Union Budget 2025-26: Key Changes in TDS & TCS Explained
The Union Budget 2025-26 has introduced significant changes in the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions to simplify compliance and reduce litigation. The amendments primarily focus on rate reductions, procedural relaxations, and eliminating redundant provisions.
1. Deletion of Higher TDS/TCS Rates for Non-Filers
Sections 206AB and 206CCA, which mandated higher TDS and TCS rates for non-filers of income tax returns, have been omitted. However, the higher TDS/TCS rates under Sections 206AA and 206CC for cases where PAN is not furnished remain applicable.
2. Changes in TCS on Timber and Forest Produce
- The term “forest produce” has been defined as per the Indian Forest Act, 1927, or any applicable State Act.
- TCS will now apply to “other forest produce” obtained under a forest lease.
- Rates have been reduced for timber and other forest produce:
- Timber obtained under a forest lease: Reduced from 2.5% to 2%.
- Timber obtained by any other mode: Reduced from 2.5% to 2%.
3. TCS on Sale of Goods Removed
Section 206C(1H), which imposed TCS on the sale of goods exceeding ₹50 lakh, has been omitted. However, TDS under Section 194Q (at 0.1%) will continue to apply on purchases exceeding ₹50 lakh.
4. Relaxation in Prosecution for Delayed TCS Payment
Under Section 276BB, prosecution will not be initiated if TCS is paid before the due date for filing the quarterly TCS statement. This amendment brings relief to businesses that inadvertently delay TCS remittance.
5. Extension of Time for Passing TCS Orders
Section 206C(7A) has been amended to exclude certain time periods, such as court stays, when calculating the deadline for passing TCS default orders. This change ensures fairness in TCS assessments.
6. Revised TDS Thresholds for Various Payments
The budget has revised threshold limits for several TDS provisions, thereby reducing compliance burdens for taxpayers. Some key changes include:
- Interest on securities (Section 193) – New threshold: ₹10,000 (earlier NIL).
- Dividend (Section 194) – New threshold: ₹10,000 (earlier ₹5,000).
- Interest other than securities (Section 194A) –
- Banks & post offices: ₹1,00,000 for senior citizens (earlier ₹50,000), ₹50,000 for others (earlier ₹40,000).
- Other cases: ₹10,000 (earlier ₹5,000).
- Rent (Section 194I) – Monthly threshold of ₹50,000 introduced instead of annual ₹2,40,000.
7. TCS on LRS and Overseas Tour Packages Relaxed
The TCS provisions under Section 206C(1G) for remittances under the Liberalized Remittance Scheme (LRS) and overseas tour packages have been relaxed:
- General LRS remittances – No TCS up to ₹10 lakh; 20% for amounts exceeding ₹10 lakh.
- LRS for education/medical treatment – No TCS up to ₹10 lakh; 5% for amounts exceeding ₹10 lakh.
- LRS for education via loans – TCS removed entirely (earlier 0.5%).
- Overseas tour packages – 5% TCS up to ₹10 lakh; 20% beyond that.
Conclusion
The TDS and TCS amendments in the Union Budget 2025-26 reflect the government’s efforts to streamline compliance, reduce litigation, and support businesses. With the elimination of higher rates for non-filers, relaxed prosecution rules, and higher threshold limits, these changes bring much-needed relief for taxpayers.
These amendments will be effective from April 1, 2025. Businesses and taxpayers should update their systems and practices accordingly to remain compliant with the new regulations.
