TDS is a tax system in India that helps the government collect taxes directly from the source of income. This means that when you get paid for things like rent, salary, or interest, a part of the money is automatically set aside for taxes. This helps the government collect money more easily and makes sure that people pay their taxes.
The 2024-25 Union Budget has simplified the TDS system and provided relief to taxpayers. Key changes include a reduced TDS rate for various payments, a unified exemption regime for charities, and the elimination of TDS on mutual fund repurchase. Additionally, the government has reduced compliance burdens by decriminalizing late TDS payments and allowing TCS credit against salary TDS.
Proposed amendments in the Finance (No. 2) Act 2024
Budget 2024 eased the financial burden on businesses and improved tax compliance by reducing TDS rates for certain payments:
TDS Rate Reductions and Rationalizations in Budget 2024-25
Reduced TDS rate for various payments: The TDS rate has been decreased from 5% to 2% for several types of payments, providing financial relief to taxpayers.
Elimination of TDS on mutual fund repurchase: The 20% TDS previously applicable on the repurchase of mutual fund or UTI units has been removed.
Reduced TDS rate for e-commerce operators: The TDS rate for e-commerce operators has been lowered from 1% to 0.1%, reducing compliance costs.
TCS credit against salary TDS: Taxpayers can now claim credit for Tax Collected at Source (TCS) against the TDS deducted on their salaries.
Decriminalization of late TDS payments: Delays in TDS payments up to the due date of filing the TDS statement will no longer be considered a criminal offense, easing compliance burdens.
TDS on Immovable Property Transfer: Currently, tax is deducted at 1% on consideration for the transfer of immovable property. TDS does not apply where the consideration and stamp duty value of the immovable property are both less than 5 Lakh Rupees. In case of transfers involving multiple transferors and/or transferees, the exemption limit of 5 Lakh rupees is proposed to apply on an aggregate basis for an immovable property. The amendment will take effect from 1 October 2024 and is expected to bring clarity for deductors while applying these provisions.
TDS on Interest from Government Securities: Starting from October 1, 2024, there will be no tax withheld on interest from certain government bonds if the interest earned in a year is more than 10,000 rupees. These bonds include the 8% Savings (Taxable) Bonds, 2003, 7.75% Savings (Taxable) Bonds, 2018, and Floating Rate Savings Bonds, 2020 (Taxable). The government can also add other government bonds to this list in the future.
New TDS Provisions and Amendments
TDS on partner remuneration: Starting from April 1, 2025, firms will be required to deduct 10% TDS on remuneration, commission, or interest paid to partners if the total amount exceeds Rs 20,000.
Potential administrative difficulties: This new provision may create challenges in distinguishing between payments for capital withdrawal/profit and those for remuneration/commission/interest, leading to potential errors in TDS deduction.
Inconsistency in tax treatment: If the allowable remuneration based on taxable profit under section 40b is less than the actual remuneration paid, excess amounts will not be deductible as expenses or taxable as income in the partner's hands. This could result in excess TDS deductions.
Foreign Taxes Withheld: There are instances of non-inclusion of taxes withheld outside India in computation of income. However, credit for such foreign taxes withheld was being claimed. To curb this practice, tax deducted and paid outside India in respect of which foreign tax credit is claimed is deemed to be income received with effect from 1 April 2025.
Tax Deduction at Source (TDS) provisions have different thresholds and rates ranging from 0.1% to 30%. To improve business ease and taxpayer compliance, TDS rates are proposed to be reduced. However, no changes will be made to sections like salary, virtual digital assets, lottery winnings, property transfers, and contracts. The proposed changes will take effect from April 2025, October 2024, and October 2024. The amendments aim to reduce income-tax rates for insurance commissions, life insurance policies, and lottery ticket sales.
The proposed amendments to the Income Tax Act include a reduction in TDS for certain incomes, such as commission or brokerage payments, rent payments, and payments for work or services. The amendments will take effect from October 1, 2024. The TDS rate for e-commerce operators is also proposed to be reduced from 1% to 0.1%. The amendment will also omit section 194F, which relates to TDS on payments on repurchase of units by mutual funds or UTI, which attracts a 20% TDS rate. The amendments aim to make it easier for salaried employees to claim credit for TCS collected or TDS deducted.
