TDS & TCS Rate Changes from April 1, 2025: What You Need to Know
Budget 2025 raises TDS exemption limits, removes TCS on some goods, and lowers tax rates for key transactions
The Union Budget 2025 has introduced major changes in TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions to simplify tax compliance for businesses and taxpayers. The focus areas include:
- Higher exemption limits for TDS on interest, dividends, rent, and professional fees.
- Revised TDS on winnings from lotteries, commissions, and brokerage.
- Removal of TCS on certain transactions to reduce the compliance burden.
- Lower tax rates for securitization trusts and NRI property purchases.
These changes, effective from April 1, 2025, aim to make tax procedures smoother while ensuring better compliance.
1. Enhanced Threshold for Tax Deduction (TDS)
TDS is deducted only when a transaction exceeds a certain threshold. The government has increased these limits, allowing more transactions to stay tax-free while keeping the TDS rates unchanged.
New TDS Thresholds (Effective April 1, 2025)
| Section | Nature of Payment | Existing Threshold (till March 31, 2025) | New Threshold (w.e.f. April 1, 2025) |
|---|---|---|---|
| 197 | Interest on Securities | Nil | Rs. 10,000 |
| 194 | Dividend for an individual shareholder | Rs. 5,000 | Rs. 10,000 |
| 194A | Interest Other Than Securities | A) Senior Citizen – Rs. 50,000 | A) Rs. 1,00,000 |
| B) Bank/Co-Op/Post Office – Rs. 40,000 | B) Rs. 50,000 | ||
| C) Other Cases – Rs. 5,000 | C) Rs. 10,000 | ||
| 194B & 194BB | Winnings from lottery/crossword puzzle/horse race | Aggregate Amount – Rs. 10,000 | Single Transaction – Rs. 10,000 |
| 194D, 194G & 194H | Commission on Insurance/Brokerage/Sale of Lottery Tickets | Rs. 15,000 | Rs. 20,000 |
| 194I | Rent | Rs. 2,40,000 | Rs. 50,000 per month / Rs. 6,00,000 per annum |
| 194J | Fee for Professional, Technical Services, and Royalty | Rs. 30,000 | Rs. 50,000 |
| 194K | Income in respect of units | Rs. 5,000 | Rs. 10,000 |
| 194LA | Enhanced compensation | Rs. 2,50,000 | Rs. 5,00,000 |
| 206C(1G) | Remittance Under Liberalized Remittance Scheme (LRS) | Rs. 7,00,000 | Rs. 10,00,000 |
Summary of TDS Threshold Enhancements:
- More tax-free income: Higher exemption limits for interest, rent, dividends, and professional fees mean fewer tax deductions at the source.
- Stricter TDS rules for winnings: Lottery, crossword, and horse race winnings will now be taxed per transaction rather than on the total amount won in a year.
- Liberalized Remittance Scheme (LRS): The tax-free limit for foreign remittances has been increased from Rs. 7,00,000 to Rs. 10,00,000, making overseas payments easier.
2. Lower TDS Rates for Securitization Trusts (Section 194LBC)
Currently, securitization trusts (investment vehicles pooling assets like loans and bonds) must deduct TDS at 25% for individuals and 30% for non-individuals. From April 1, 2025, the government has reduced these rates:
| Payee | Existing TDS Rate | New TDS Rate (w.e.f. April 1, 2025) |
|---|---|---|
| Individual / HUF | 25% | 10% |
| Others (companies, partnerships, etc.) | 30% | No change |
This change reduces the tax burden on investors in securitization trusts and encourages investments in the financial sector by lowering upfront tax deductions.
3. New TCS Thresholds (Effective April 1, 2025)
| Section | Nature of Payment | Existing TCS Rate (till March 31, 2025) | New TCS Rate (w.e.f. April 1, 2025) |
|---|---|---|---|
| 206C(1) | Timber/Forest Produce & Scrap | 2.5% | 2% |
| 206C(1G) | LRS – Remittance out of Education Loan | 5% | Omitted |
| 206C(1H) | TCS Collection for Sale of Goods | 1% | Omitted |
| 195 | Payment to NRI for the purchase of immovable property | 20% | 12.5% |
4. TCS on Sale of Goods Removed to Ease Compliance
Under Section 206C(1H), businesses had to collect TCS (1%) on sales exceeding Rs. 50,00,000, creating compliance issues when buyers deducted TDS under Section 194Q.
What’s changing?
- TCS on the sale of goods is removed from April 1, 2025.
- No need to track if TDS was deducted by the buyer.
- Smoother transactions for sellers, reducing paperwork and potential penalties for missing TCS payments.
5. Changes in TCS for Forest Produce (Section 206C(1))
- The definition of ‘forest produce’ will now align with the Indian Forest Act, 1927, or State laws.
- TCS on timber and other forest produce (except tendu leaves) is reduced from 2.5% to 2%.
Impact: Lower tax burden for businesses involved in the timber and forest produce industry.
6. Higher TCS Limit for Remittances Under LRS & Tour Packages
- The TCS-free limit for sending money abroad (LRS) has increased from Rs. 7,00,000 to Rs. 10,00,000, making foreign transactions easier.
- No TCS on education-related remittances if the money is from an education loan.
Impact:
- Eases financial pressure on students and families sending money for overseas education.
- Reduces TCS compliance for foreign remittances.
7. Removal of Higher TDS/TCS for Non-Filers of Income Tax Returns
Currently, under Section 206AB and 206CCA, individuals who don’t file income tax returns face higher TDS and TCS rates (if their tax deductions exceed Rs. 50,000 per year).
What’s changing?
- From April 1, 2025, these sections are removed.
- Businesses no longer need to verify whether a person has filed their tax return before deducting TDS or TCS.
Impact:
- Simplifies tax compliance.
- Reduces paperwork for companies.
With these significant changes in TDS and TCS provisions, businesses and taxpayers will experience reduced compliance burdens and improved cash flow management from April 1, 2025.