Tax Deducted at Source (TDS) is a vital mechanism for ensuring tax collection at the source of income. For the Financial Year 2025-26 (Assessment Year 2026-27), the applicable TDS rates have been revised, and it is essential to understand these changes to comply with tax regulations.
Classification of TDS
India’s TDS can be classified into two broad categories: individual and company. The classification is based on the recipient’s category, including resident and non-resident individuals, and domestic and non-domestic companies.
- Individual: resident in India
- Individual: non-resident in India
- Company: domestic company
- Company: non-domestic company
TDS Chart Rate
The TDS slab rates vary based on the nature of the transaction and the recipient’s category, such as individuals, companies, or non-residents. The TDS chart rate is a detailed table that outlines the tax deduction rates applicable on various types of payments as defined under India’s Income-Tax Act, 1961.
- TDS slab rates for individuals
- TDS slab rates for companies
- TDS slab rates for non-residents
TDS Changes Applicable from April 1, 2025
The Union Budget 2025 brought significant revisions to the TDS and Tax Collected at Source (TCS) rules under India’s tax laws. These updates aim to make tax compliance easier for both businesses and individuals.
Key highlights include an increased threshold limit, elimination of TCS on specific transactions, and the implementation of new measures designed to simplify compliance and enhance the overall efficiency of tax procedures.
Increased Threshold Limits for TDS
From April 1, 2025, threshold limits for particular sections have been increased. The increased threshold limits apply to interest on securities and dividends, mutual funds, digital assets, and e-commerce payments, among other categories.
- Interest on securities and dividends
- Mutual funds, digital assets, and e-commerce
- Lottery, winnings, and games
- Payments to contractors and professionals
- Property-related transactions
TDS Rates on Rent-Related Payments
The term “rent” under Section 194I of the Income-Tax Act, 1961, refers to payments made under various arrangements such as lease, sub-lease, tenancy, or any similar agreement. These agreements may be for the use of land, buildings (including factory buildings), land associated with buildings (like gardens or parking lots), or assets such as machinery, plants, equipment, furniture, or fittings.
| Section | Type of rent | Threshold | TDS rate |
|---|---|---|---|
| 194I(a) | Rent of plant and machinery | INR 50,000/month (US$585.41) | 2 percent |
| 194I(b) | Rent of land/building/furniture | INR 50,000/month (US$585.41) | 10 percent |
| 194IB | Rent by individual/HUF (non-audit) | INR 50,000/month (US$585.41) | 2 percent |
TDS Rates on Salary and Retirement-Related Payments
India’s central government introduced a revised set of income tax slabs under the new tax regime in the Union Budget 2025. These changes effect from April 1, 2025, will apply to income earned during the FY 2025-26.
- No tax will be levied on annual income up to INR 400,000 (US$4,683.3).
- INR 400,000 (US$4,683.3) to INR 800,000 (US$9,366.6) will be taxed at 5 percent.
- INR 800,000 (US$9,366.6) to INR 1.2 million (US$14,049.9) will be taxed at 10 percent.
- INR 1.2 million (US$14,049.9) to INR 1.6 million (US$18,733.3) will be taxed at 15 percent.
- INR 1.6 million (US$18,733.3) to INR 2 million (US$23,416.6) will be taxed at 20 percent.
- INR 2 million (US$23,416.6) to INR 2.4 million (US$28,099.9) will be taxed at 25 percent.
- Income above INR 2.4 million (US$28,099.9) will attract a 30 percent tax rate.
TDS Rates on Payments to Non-Residents and Institutions
The TDS rates for payments to non-residents and institutions vary based on the nature of the payment and the recipient’s category. The TDS rates applicable on various types of payments are as follows:
- 194E
- 194EE
- 194LB
- 194LBA
- 194LBB
- 194LBC
- 194LD
Miscellaneous TDS Rates
The TDS rates for miscellaneous payments vary based on the nature of the payment and the recipient’s category. The TDS rates applicable on various types of payments are as follows:
- Section 194T
- Removed/inactive provisions for businesses
As of April 1, 2025, several tax provisions have been removed to ease compliance burdens for businesses and streamline the tax deduction and collection process.
Frequently Asked Questions
Q: What is TDS and TCS in India?
A: TDS and TCS are mechanisms under the Indian Income-Tax Act, 1961, used to collect tax at the source of income. TDS is deducted by the payer, while TCS is collected by the seller at the time of sale of specified goods or services.
Q: What are the notable changes to TDS rates in 2025?
A: One of the key changes was the removal of Section 206C(1H), which previously required sellers to collect TCS on the sale of goods exceeding INR 5 million (US$58,541.5). Additionally, Sections 206AB and 206CCA, which mandated higher rates of TDS and TCS for individuals who had not filed their income tax returns, were also scrapped.
Q: What are the penalties for non-compliant TDS norms for businesses?
A: Businesses that fail to comply with TDS norms may face several penalties, including interest on delayed deduction or payment, late filing fees, and fines. Specifically, interest is charged under Section 201, and a late fee of INR 200/day (US$2.34) under Section 234E applies until the TDS return is filed.