📌 Introduction: Simplifying Tax Compliance for a New Era
India’s tax landscape is entering a new phase of modernization. With the Union Budget 2025, the Government of India has announced a major overhaul of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) rules — effective from 1st April 2025 (FY 2025-26).
This is one of the biggest reforms in India’s tax compliance system in recent years, designed to reduce unnecessary deductions, simplify compliance, and give relief to small businesses and individuals.
At BusinessRights, we help businesses stay compliant with the latest tax and accounting regulations. In this blog, we’ll explain everything you need to know about the new TDS rules, how they affect your business, and what steps you should take to stay ahead.
💡 What Is TDS and Why Was an Overhaul Needed?
TDS (Tax Deducted at Source) is the amount deducted by a payer while making certain payments such as salary, rent, commission, or professional fees. This amount is deposited directly with the government as a form of advance tax.
While the concept helps track income sources and prevent tax evasion, over the years, the system became complex, with dozens of sections, multiple thresholds, and overlapping rules.
This created confusion for both businesses and taxpayers, often resulting in excess deductions, delayed refunds, and higher compliance costs.
Hence, the government decided to simplify and rationalize the system starting FY 2025-26.
📊 Key TDS & TCS Changes Effective from 1st April 2025
Here’s a summary of the most important updates introduced in the Finance Act, 2025:
| Category | Old Limit | New Limit (from FY 2025-26) | |
|---|---|---|---|
| Interest Income (Non-Senior Citizens) | ₹40,000 | ₹50,000 | |
| Interest Income (Senior Citizens) | ₹50,000 | ₹1,00,000 | |
| Rent (Section 194-I) | ₹2.4 L p.a. | ₹6 L p.a. (₹50k/month) | |
| Commissions & Brokerage (Section 194H) | ₹15,000 | ₹20,000 | |
| Insurance Commission (Section 194D) | ₹15,000 | ₹20,000 | |
| Dividend Income (Section 194) | ₹5,000 | ₹10,000 | |
| Lottery, Crossword, Games (Section 194B) | Aggregate ₹10,000 | Per transaction ₹10,000 | |
| TCS on Foreign Remittances (LRS) | ₹7,00,000 | ₹10,00,000 | |
| Simplification of Non-Filer Rules (206AB) | Higher TDS for non-filers | Rationalized / merged | |
| Overlap of TDS/TCS (206C(1H)) | Dual deduction in some sales | Removed |
⚙️ How These Changes Help Businesses and Individuals
Less Cash Flow Disruption:
Higher thresholds mean less frequent TDS deductions, leaving more liquidity in hand for businesses and individuals.Simplified Compliance:
With fewer overlapping sections and rationalized thresholds, the process of TDS calculation and reporting becomes simpler for accountants and companies.Faster Processing & Lower Refund Dependency:
Reduced unnecessary TDS means fewer refund cases, which helps both taxpayers and the Income Tax Department.- Ease for MSMEs and Startups:
Small businesses that make payments for rent, commissions, or professional fees now fall below the new limits — lowering their compliance load.
📊 TCS (Tax Collected at Source) Simplification
The government has also streamlined TCS provisions, especially under the Liberalised Remittance Scheme (LRS) for foreign payments.
The threshold for foreign remittances has been raised from ₹7 lakh to ₹10 lakh per financial year.
Certain education-related remittances (if funded by a loan) are now exempted from TCS.
Sections causing duplication between TDS and TCS have been merged or removed for clarity.
This is a welcome move for individuals sending money abroad for education, travel, or investments.
📊 TCS (Tax Collected at Source) Simplification
The government has also streamlined TCS provisions, especially under the Liberalised Remittance Scheme (LRS) for foreign payments.
The threshold for foreign remittances has been raised from ₹7 lakh to ₹10 lakh per financial year.
Certain education-related remittances (if funded by a loan) are now exempted from TCS.
Sections causing duplication between TDS and TCS have been merged or removed for clarity.
This is a welcome move for individuals sending money abroad for education, travel, or investments.
📍 What Businesses Should Do Now
To stay compliant with the new TDS regime, every business should start preparing before April 2025.
Here’s how:
Update Accounting Software:
Ensure your ERP or accounting system reflects the revised TDS/TCS thresholds.Revisit Vendor & Client Contracts:
Update clauses to reflect the new rules and prevent over-deduction or penalties.Train Finance & Accounts Teams:
Educate your staff on new TDS sections, rates, and limits for accurate deductions.Inform Stakeholders:
Communicate with landlords, contractors, and agents about the new thresholds to avoid confusion.Consult a Professional:
Partner with a reliable consultant like BusinessRights for continuous compliance, accurate filings, and expert guidance.
📈 Why Businesses Should Act Now
The transition to new TDS rules requires careful planning. Many businesses make recurring monthly payments — rent, salaries, professional fees — and any mismatch in deductions could lead to notices or penalties from the Income Tax Department.
By aligning your systems and documentation now, you can ensure seamless compliance once the new regime takes effect in FY 2025-26.
🧾 Conclusion
The TDS reforms effective from April 2025 represent a positive step towards simplifying India’s tax ecosystem.
They reduce unnecessary deductions, improve cash flow, and make compliance more business-friendly — especially for startups, SMEs, and professionals.
By staying informed and prepared, and with expert support from BusinessRights, you can make this transition smooth and beneficial for your organization.