Revised TDS Limits for FY 2025-26: Key Changes and Implications

Introduction

The Finance Bill 2025 has introduced significant revisions in Tax Deducted at Source (TDS) provisions under the Income Tax Act, 1961. These amendments aim to simplify compliance, enhance ease of doing business, and align tax collection with economic realities. This article provides a comprehensive analysis of the revised TDS limits, their impact, and important considerations for businesses and taxpayers.

Major Revisions in TDS Limits

1. Increase in TDS Thresholds

One of the key changes in the Finance Bill 2025 is the increase in TDS deduction thresholds for various payments. This move is intended to reduce the compliance burden on taxpayers, particularly small businesses and individuals.

2. Reduction in TDS Rates

Certain TDS rates have been lowered to encourage compliance and facilitate smooth financial transactions.

• Section 194LBC: TDS on income from securitization trusts has been reduced from 25% (individuals)/30% (others) to 10%.
• Section 194D: TDS on insurance commission is lowered from 5% to 2% to ease compliance for insurance agents.

Impact of These Changes

For Individuals and Small Businesses

• Higher TDS deduction thresholds mean fewer transactions will be subject to TDS, reducing compliance obligations for taxpayers.
• Investors in securities, mutual funds, and bank deposits benefit from an increased threshold before TDS is applied.

For Businesses and Professionals

• The reduced TDS rate for insurance commissions helps intermediaries retain more income.
• Rationalization of TDS on lottery and gambling winnings ensures clarity in compliance.
• Monthly rent limit (Rs. 50,000) for TDS on property rental simplifies tax deductions for landlords and tenants.

Compliance and Filing Considerations

• Taxpayers must ensure accurate PAN linking to avoid higher TDS deductions.
• Revised TDS limits necessitate updating accounting systems and payroll software to reflect new thresholds.
• Businesses should monitor vendor payments to comply with updated thresholds.

Conclusion

The revised TDS provisions under the Finance Bill 2025 are aimed at streamlining tax compliance and providing relief to taxpayers. Understanding these changes is crucial for individuals, businesses, and tax professionals to ensure adherence to the new norms and avoid penalties. Staying updated with these developments will aid in optimizing tax deductions and maintaining smooth financial operations.