective from 1^st April 2025

The primary focus areas for the changes introduced in the TDS and TCS mechanism with effect from 1^st April 2025 are as under-

• Increasing the threshold limits for applicability across various sections,
• Removal of tax collected at source applicability on certain transactions,
• Introduction of new sections for TDS such as on remuneration paid to partners,
• Exemption from prosecution for delay in depositing TCS.

Revision of Threshold limits for TDS deduction

The threshold limits have been revised for deduction of TDS under various sections with effect from FY 2025-26 as elaborated in the table below –

Section	Applicable Until 31st March 2025	Applicable From 1st April 2025
193 – Interest on Securities	No threshold limit	₹10,000
194A – Interest (excluding interest on securities)	₹50,000 for senior citizens ₹40,000 for others (banks, co-ops, post offices) ₹5,000 in other cases	₹1,00,000 for senior citizens ₹50,000 for others (banks, co-ops, post offices) ₹10,000 in other cases
194 – Dividend (individual shareholders)	₹5,000	₹10,000
194K – Income from Mutual Fund Units	₹5,000	₹10,000
194B – Lottery, Crossword Puzzle Winnings	Cumulative winnings above ₹10,000 in a financial year	₹10,000 per transaction
194BB – Winnings from Horse Races	Cumulative winnings above ₹10,000 in a financial year	₹10,000 per transaction
194D – Insurance Commission	₹15,000	₹20,000
194G – Commission or Prize on Lottery Sales	₹15,000	₹20,000
194H – Commission or Brokerage	₹15,000	₹20,000
194-I – Rent	₹2,40,000 annually	₹50,000 monthly
194J – Professional/Technical Service Fees	₹30,000	₹50,000
194LA – Compensation on Compulsory Acquisition	₹2,50,000	₹5,00,000

Section 194T –Remuneration to Partners

A new section 194T has been introduced from FY 2025-26 with effect from 1^st April 2025 for deduction of tax on payments made by a partnership firm or LLP to its partners on or after 1st April 2025. This section covers to salary, remuneration, commission, bonus, interest (on capital or otherwise) payments made to the partner. However, any amount that represents a return of capital (i.e., capital withdrawals) is not covered under this section.

Tax is only required to be deducted if the total of all specified payments made to a partner exceeds Rs. 20,000 in a financial year. This will have to be deducted When the amount is credited to the partner’s account (including their capital account), or when the amount is actually paid, whichever is earlier.

Relief from prosecution due to delayed deposit of TCS in certain conditions

Earlier, as per section 276BB of the Income Tax Act, in case of failure in deposit of the tax collected at source amount, could lead to imprisonment from 3 months to 7 years alongwith a fine. However, now no such prosecution will be done if the assessee has deposited the tax collected at source before the last date for filing the quarterly TCS statements thereby reducing the burden on the assessee.

Relief from the Sections 206AB and 206CCA

Sections 206AB and 206CCA previously imposed higher TDS and TCS rates on individuals who failed to file tax returns. This created an additional challenge for deductors and collectors, who were responsible for identifying non-filers and submitting returns within the prescribed deadlines.

However, effective from April 1, 2025, both sections will be repealed. As a result, businesses will no longer need to verify whether an individual has filed their tax returns to determine the applicable tax deduction rates. This change streamlines the compliance process and alleviates the burden on businesses.

Removal of TCS applicability on certain LRS remittances

From FY 2025-26, no Tax Collected at Source will apply under the Liberalised Remittance Scheme (LRS) for amounts sent abroad for educational purposes, provided the remittance is made using funds from an education loan. The relevant provision, Section 206C(1G), which earlier imposed TCS on such remittances exceeding Rs. 7 lacs, has been removed. As a result, Tax Collected at Source will no longer be applicable in these cases, regardless of the amount remitted.

Removal of TCS on Sale of Goods transactions

Earlier, under section 206C(1H), sellers were required to collect Tax Collected at Source on the sale of goods when the total value of sales to a buyer exceeded Rs. 50 lakh in a financial year, subject to specific conditions. This overlapped with section 194Q, which obligated buyers to deduct Tax Deducted at Source on similar transactions, leading to duplication and confusion in tax compliance.

To address these concerns and simplify the process, section 206C(1H) has been withdrawn effective from April 1, 2025. As a result, sellers are no longer required to collect TCS on the sale of goods, thereby removing the dual applicability of TCS and TDS on the same transaction and easing the compliance burden for businesses.

Increased Threshold Limits for certain TCS transactions

The threshold for Tax Collected at Source on remittances made under the Liberalised Remittance Scheme (LRS) and for purchasing overseas tour packages has been revised upward from the earlier limit of Rs. 7 lakh to Rs. 10 lakh.

Reduction in Rate for Forest Produce

The Tax Collected at Source rate for timber and other forest products, excluding tendu leaves, under section 206C(1) has been reduced from 2.5% to 2%. Moreover, the definition of “forest produce” will align with the definition provided in the Indian Forest Act of 1927 or any applicable State legislation.

Conclusion

Overall, these reforms are intended to streamline the process of tax deduction and collection at source, ease the administrative burden on taxpayers and businesses, and eliminate overlapping provisions that led to confusion and double taxation. By enhancing thresholds, removing redundant sections, and aligning rates more closely with actual transactions, the changes aim to foster a more transparent, efficient, and business-friendly tax environment.