Budget 2024: 10 Key Changes to TDS and TCS That Will Impact Your Finances

The Union Budget 2024-25 has introduced several significant changes to the Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions. Finance Minister Nirmala Sitharaman announced these amendments aimed at simplifying tax compliance, enhancing revenue, and providing relief to taxpayers in certain cases.

Also Read-Highlights of The Union Budget 2024-25

Here are the top 10 TDS and TCS changes that will affect your wallet:

• TDS rate slashed on insurance commission and rent payments
• Scope of TCS widened to cover luxury goods beyond motor vehicles
• New TDS introduced on partnership firms for payments to partners
• Employees can now claim credit for TCS against TDS on salary income
• TDS on sale of property above Rs 50 lakh to apply irrespective of number of buyers/sellers
• Time limit of 6 years imposed for filing TDS/TCS correction statements
• Increased interest rate of 1.5% for delayed deposit of TCS
• TCS collected for minors can be claimed by parents if income is clubbed
• Lower TDS/TCS certificates under Section 197 extended to purchase of goods
• TDS on mutual fund and UTI repurchases removed from October 2024

Main Key Points.

1. TDS Rates Reduced on Insurance Commission and Rent Payments.

In a major relief for insurance agents and property owners, Budget 2024 has proposed to reduce the TDS rates on insurance commission (Section 194D) and rent payments by individuals/HUFs (Section 194-IB) from 5% to 2%. This will be effective from 1st April 2025 for insurance and 1st October 2024 for rent.

This reduction in TDS will mean higher in-hand earnings for insurance agents who rely on commissions. For those receiving rental income, especially senior citizens, this will improve their cash flows as more net rent will be received.

2. TCS Scope Expanded to Cover Luxury Goods Beyond Motor Vehicles.

Currently, Section 206C(1F) mandates the collection of TCS at 1% on sale of motor vehicles valued above Rs 10 lakh. The 2024 Budget has widened this to include other luxury goods which will be notified later. This change will be implemented from 1st January 2025.

This expansion of TCS will bring more high-value transactions under the tax net. Businesses dealing in notified luxury items will need to gear up for the additional compliance.

3. New TDS on Payments by Partnership Firms to Partners.

A new Section 194T has been introduced for deducting 10% TDS on payments made by partnership firms to their partners, if it exceeds Rs 20,000 in a financial year. This includes salary, bonus, commission, remuneration, interest paid to partners and will be effective from 1st April 2025.

This move brings payments to partners under the purview of TDS, that were earlier not subject to tax deduction. Partnership firms will have to be cautious and comply with this new TDS obligation on such payments crossing the threshold.

4. Employees Can Claim Credit for TCS Against TDS on Salary.

Salaried individuals often face TCS on various transactions like buying a car, which could only be claimed as refund while filing income tax returns. Budget 2024 has allowed employees to declare such TCS to their employers, so that it can be considered while deducting TDS on salary income.

This will provide immediate credit of TCS to employees and improve their monthly cash flows. It will also reduce the compliance burden of seeking refunds later.

5. TDS on Property Sale to Apply Irrespective of Buyers/Sellers.

Section 194-IA requires TDS at 1% to be deducted by a buyer on payments over Rs 50 lakh for purchase of immovable property. An amendment has been proposed to clarify that this limit of Rs 50 lakh will apply to the value of the property, irrespective of the number of buyers or sellers.

This plugs a common loophole used to avoid TDS by splitting the purchase value between multiple buyers to stay below the Rs 50 lakh threshold per buyer. Property transactions will now attract TDS based on the total value.

6. Six Year Time Limit for Filing TDS/TCS Correction Statements.

Currently, there is no time limit for filing correction statements for TDS and TCS returns, and these can be revised multiple times. The Budget has proposed to restrict this to a period of 6 years from the end of the relevant financial year.

While this provides reasonable time to correct errors, it also ensures finality and certainty for the tax department. Taxpayers will have to be more vigilant and file corrections within the specified time.

7. Interest Rate Hiked to 1.5% for Delayed Deposit of TCS.

For tax collected at source but not deposited with the government on time, interest under Section 206C(7) is charged at 1% per month. This rate has been increased to 1.5% per month from 1st April 2025.

The higher interest liability will prompt businesses to be punctual in depositing the TCS collected from customers or other parties. It is a step towards better tax compliance.

8. TCS Collected for Minors Can Be Claimed by Parents.

In cases where the income of a minor child is clubbed with that of the parent, there was ambiguity on whether the TCS collected in the name of the minor can be claimed by the parent. The Budget has allowed this from 1st January 2025.

This will provide clarity and benefit to parents making investments in the name of their minor children. The TCS can be set off against the tax liability of the parent in whose hands the minor’s income is clubbed.

9. Lower TDS/TCS Certificates Extended to Purchase of Goods.

Section 197 allows taxpayers to apply for a lower TDS/TCS certificate in certain cases. The scope of this has been expanded to include TDS on purchase of goods under Section 194Q and TCS on sale of goods under Section 206C(1H) from 1st October 2024.

This will help businesses with lower tax liabilities or those with excess input tax credits to obtain a certificate for reduced TDS or TCS. It will ease their working capital pressures.

10. TDS on Mutual Fund & UTI Repurchases Removed.

The Budget has proposed to remove the applicability of Section 194F, which required mutual funds and UTI to deduct 20% TDS on repurchase of units. This will be effective from 1st October 2024.

This move will benefit mutual fund investors as they will receive the full redemption amount without any TDS. It will also simplify the compliance burden for mutual funds and UTI.

Frequently Asked Questions.

1. What is the new TDS rate on insurance commission and rent payments?

The Budget has reduced the TDS rate from 5% to 2% on insurance commission under Section 194D (from 1st April 2025) and rent paid by individuals/HUFs under Section 194-IB (from 1st October 2024).

2. Which luxury goods will attract TCS apart from motor vehicles?

The exact list of luxury goods that will be subject to 1% TCS under the expanded Section 206C(1F) from 1st January 2025 will be notified by the government later.

3. Is TDS applicable on all payments by partnership firms to partners?

No, the new Section 194T proposes to deduct 10% TDS only on payments above Rs 20,000 in a financial year. This includes salary, bonus, commission, remuneration, interest paid to partners and is effective from 1st April 2025.

4. How can salaried employees claim credit for TCS against TDS on salary?

Employees can declare the TCS collected on their transactions to the employer. The employer will then consider this while calculating the TDS to be deducted from the salary.

5. What is the time limit for filing correction statements for TDS and TCS?

The Budget has proposed a time limit of 6 years from the end of the relevant financial year for filing TDS and TCS correction statements. Beyond this period, no corrections can be filed.

6. How will the removal of TDS on mutual fund repurchases benefit investors?

Mutual fund investors will receive the full redemption proceeds without any TDS deduction under Section 194F from 1st October 2024. This will also reduce the compliance burden for mutual funds.

C.K. Gupta

Hello, I am C.K. Gupta Founder of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.