This circular provides a detailed overview of amendments introduced in the Finance Act 2025 pertaining to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) compliance. These amendments aim to simplify tax compliance, reduce administrative burdens, and enhance ease of doing business.
1. Introduction of New Tax Regime Slabs
The Finance Act 2025 has revised income tax slabs for individuals opting for the new tax regime:
| Income Range Old Slabs (₹) | Income Range NEW Slabs (₹) | New Tax Rate (%) |
| Up to 3,00,000 | Up to 4,00,000 | Nil |
| 3,00,001 – 7,00,000 | 4,00,001 – 8,00,000 | 5% |
| 7,00,001 – 10,00,000 | 8,00,001 – 12,00,000 | 10% |
| 10,00,001 – 12,00,000 | 12,00,001 – 16,00,000 | 15% |
| 12,00,001 – 15,00,000 | 16,00,001 – 20,00,000 | 20% |
| – | 20,00,001 – 24,00,000 | 25% |
| Above 15,00,000 | Above 24,00,000 | 30% |
87A Rebate on income-tax: It is proposed to increase the rebate for the resident individual under the new regime so that they do not pay tax if their total income is up to 12,00,000. Hence the limit of rebate in clause (a) of first proviso to section 87A stands increase from Rs. 25,000 to Rs. 60,000.
2. Changes in TDS Provisions
A. Reduction in TDS Rate Under Section 194LBC
Current Provision: TDS on income payable by securitization trusts to investors is 25% (for individuals/HUF) and 30% (for others).
Amendment: The TDS rate has been reduced to 10% for all investors.
Effective Date: April 1, 2025.
B. Rationalization of TDS Thresholds
Several TDS threshold limits have been increased to ease compliance:
| Section | Nature of Payment | Old Threshold | New Threshold | Example |
| 193 | Interest on Securities | Nil | ₹10,000 | If an individual earns ₹9,500 as interest, no TDS will be deducted. At ₹12,000, TDS will apply. |
| 194A | Interest (Banks, Post Office) | ₹40,000 (₹50,000 for Senior Citizens) | ₹50,000 (₹1,00,000 for Senior Citizens) | A senior citizen earning ₹95,000 will not have TDS deducted. At ₹1,05,000, TDS will apply. |
| 194 | Dividend | ₹5,000 | ₹10,000 | No TDS on dividends up to ₹10,000; at ₹12,000, TDS applies. |
| 194K | Mutual Fund Income | ₹5,000 | ₹10,000 | Mutual fund income below ₹10,000 is exempt from TDS; at ₹12,000, TDS applies. |
| 194B | Lottery Winnings | ₹10,000 aggregate | ₹10,000 per transaction | Winnings of ₹9,500 do not attract TDS; a single win of ₹10,500 will attract TDS. |
| 194BB | Horse Race Winnings | ₹10,000 aggregate | ₹10,000 per transaction | Similar to lottery winnings: ₹9,500 does not attract TDS; ₹10,500 attracts TDS. |
| 194D | Insurance Commission | ₹15,000 | ₹20,000 | No TDS if commission is under ₹20,000. At ₹25,000, TDS applies. |
| 194H | Brokerage/Commission | ₹15,000 | ₹20,000 | If brokerage received is ₹18,000, no TDS; at ₹21,000, TDS applies. |
| 194I | Rent | ₹2,40,000 annually | ₹50,000 per month | Rent of ₹45,000 per month is exempt from TDS; at ₹55,000, TDS applies. |
| 194J | Professional Fees | ₹30,000 | ₹50,000 | A consultant earning ₹48,000 in fees will not have TDS deducted. At ₹51,000, TDS applies. |
C. Removal of Higher TDS/TCS for Non-Filers
Current Rule: Higher TDS rates apply under Section 206AB/206CCA for non-filers of income tax returns.
Amendment: Section 206AB/206CCA is removed to ease compliance for taxpayers.
Effective Date: April 1, 2025.
Impact: Businesses no longer need to verify return filing history before deducting TDS, reducing administrative burden.
Example:
Previously, a business had to check whether a vendor had filed their returns before deducting TDS. Now, businesses will apply the standard TDS rates without verifying return filing history.
3. Changes in TCS Provisions
A. Definition of Forest Produce Under Section 206C
“Forest Produce” will now have the meaning as per State Forest Acts or the Indian Forest Act, 1927.
TCS rates revised as follows:
- Timber obtained under forest lease – 2%
- Timber obtained otherwise – 2%
Example:
If a person purchases timber worth ₹1,00,000 under a forest lease, TCS at 2% will be ₹2,000.
B. Removal of TCS on Sale of Goods Under Section 206C(1H)
Earlier Rule: TCS was collected at 0.1% on the sale of goods exceeding ₹50 lakhs.
Amendment: TCS on such transactions has been completely removed from April 1, 2025.
Example:
A business selling goods worth ₹60 lakh previously had to collect TCS at ₹60,000 (0.1%). Under the new rule, no TCS is required on such transactions from April 1, 2025.
C. Change in TCS on Foreign Remittances (LRS)
Current Rule: TCS applies at different rates beyond ₹7 lakh in foreign remittances under LRS.
Amendment:
- The threshold is increased to ₹10 lakh.
- No TCS on remittances for education purposes if funded by a bank loan.
Example:
- A person remits ₹9 lakh for a family holiday. Under the old rule, TCS applied at 5% (₹45,000). Under the new rule, no TCS is deducted because it’s below ₹10 lakh.
- A student remitting ₹9 lakh for education expenses funded by a bank loan will not have TCS deducted under the new rule.
