Tax Rewind: TDS And TCS Amendments In 2024 You Should Know About

The Union Budget 2024 announced some key amendments in July related to rules of taxation vis-a-vis TDS and TCS for both individuals and businesses. As 2024 comes to a wrap, it’s important to review these changes that may affect you in the year to come.

But before that let’s understand what are TDS and TCS.

The government uses TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) as two key mechanisms to collect taxes as and when transactions take place at different sources. These taxation principles are implemented for two wide purposes, largely:

i) Tracking a person’s various income streams, and

ii) Collecting taxes on a real-time basis as and when transactions occur

The government brought significant changes to TDS and TCS rules in Budget 2024 to streamline tax payment processes for the taxpayers and ease of compliance for the businesses. Here are key changes you should review:

Amendments to TDS provisions

Lower Tax rates on Payments and Commissions

The following types of payments have seen a TDS rate reduction:

1) Insurance Payments:

- The present TDS Rate of 5 per cent for ‘Payment of insurance commission (in case of a person other than a company)’ under Section 194D has been slashed to 2 per cent w.e.f. 1 April 2025.

- Additonally, the payment related to the life insurance policy under Section 194DA has also been reduced to 2 per cent from 5 per cent. This change came into effect starting 1 October 2024.

2) Brokerage Commissions: The TDS rate on the Payment of commission or brokerage under Section 194H has been reduced to 2 per cent from 5 per cent starting 1 October 2024.

3) TDS on Immovable Property Purchases: Buying immovable property and the TDS rules around it have often been confusing for many taxpayers.

Until now, buyers could argue that TDS should apply only if their individual share exceeds Rs 50 lakh. However, the new rules clarify that the total property value, not individual shares, will determine whether TDS applies. If the aggregate value exceeds Rs 50 lakh, a 1 per cent TDS will be deducted. This change took effect from October 1, 2024.

4) TDS Assessments: For long, taxpayers did not have any set deadline to revise TDS returns.

However, the amendments state that TDS returns may now be revised within six years and its assessment under Section 201 will also be made within six years.

Amendments in TCS Compliance

The following changes have been made to TCS provisions;

1) TCS Considered for Salary TDS Calculations: Section 192 of the Act provides for tax deduction at source on the salary income of employees.

Earlier, the government had expanded the scope of TCS on many transactions. However, TCS was not considered a tax credit while computing the TDS on salary income and was claimed as a tax refund in the income tax return. This further resulted in cash flow issues for taxpayers. In order to eradicate such cash flow troubles for the employees, the budget has proposed considering TCS while computing the TDS liability under salary itself.

2) Claiming credit for TCS of Minor

It new rules state that the TCS of the minor will only be allowed where the income of the minor is being clubbed with the parent. This amendment will take effect from 1 January 2025.

3) Interest Rates On Late Payments

If you delay depositing TCS with the government, the penalty could be higher. The interest rate for late deposits will increase from 1 per cent to 1.5 per cent/month, aligning it with the penalties for TDS. This change will be effective from 1 April 2025.

As we come closer to 2025, the many updated TDS and TCS provisions come into effect in the new year, potentially shaping your tax strategies. Whether you’re an individual taxpayer or a business, staying informed and adapting to these changes is key.