TCS Rule Changes from 1st April 2025

The Budget 2025 has introduced significant updates to the Tax Collected at Source (TCS) provisions under the Income Tax Act, 1961, aimed at simplifying tax compliance for businesses and individuals. Key changes focus on raising threshold limits, removing TCS on certain transactions, and introducing new provisions to streamline the taxation process. This article will outline the major TCS changes you need to be aware of and explain them in an easy-to-understand manner.

Enhanced TCS Threshold Limits Effective from April 1, 2025

The Budget 2025 has revised the Tax Collected at Source (TCS) provisions to ease compliance for individuals and businesses. Key changes include higher TCS threshold limits and the removal of TCS on certain transactions.

This table clearly shows the updates for TCS thresholds and changes starting from April 1, 2025:

TCS Rates for Remittances under LRS (Section 206C(1G))

For remittances under the Liberalised Remittance Scheme (LRS), which are used to send money abroad for various purposes like education, medical treatment, and other personal expenses, the TCS rate was raised in previous provisions. The threshold limit for remittances under LRS has been increased to ₹10 lakh from ₹7 lakh.

• Before April 1, 2025: TCS was applicable on remittances exceeding ₹7 lakh.
• From April 1, 2025: The threshold will increase to ₹10 lakh, and the rate will remain unchanged.

Remittance for Education (Section 206C(1G)):

TCS on educational remittances under LRS will no longer apply if the remittance is funded through an educational loan, effective from April 1, 2025.

• Before April 1, 2025: TCS was applicable on remittances exceeding ₹7 lakh under LRS, including those for educational purposes.
• From April 1, 2025: TCS will not apply to remittances for educational purposes if the amount is financed through an educational loan. Section 206C(1G), which covered TCS on educational loans, has been removed.

Removal of TCS on Sale of Goods (Section 206C(1H))

Another major change in TCS provisions is the removal of Section 206C(1H), which previously required the seller to collect TCS on the sale of goods exceeding ₹50 lakh in a financial year. This rule led to complications with TDS under Section 194Q, as both provisions had overlapping applicability.

• Before April 1, 2025: TCS was applicable on the sale of goods exceeding ₹50 lakh in aggregate value.
• From April 1, 2025: This provision has been removed, and businesses are no longer required to collect TCS on the sale of goods.

This change is expected to provide businesses with relief, particularly in cases where they were previously subject to both TDS and TCS on the same transaction, which created additional compliance complexities.

Removal of Section 206CCA - Removal of Higher TCS Rates for Non-Filers

Under the existing provisions, Section 206AB mandates higher TDS rates for individuals who fail to file income tax returns, while Section 206CCA imposes higher TCS rates on non-filers. These provisions were intended to encourage tax compliance, but have created practical challenges for businesses and taxpayers.

Experts have highlighted concerns that these sections led to unnecessarily higher tax deductions, causing capital blockage and increased compliance burdens. Many businesses faced difficulties in verifying the tax return status of deductees, leading to operational inefficiencies.

To address these challenges, Budget 2025 has proposed the removal of Sections 206AB and 206CCA.  

From April 1, 2025, Section 206CCA, which mandated higher TCS rates for non-filers, will be removed. Businesses will no longer need to verify whether a person has filed tax returns before applying TCS rates. This change reduces compliance burdens and streamlines tax collection processes.

Exemption from Prosecution for Delayed TCS Payment

Under the current Section 276BB, failure to deposit Tax Collected at Source (TCS) as required under Section 206C can lead to imprisonment ranging from three months to seven years, along with a fine.

To ease compliance and provide relief, Budget 2025 proposes an amendment to Section 276BB. Under this change, prosecution will not be initiated if the TCS is deposited by the due date for filing the quarterly TCS statement, as per the proviso to Section 206C(3).

This amendment, effective April 1, 2025, aims to reduce legal penalties for delayed TCS deposits, ensuring that businesses are not unduly penalised as long as the payment is made within the prescribed timeline.

Reduced TCS Rates for Forest Produce (Section 206C(1))

The TCS rates for forest produce (other than tendu leaves) under Section 206C(1) have been reduced:

• Before April 1, 2025: The TCS rate on forest produce, including timber, was 2.5%.
• From April 1, 2025: The TCS rate will be reduced to 2%.

Additionally, the definition of forest produce will align with the definition provided under the Indian Forest Act, 1927, or any applicable State Act.  

Key Takeaways from TCS Changes (Effective April 1, 2025):

• The threshold for TCS on remittances under the Liberalised Remittance Scheme (LRS) and overseas tour packages increases from ₹7 lakh to ₹10 lakh.
• TCS will no longer apply on remittances made under LRS for educational purposes if the funds are financed through an education loan.  
• Section 206C(1H), which required TCS on the sale of goods exceeding ₹50 lakh, has been removed.  
• Section 206CCA, which mandated higher TCS rates for non-filers of income tax returns, have been removed. Businesses will no longer need to check if a payee has filed their ITR before applying TCS.
• Prosecution under Section 276BB for delayed TCS payments will not be initiated if the tax is paid by the due date for filing the quarterly TCS statement
• The TCS rate for forest produce (excluding tendu leaves) under Section 206C(1) has been reduced from 2.5% to 2%.  

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