The 2024-25 budget brings significant updates to tax deducted at source ( TDS ) and tax collected at source ( TCS ) regulations, impacting various compliance requirements and benefiting taxpayers in multiple ways.
This article summarises the main highlights, including rate reductions, new provisions, and updates to existing sections.
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Lower TDS on Rent Payments
The budget proposes a reduction in the TDS rate from 5% to 2% for monthly rents exceeding Rs 50,000 paid by individuals or Hindu undivided families (HUF). This change, effective from October 1, 2024, will benefit property owners, especially retired individuals who rely on rental income, by improving their cash flow.
Impact: Increased rental income cash flow for property owners, particularly senior citizens.
Credit for TCS for Salaried Employees
Starting October 1, 2024, the budget allows employers to consider TCS collected from salaried employees for overall tax computation. Previously, there was no provision for considering TCS collected from taxpayers for calculating net tax deductions. This change will reduce the compliance burden for salaried individuals.
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Impact: Simplified tax computation for salaried employees and reduced compliance burden.
TDS on Sale of Immovable Property
The budget clarifies that TDS must be deducted on the total price of immovable property exceeding Rs 50 lakh, regardless of the number of sellers involved. This amendment, effective from October 1, 2024, closes a loophole where transactions were structured to avoid TDS by splitting payments between multiple owners.
Impact: Ensures fair tax deduction on property sales and eliminates loopholes.
TCS Credit for Minor Child
Effective January 1, 2025, parents can claim TCS credit for a minor child’s income, which is clubbed with the parent’s income. This change provides clarity on the treatment of TCS for minors and reduces the compliance burden on parents.
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Impact: Simplifies tax compliance for parents managing taxable investments in a minor’s name.
Other Key Proposals and Updates
1. TDS Rate Reductions: The TDS rate for various payments, including life insurance policy payments, lottery commission, brokerage, and rent, will be reduced to 2% from 5%, effective October 1, 2024.
2. Removal of TDS on Mutual Fund Repurchases: Section 194F, which mandated TDS on repurchase of mutual fund units, will be omitted from October 1, 2024.
3. Introduction of TDS on Payments to Partners: A new section (194T) introduces a 10% TDS on payments made to partners towards salary, bonus, and incentives, effective April 1, 2025.
4. Widening Scope of TCS on Luxury Goods: The TCS scope under Section 206C(IF) will extend to luxury items beyond motor vehicles, applicable from January 1, 2025.
5. Extension of Lower TDS/TCS on Goods Purchases: Certificates under Section 197 for lower TDS/TCS will now include Sections 194Q and 206C, effective October 1, 2024.
6. Correction Statements Limitation: Correction statements for TDS/TCS will be limited to the previous six years, starting April 1, 2025.
7. Increased Interest on Delayed TCS Deposit: The interest rate for delayed TCS deposit will increase from 1% to 1.5% per month from April 1, 2025.
8. Employer Consideration of TDS/TCS from Others: Employers will now consider TDS/TCS from other sources when computing employee TDS, effective from April 1, 2025.
9. Amendment in Penal Provision for TDS: The penalty for late TDS/TCS return filing is reduced from one year to one month from the due date, effective April 1, 2025.
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