The Union Budget 2024 has proposed TDS ( Tax Deduction at Source ) rate changes under Income tax for Financial Year 2024-25 and Assessment year 2025-26. It includes TDS on payment of Rent by certain individuals or HUF , Payment in respect of life insurance policy, Commission on sale of lottery tickets, .. .etc.
The income tax Section 194DA, deals with TDS on payments related to life insurance policies. This section mandates that the payer deduct and deposit TDS with the government. Non-compliance with this section can result in penalties and interest charges.
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Section 194DA applies to any sum received from a life insurance provider, including foreign insurers. A deduction is available if the sum assured exceeds the annual premium by at least ten times, making the profits from the policy’s maturity tax-free under Section 10(10D).
Additionally, if the policyholder passes away, the beneficiary’s inheritance is also tax-free. However, TDS must be withheld from any compensation paid to an Indian resident in relation to an insurance company.
Exemptions under Section 10(10D) apply in specific cases, such as when the insured receives amounts under Sections 80DDA(3) and 80DD(3), or when the premium amount is within certain limits relative to the total insured amount. However, these exemptions do not apply if the beneficiary receives the money after the policyholder’s death.
Income earned through commission, remuneration, or prizes from selling, stocking, distributing, or purchasing lottery tickets is subject to taxation. If the income exceeds ₹15,000, the entity responsible for making the payment (deductor) must deduct income tax at the source before disbursing the amount.
TDS on such income is required to be deducted either at the time of crediting the income to the deductee’s account or when the payment is made, whichever is earlier. This rule applies even if the income is credited to a suspense account or any other account in the deductor’s books.
The deducted tax must be deposited with the government: for deductions made in March, by April 30 of the following financial year, and for deductions made in any other month, within seven days of the end of that month.
If the commission or remuneration does not exceed ₹15,000 in a financial year, no TDS is required. However, the payee can request a certificate from the assessing officer (AO) via Form 13 to authorise a nil tax deduction or a deduction at a lower rate, provided their Permanent Account Number (PAN) is quoted as required under Section 206AA(4).
Section 194H of the Income Tax Act mandates TDS on income earned through commission or brokerage paid to a resident. From the financial year 2020-21 onwards, individuals and HUF with business turnover exceeding ₹1 crore or professional gross receipts over ₹50 lakh are also required to deduct TDS under this section.
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However, insurance commissions covered under Section 194D are excluded from Section 194H. The TDS must be deducted either when the income is credited to the payee’s account, or at the time of payment in cash, cheque, draft, or any other mode, whichever occurs first. If the commission or brokerage is ₹15,000 or less in a financial year, TDS is not applicable.
Section 194IB of the Income Tax Act, 1961, mandates TDS on rent payments exceeding ₹50,000 per month by individuals or Hindu Undivided Families (HUFs) not covered under Section 194-I.
Payments should be made to the government by April 30 for March deductions and within seven days for other months. TDS must be deducted once per year, using Form 26QC, and a TDS certificate, Form 16C, should be issued to the landlord. TDS is not applicable if rent is below ₹50,000 per month.
TDS on payments made by individuals or HUFs to a resident for contract work, commission (excluding insurance), or professional services if the total payment exceeds ₹50,00,000 in a financial year are deducted under Section 194M of the Income Tax Act, 1961.
TDS should be deducted at the time of credit or payment. Payments must be filed with Form 26QD within 30 days and Form 16D issued to the payee within 15 days. This TDS deduction does not apply to non-residents and requires only PAN.
Section 194O, introduced in the Union Budget 2020, requires e-commerce operators to deduct TDS on payments made to resident e-commerce participants for sales of goods or provision of services exceeding ₹50,00,000 per financial year.
E-commerce operators, who manage digital platforms for sales and services, must deduct TDS at 1% (reduced to 0.1% from October 1, 2024) on the gross amount paid. If the participant’s PAN is unavailable, TDS will be deducted at 20%.
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The Government has eliminated the 20% TDS rate on mutual fund or UTI unit repurchases. The Finance Bill 2024 proposed to remove Section 194F of the Income-tax Act, which previously mandated a 20% TDS on payments for the repurchase of units by Mutual Funds or the Unit Trust of India (UTI).
Clause 55 of the Bill specifies that this section, which required tax deduction on payments under Section 80CCB at the rate of 20%, will be omitted. This change is set to take effect from October 1, 2024. It eases the burden on investors.
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