New TCS Rules from April 1, 2025: A Shift Towards Simpler Tax Collection

Tax Collection at Source (TCS) is an important aspect of the Indian Income Tax Act. This mandates that tax be collected by the seller at the point of sale of specified goods or services. The idea of TCS is simple. It ensures that tax is collected when income is generated. This leads to better compliance. Significant changes to TCs will come into effect from April 1, 2025. 

Let us take a look. 

Removal Of Higher TDS/TCS For Non-Filers Of Income Tax Returns

First, let us look at the current provisions. According to the current provisions, Section 206AB requires that, under certain conditions, a higher rate of deduction will apply when the deductee does not file an income tax return. Similarly, Section 206CCA stipulates that someone who is supposed to collect TCS and who has not yet paid income tax returns pays tax at a higher rate. 

“There have been concerns raised about practical difficulties that deductors or collectors may face at the time when tax is deducted or collected. This led to higher TDS being applied in certain cases unnecessarily, which led to capital blockage and increased compliance burden for the taxpayer,” says Suresh Surana, a Mumbai-based chartered accountant. 

Budget 2025 has proposed that certain Sections 206AB and 206CCA be removed from the Income-tax Act. This would help in compliance and also allay any concerns of taxpayers. 

Exemption From Prosecution For Delayed Payment Of TCS

According to Section 276BB's current provisions, failing to deposit the tax collected at source (TCS) to the Central Government's credit as mandated by Section 206C carries a harsh prison sentence of three months to seven years in addition to a fine.

“To provide relief and ease compliance, Budget 2025 proposed to amend Section 276BB to specify that prosecution shall not be initiated against a person for failure to deposit TCS, provided the tax is paid to the credit of the Central Government on or before the due date for filing the quarterly TCS statement, as prescribed under the proviso to Section 206C(3),” says Surana. 

This amendment, which will take effect on April 1, 2025, after the Finance Act 2025 is passed, aims to lessen the legal repercussions for actual TCS remittance delays as long as the payment is made within a reasonable amount of time.

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