TDS & TCS Rates for FY 2025-26 Key Budget Updates You Need to Know

1. Rationalization of TDS Rates and Thresholds

(A) Reduction in TDS Rates for Section 194LBC

• Current Rate:
  • 25% for individuals/HUF
  • 30% for others
• New Rate (from April 1, 2025): 10%
• Impact:
  • This change benefits investors receiving income from securitization trusts.
  • The sector is now well-regulated, so lower tax rates improve investment liquidity.

(B) Increase in TDS Thresholds for Various Payments

In addition to the changes to TDS/TCS rates, the budget proposals also aim to rationalize various TDS provisions by adjusting the thresholds beyond which tax must be deducted. Below is the detailed table outlining the current thresholds and the proposed changes:

2. Changes in TCS (Tax Collected at Source) Provisions

(A) Definition of “Forest Produce” Rationalized

• Earlier, TCS applied to all forest produce (except tendu leaves).
• Now, TCS will only apply to forest produce obtained under a “forest lease” (as per the Indian Forest Act or State laws).
• New TCS Rates:
  • Timber obtained under a forest lease: 2%
  • Other timber: 2%

(B) Removal of TCS on Sale of Specified Goods (Section 206C(1H))

• Previous Rule:
  • A 0.1% TCS applied on the sale of goods exceeding ₹50 lakh in a financial year.
• New Rule (from April 1, 2025):
  • This TCS is now abolished to avoid double taxation, as TDS under Section 194Q was already applicable.

3. Removal of Higher TDS/TCS for Non-Filers

(Abolition of Sections 206AB & 206CCA)

• Earlier Rule:
  • If a taxpayer had not filed Income Tax Returns (ITR) for the last 2 years, and TDS/TCS exceeded ₹50,000, they were subject to higher rates (up to double the normal rate or 5%).
• New Rule (from April 1, 2025):
  • These sections are removed.
• Impact:
  • Businesses no longer need to verify the tax return filing status of customers before deducting TDS/TCS.
  • Easier compliance for businesses and taxpayers.

4. Prosecution and Compliance Relaxations

(A) No Prosecution for Delayed TCS Payments (Section 276BB)

• Earlier Rule:
  • If a business failed to deposit TCS on time, they faced imprisonment (3 months to 7 years).
• New Rule:
  • If TCS is deposited before the quarterly return filing due date, no prosecution will be initiated.
• Impact:
  • Businesses get a buffer period to deposit TCS without fearing legal action.

(B) Time Limit Alignment for TCS Defaults (Section 206C(7A))

• Previous Rule:
  • The time limit for issuing a TCS default order was different from the assessment period under Section 153.
• New Rule:
  • Time limit for TCS default orders is now aligned with the standard tax assessment period.
• Impact:
  • Brings uniformity in tax assessment and ensures fair treatment of taxpayers.

Why These Changes Matter

The proposed changes are significant for several reasons:

1.Eases the Burden on Businesses:
Companies will no longer need to manage multiple verification processes at the point of deduction or collection, reducing administrative overhead.

2.Enhances Efficiency in Tax Administration:
With streamlined thresholds and uniform time limits, both tax authorities and taxpayers can focus on more substantive compliance issues rather than grappling with cumbersome processes.

3.Improves Cash Flow:
By avoiding the automatic imposition of higher TDS/TCS rates and rationalizing the thresholds, businesses and individuals can manage their working capital more effectively.

Conclusion

The key budget updates for FY 2025-26 reflect a clear intent to simplify tax administration and reduce unnecessary burdens on both taxpayers and tax authorities. The proposed removal of higher TDS/TCS rates for non-filers, along with the rationalization of TDS thresholds, are welcome moves that promise smoother operations and better cash flow management. As these changes take effect from April 2025, businesses and individuals should review their current processes and prepare for a more streamlined tax deduction and collection environment.

For more information please refer below TDS & TCS Rate Chart

LinkedIn Link : RMPS Profile

This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.

Please follow and like us: