The Income Tax Bill 2025, introduced in Parliament, proposes significant changes to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions. These changes aim to simplify the tax deduction and collection process, ensuring better compliance for individuals, businesses, and tax professionals.
Understanding TDS & TCS
Tax Deducted at Source (TDS)
TDS is a mechanism where tax is deducted before payment is made. This ensures the government collects tax in advance rather than waiting for taxpayers to pay at the end of the year.
Example: A bank pays you ₹10,000 interest on a fixed deposit. It deducts 10% TDS (₹1,000) and credits the remaining ₹9,000 to your account. The ₹1,000 TDS is sent to the tax department and is adjusted when you file your tax return.
TDS is deducted from salaries, professional fees, rent, commission, interest income, contracts, and more.
Tax Collected at Source (TCS)
TCS is the opposite of TDS. Instead of the payer deducting tax, the seller collects tax from the buyer while selling certain goods and services.
Example: If you buy a car worth ₹12 lakh, the dealer will collect 1% TCS (₹12,000) from you and deposit it with the tax department.
Changes in TDS/TCS Under the New Income Tax Bill
Income Tax Act, 1961, there are 43 sections governing various aspects of TDS, depending on factors such as the status of the payer/payee and applicable monetary limits. These sections also specify different tax deduction rates.
In the proposed Income Tax Bill, all these provisions have been consolidated into a single section (Section 393). The new section includes three tables categorising payees into:
- Residents
- Non-residents
- Any person
Each category table specifies:
- Nature of income or payment
- Applicable monetary threshold
- Payer/person liable to deduct tax
- TDS rate applicable
For resident payees, similar categories have been grouped together, such as:
- Commission payments
- Rent
- Interest
- Income from capital markets
Additionally, a separate exemption table has been included for cases where TDS is not required.
Similarly, TCS provisions have been consolidated under Section 394 of the proposed bill. This section contains a single table specifying:
- Types of receipts subject to TCS
- Monetary thresholds
- TCS collector
- Applicable TCS rates
- Conditions for TCS exemption
Furthermore, certain provisions previously scattered across multiple sections have now been grouped into independent sections for better clarity, including:
- Certificates for Lower Deduction/Collection
- Compliance and Reporting (filing of statements, etc.)
- Penalties for failure to deduct/collect/pay TDS/TCS
- Processing of Statements
- Reduction in Complexity and Word Count
TDS/TCS Rates in the New Income Tax Bill
The TDS/TCS rates and monetary thresholds remain unchanged from those specified in the Income Tax Act, 1961 (as amended up to the Finance Bill, 2025).
Key TDS Rates
- Salaries → Based on income slabs
- Interest Income → 10%
- Rent (above ₹2.4 lakh annually) → 10%
- Professional Fees (above ₹30,000) → 10%
- Commission (above ₹15,000) → 5%
Key TCS Rates
- Sale of motor vehicles above ₹10 lakh → 1%
- Foreign remittances above ₹7 lakh → 5%
- Sale of minerals, liquor, scrap, etc. → 1%-5%
FAQs
Who Can Collect TCS?
There are specific goods on which TCS is collected, on which the seller will collect tax from the buyer in addition to the value of the goods/services. A buyer is a person who obtains specific goods in any sale or right to receive goods by tender, auction etc.
When should TCS be Collected?
The seller must collect TCS at the earlier of the following two dates:
- When debiting the money payable by the buyer to their account in the books of accounts.
- Upon receipt of such money from the buyer in any mode such as cash issue of a cheque or draft.
In the case of the motor vehicle sale, the TCS is collected upon receipt of money or consideration for the motor vehicle from the buyer.