TDS/TCS Provisions in the New Income Tax Bill 2025

The Income Tax Bill 2025, introduced in Parliament, proposes significant changes to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions. These changes aim to simplify the tax deduction and collection process, ensuring better compliance for individuals, businesses, and tax professionals.

If you’ve ever been confused by multiple TDS sections or struggled to understand why and when TCS applies, this guide will help you. We will break down the key updates, their impact, and what they mean for different taxpayers in simple terms.

Understanding TDS & TCS

Before diving into the changes, let’s first understand what TDS and TCS mean.

Tax Deducted at Source (TDS)

TDS is a mechanism where tax is deducted before payment is made. This ensures the government collects tax in advance rather than waiting for taxpayers to pay at the end of the year.

Example: A bank pays you ₹10,000 interest on a fixed deposit. It deducts 10% TDS (₹1,000) and credits the remaining ₹9,000 to your account. The ₹1,000 TDS is sent to the tax department and is adjusted when you file your tax return.

TDS is deducted from salaries, professional fees, rent, commission, interest income, contracts, and more.

Tax Collected at Source (TCS)

1 is the opposite of TDS. Instead of the payer deducting tax, the seller collects tax from the buyer while selling certain goods and services.

Example: If you buy a car worth ₹12 lakh, the dealer will collect 1% TCS (₹12,000) from you and deposit it with the tax department.

TCS is applicable on the sale of vehicles, minerals, liquor, scrap, foreign remittances, and certain other transactions.

Changes in TDS/TCS Under the New Income Tax Bill

Under the existing Income Tax Act, 1961, there are 43 sections governing various aspects of TDS, depending on factors such as the status of the payer/payee and applicable monetary limits. These sections also specify different tax deduction rates.

In the proposed Income Tax Bill, all these provisions have been consolidated into a single section (Section 393). The new section includes three tables categorising payees into:

Residents
Non-residents
Any person

Each category table specifies:

Nature of income or payment
Applicable monetary threshold
Payer/person liable to deduct tax
TDS rate applicable

For resident payees, similar categories have been grouped together, such as:

Commission payments
Rent
Interest
Income from capital markets

Additionally, a separate exemption table has been included for cases where TDS is not required.

Similarly, TCS provisions have been consolidated under Section 394 of the proposed bill. This section contains a single table specifying:

Types of receipts subject to TCS
Monetary thresholds
TCS collector
Applicable TCS rates
Conditions for TCS exemption

Furthermore, certain provisions previously scattered across multiple sections have now been grouped into independent sections for better clarity, including:

Certificates for Lower Deduction/Collection
Compliance and Reporting (filing of statements, etc.)
Penalties for failure to deduct/collect/pay TDS/TCS
Processing of Statements
Reduction in Complexity and Word Count

How much reduction has been achieved in terms of sections and word count?

The proposed bill has significantly reduced the number of TDS/TCS-related sections:

Existing Income Tax Act, 1961: 69 sections
Proposed Income Tax Bill: 13 sections

Additionally, the word count for the relevant chapter has been reduced:

Existing Act: 27,452 words
Proposed Bill: 14,675 words

This streamlining makes the new bill easier to understand and comply with.

TDS/TCS Rates in the New Income Tax Bill

The TDS/TCS rates and monetary thresholds remain unchanged from those specified in the Income Tax Act, 1961 (as amended up to the Finance Bill, 2025).

Key TDS Rates

Salaries → Based on income slabs
Interest Income → 10%
Rent (above ₹2.4 lakh annually) → 10%
Professional Fees (above ₹30,000) → 10%
Commission (above ₹15,000) → 5%

Key TCS Rates

Sale of motor vehicles above ₹10 lakh → 1%
Foreign remittances above ₹7 lakh → 5%
Sale of minerals, liquor, scrap, etc. → 1%-5%

Tax Year in India

Compliance Rules Standardized for Everyone

Earlier, different sections had different penalties, refunds, and exemption rules. Now, everything follows a standard rule.

Lower TDS/TCS Certificate Requests – Now, all handled under a single process.
Penalty for Non-Compliance – 1% interest per month on outstanding TDS/TCS amounts.
Late Filing Consequences – Incorrect or delayed TDS returns may lead to penalties and prosecution.

Why is this important?

No need to refer to different rules for different sections.
Businesses and individuals will have fewer compliance hassles.

Key TDS/TCS Changes Every Taxpayer Should Know

For Salaried Individuals:

No change in salary TDS deduction – Your employer will continue deducting TDS as per tax slabs.
Filing returns will be simpler as all salary-related TDS is now under Section 392.

For Businesses & Professionals:

Less paperwork – No need to go through multiple sections for TDS rates.
Simpler compliance – Refunds, penalties, and exemptions follow the same rule.
Easier tax filing – TDS and TCS in one structured table makes compliance faster and clearer.

For Investors & Taxpayers:

TDS on interest, rent, and professional fees remains the same.
Easier understanding of TDS/TCS when making transactions.

Conclusion - Easier TDS/TCS Rules for Everyone

The Income Tax Bill 2025 makes TDS and TCS simpler and more organised. Instead of multiple confusing sections, everything is now in a structured, easy-to-understand format.

For salaried individuals, nothing changes—your employer will continue deducting TDS as usual. For businesses and professionals, compliance is now easier, with fewer sections to refer to. Investors and taxpayers will also find it simpler to understand and track TDS on different transactions.

While tax rates and limits remain the same, the new system removes confusion, reduces paperwork, and makes tax compliance smoother.