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New Income Tax Bill 2025 simplifies TDS, TCS; here's what has been proposed

New Income Tax Bill 2025 simplifies TDS, TCS; here's what has been proposed

The new bill proposes the application of TDS rules to various types of income, including salaries, professional fees, interest income, rent, and more.

Business Today Desk
Business Today Desk
  • Updated Feb 12, 2025 3:56 PM IST
New Income Tax Bill 2025 simplifies TDS, TCS; here's what has been proposedThe new bill proposes the application of TDS rules to various types of income, including salaries, professional fees, interest income, rent, and more.

The new Income Tax Bill 2025, set to be tabled in Parliament on Thursday, marks a historic moment in India’s tax landscape, as it will replace the current year legislation introduced way back in 1961. The bill, once passed, will come into effect from April 1, 2026. 

The new bill has proposed to keep the financial year consistent, it will commence on April 1 and conclude on March 31. The upcoming income tax legislation will continue to use this timeframe rather than the calendar year.

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The primary objectives of this bill are to streamline tax regulations and update compliance procedures. One such section is Tax Deducted at Source (TDS) and Tax Collected at Source (TCS).

TDS and TCS under New Income Tax 2025  

The new bill proposes the application of TDS rules to various types of income, including salaries, professional fees, interest income, rent, and more.

TCS will be imposed on specific transactions, such as the sale of alcohol, tendu leaves, minerals, and scrap materials (1%-5%), the sale of motor vehicles above Rs 10 lakh (1%), and foreign remittances exceeding Rs 7 lakh (5%).

Penalties for TDS/TCS defaults include being considered in default for failing to deduct or pay TDS/TCS, and incurring a 1% per month interest charge on unpaid TDS/TCS amounts.

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“All TDS-related sections have been brought together under a single clause with simple tables, for ease of understanding, though this would mean post implementation of this bill, a lot of changes would be required in forms and utilities, for reporting purposes," said Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP.

TCS, TDS: Changes introduced in Budget 2025

The Union Budget 2025 has introduced amendments to increase the limits for tax deducted and collected at source (TDS & TCS). This measure aims to boost cash flow and purchasing power for a diverse range of individuals. 

The biggest beneficiaries of the raised TDS limit are senior citizens, landlords, and professionals providing technical services. 

On the other hand, the hike in the TCS threshold will benefit foreign travelers, investors, and parents funding their children's education abroad, allowing them to access more funds promptly without having to wait a full year for a tax refund.

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Under the new provisions, senior citizens will now be exempt from TDS on interest income up to Rs.1 lakh in a financial year, up from Rs.50,000. For other individuals, the TDS limit has been raised from Rs 40,000 to Rs 50,000. 

This would double the limit for senior citizens will enhance financial security for the elderly population. Depending on their respective tax brackets, senior citizens can now avail relief of up to Rs 15,000.

The Budget also increased the TDS exemption limit on rental income from Rs 2.4 lakh to Rs.6 lakh per year, or Rs 50,000 per month from Rs 20,000 per month. This change will help reduce the administrative burden for landlords and improve cash flow for them, ultimately having a positive impact on the rental housing market, particularly in major cities.

Additionally, investors in stocks and mutual funds will benefit from the raised TDS limit on dividends and income from mutual fund units or specific companies/undertakings, which has been increased from Rs 5,000 to Rs 10,000.

The TCS thresholds have been revised as part of the Liberalised Remittance Scheme (LRS), providing advantages to individuals engaging in cross-border transactions. The previous limit of Rs 7 lakh has now been increased to Rs 10 lakh, with education loans from certain institutions being fully exempted. Previously, a 0.5% charge was applied for education loans exceeding Rs 7 lakh, and a 5% charge for self-financed education transactions exceeding Rs 7 lakh.

Published on: Feb 12, 2025 3:56 PM IST
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