TDS & TCS Rate Changes from April 1, 2025: What You Need to Know

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 is on:

• Higher exemption limits for a tax deduction (TDS) on interest, dividends, rent, and professional fees.
• Revised TDS on winnings from lotteries, commissions, and brokerage
• TCS removed on certain transactions to reduce the compliance burden
• Lower tax rates for securitization trusts and NRI property purchases

These changes, effective from 1st April 2025, aim to make tax procedures smoother while ensuring better compliance.

TDS Mistakes Cost You More Than You Think – Stay Compliant with This Handbook! Click Here

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 1st April 2025)

Section	Nature of Payment	Existing Threshold (till 31 March 2025)	New Threshold (w.e.f. 1 April 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 B) Bank/Co-Op/Post Office C) Other Cases	A) Rs. 50,000 B) Rs. 40,000 C) Rs. 5,000	A) Rs. 1,00,000 B) Rs. 50,000 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:

1. More tax-free income: Higher exemption limits for interest, rent, dividends, and professional fees mean less tax deduction at the source.
2. 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.
3. 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 1st April 2025, the government has reduced these rates:

Payee	Existing TDS Rate	New TDS Rate (w.e.f. 1 April 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.

New TCS Thresholds (Effective 1st April 2025)

Section	Nature of Payment	Existing TCS Rate (till 31 March 2025)	New TCS Rate (w.e.f 1 April 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%

3. 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 now removed from 1st April 2025, eliminating confusion and reducing compliance burdens for businesses.

So, No need to track if TDS was deducted by the buyer and smoother transactions for sellers, reducing paperwork and potential penalties for missing TCS payments.

4. 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.

Want a deeper insight into the Income Tax Bill, 2025? Click here

5. 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.

These changes eases financial pressure on students and families sending money for overseas education. Reduces TCS compliance for foreign remittances.

6. 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 1st April 2025, these sections are removed! So, Businesses no longer need to verify whether a person has filed their tax return before deducting TDS or TCS. Simplifies tax compliance and reduces paperwork for companies.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates