New TDS and TCS Limits for FY 2025-26 from Budget 2025
12 February, 2025
Synopsis
- Finance Minister Nirmala Sitharaman's Budget 2025 brings significant changes to TDS and TCS thresholds to simplify tax compliance and improve cash flow.
- Senior citizens receive major relief with the TDS threshold on interest income doubled to ₹1 lakh from ₹50,000, while the general threshold increases to ₹50,000 for bank interest and ₹10,000 for other cases.
- Rental income TDS threshold sees a substantial increase from ₹2.4 lakh to ₹6 lakh annually, benefiting landlords, especially in metropolitan areas.
- Professional services see a higher TDS threshold of ₹50,000 (up from ₹30,000), benefiting freelancers and gig workers.
- Additional thresholds increased include dividend income (₹10,000), mutual fund income (₹10,000), and enhanced compensation (₹5 lakh), reflecting a comprehensive approach to tax simplification.
The Union Budget 2025 introduced several changes to the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) limits to simplify compliance, improve cash flow, and reduce the burden on taxpayers. These reforms aim to benefit senior citizens, landlords, gig workers, and individuals sending money abroad for education or travel. Let us understand these changes.
What is TDS (Tax Deducted at Source)?
TDS is a tax collection mechanism implemented by the Income Tax Department of India. It mandates that tax must be deducted at the source of income generation. This means that before a person (referred to as the payer) makes a payment like salary, rent, or interest to another person (referred to as the payee), a certain percentage of tax is deducted and deposited with the government on behalf of the payee.
TDS is governed under the Income Tax Act, 1961, and applies to a wide range of transactions. It is deducted at prescribed rates and ensures that tax liability is distributed across the year rather than accumulating at the end of the financial year.
What is TCS (Tax Collected at Source)?
TCS, on the other hand, is a tax mechanism where a seller collects tax from the buyer at the time of receiving payment for specific goods or services. This tax is then deposited with the government. TCS provisions apply to transactions where the sale of goods or services is defined under the Income Tax Act.
Unlike TDS, where the payer deducts the tax, TCS is collected by the seller. TCS is also applicable to specific remittance transactions, such as sending money abroad or purchasing foreign tour packages.
Key Updates in TDS and TCS Provisions
The Budget 2025 introduced higher thresholds for TDS and TCS across various categories.
Transaction Type | Current Threshold | Proposed Threshold |
Rent | ₹2.4 lakh | ₹6 lakh |
Interest other than interest on securities | (i) ₹50,000 (senior citizen) | (i) ₹1 lakh (senior citizen) |
(ii) ₹40,000 (others when payer is bank, cooperative society, post office) | (ii) ₹50,000 (others when payer is bank, cooperative society, post office) | |
(iii) ₹5,000 (other cases) | (iii) ₹10,000 (other cases) | |
Interest on securities | - | ₹10,000 |
Remittance under LRS for education financed through loan | 0.5% over ₹7 lakh | - |
Remittance under LRS and overseas tour program package | ₹7 lakh | ₹10 lakh |
Dividend for individual shareholder | ₹5,000 | ₹10,000 |
Income from mutual fund units of specified company/undertaking | ₹5,000 | ₹10,000 |
Winning prize from lottery, crossword puzzle, horse race | Over ₹10,000 for combined income in a financial year | ₹10,000 for single transaction |
Fee for professional/technical services | ₹30,000 | ₹50,000 |
Income by way of enhanced compensation | ₹2.5 lakh | ₹5 lakh |
How These Changes Benefit Taxpayers
1. Relief for Senior Citizens
> Before: Senior citizens were eligible for a TDS exemption on interest income up to ₹50,000 annually.
> Now: This limit has doubled to ₹1,00,000, enabling retirees to enjoy better liquidity and reduced compliance efforts.
2. Simplified TDS on Rent Payments
> Before: Landlords earning over ₹2.4 lakh annually faced TDS deductions.
> Now: The threshold has increased to ₹6 lakh, benefiting small landlords and easing cash flow, especially in metro cities.
3. Flexible Remittance for Education and Travel
> Education Loans: No TCS applies to remittances for education financed through loans from recognised institutions.
> General Remittances: The TCS threshold under the Liberalized Remittance Scheme (LRS) has increased from ₹7 lakh to ₹10 lakh, easing cash flow for overseas expenses.
4. Higher Thresholds for Gig Workers and Professionals
> Professional fees, earlier subject to TDS above ₹30,000, now face TDS only beyond ₹50,000, reducing deductions for freelancers and gig workers.
Impact of Higher TDS Limits
Scenario: Senior Citizen Earning Interest Income
Current Rules: A senior citizen earning ₹90,000 annually in interest would face TDS deductions as the threshold was ₹50,000. They would have to file for refunds during tax filing.
New Rules: With the threshold raised to ₹1,00,000, no TDS applies, improving liquidity and simplifying tax compliance.
The changes in TDS and TCS thresholds under Budget 2025 reflect the government’s commitment to easing tax compliance and enhancing financial flexibility for taxpayers. Whether you’re a senior citizen, a landlord, or someone managing overseas expenses, these reforms provide much-needed relief.
Stay informed, plan your finances better, and take advantage of these updates to simplify your tax obligations.
*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.