TCS-TDS Rule Change: Finance Minister Nirmala Sitharaman has introduced the Income Tax Bill 2025 in Parliament, proposing significant changes in the rules related to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS).
The aim of this bill is to simplify the tax deduction and collection process, making compliance easier for common taxpayers, businesses and tax professionals. Currently, there are many complex sections of TDS and TCS, due to which taxpayers have difficulty in understanding the various rates and deduction rules. But in this new bill, all these provisions have been presented in a structured and simple form so that taxpayers can easily understand how much tax will be deducted or collected on which transactions.
What is TDS and TCS?
Tax Deducted at Source (TDS)
This is a tax that is deducted before any payment is made to a person. Its purpose is to ensure advance tax collection to the government so that the possibility of tax evasion is reduced later.
For example, if you get interest of Rs 10,000 on FD from a bank, then the bank will deduct 10% TDS and deposit Rs 1,000 with the government and pay you Rs 9,000. Later when you file your ITR, this Rs 1,000 will be shown as already deposited and will be adjusted in your tax liability. TDS is usually applicable on salary, professional fees, rent, interest income, commission and contracts.
Tax Collected at Source (TCS)
TCS works exactly opposite to TDS. In this, instead of the payer, the seller collects the tax and deposits it to the government.
For example, if you buy a car worth Rs 12 lakh, the car dealer will take 1% TCS (Rs 12,000) from you and deposit it in the government’s account. TCS is applicable on certain transactions such as sales of motor vehicles, minerals, liquor, scrap, foreign remittances and some others.
What are the changes in TDS/TCS under Income Tax Bill 2025?
Earlier the provisions related to TDS were divided into 43 different sections which included different rates of deduction, limits and other rules. Now all these have been incorporated in a single section 393.
Under this, three different tables have been created:
- For residents
- For non-residents
- For all persons
Each category has a table with these questions:
- Type of payment
- Minimum Limit
- person making the payment
- Applicable TDS Rate
What will happen under the new rules?
Income of similar nature has been grouped together such as commission, rent, interest and income from stock market. Along with this, a separate table has been created in the new rule for those cases in which TDS will not be applicable.
The provisions of TCS have also been consolidated in section 394, which includes all the TCS applicable transactions, minimum thresholds, collectors and TCS rates. Also, some provisions have been split into different sections to provide more clarity, such as:
- Procedure for obtaining Lower TDS/TCS Certificate
- Compliance and reporting
- Penalty for non-deduction or non-deposit of TDS/TCS
- Rules for filing the statement
How have TDS/TCS rules been simplified?
The government has simplified the rules by reducing their number and wording:
- Earlier there were 69 different sections for TDS/TCS, now these have been consolidated into 13 sections.
- Earlier the word number of these sections was 27,452, now it has been reduced to 14,675 words.
This means that now taxpayers will face less complexities and will be able to comply easily.
New TDS/TCS Rates
Although there has been no change in the rates of TDS and TCS, their provisions have been simplified.
Main TDS rates:
- Salary- As per Income Tax slab
- Interest Income – 10%
- Rent (above ₹2.4 lakh) – 10%
- Professional fees (above ₹30,000) – 10%
- Commission (above ₹15,000) – 5%
Main TCS rates:
- On purchase of car above ₹ 10 lakh – 1%
- Foreign remittances above ₹7 lakh – 5%
- On sale of minerals, liquor, scrap – 1%-5%
Standardization of compliance rules
Earlier there were different rules for penalty, refund and exemption for TDS and TCS but now all these have been made uniform.
- Lower TDS/TCS certificate will now be available under a single process.
- For non-deduction of TDS/TCS, 1% monthly interest will have to be paid.
- Late filing will result in penalties and possibility of litigation.
What do these changes mean?
With the new tax rule changes, people will no longer need to understand different sections. Also, businesses and taxpayers will face less documentation process. Tax compliance will become simpler and faster than before.
Which taxpayers will be affected?
For the employed:
- No new change has been made in the TDS deduction applicable on salaries.
- Filing ITR will be easier than before.
For Businesses and Professionals:
- Less paperwork, as now there will be no need to go through multiple sections of TDS.
- Provision for penalty, discount and refund has been made under the same rule.
- Having TDS and TCS in one structure will simplify tax payment.
For investors and taxpayers:
- Old TDS rates will continue to apply on interest, rent and professional fees.
- Understanding and filing TDS/TCS will be easier than ever.
Simple and transparent tax rules
The Income Tax Bill 2025 has made the TDS and TCS rules simple and clear. Now taxpayers will not need to get entangled in many complex sections. This new framework will be in an easy-to-understand format for salaried persons, businesses, investors and professionals.
While there is no change in tax rates, the new rules will make it easier to pay taxes because they are designed to reduce confusion and limit paperwork.
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