//

TDS/TCS Shift from 1st April 2025 (FY 2025–26) – Impact Seen in Returns from AY 2026–27

by | Mar 17, 2026 | Income Tax

The financial year 2025–26 (starting 1st April 2025) marks a significant shift in the framework of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) in India. These changes, introduced through the Finance Act, 2025 and further refined in subsequent budgets, are aimed at simplifying compliance, reducing litigation, and rationalising tax provisions.

The effect of these amendments will be visible when taxpayers file their Income Tax Returns (ITR) for Assessment Year (AY) 2026–27

 

The Big Picture: Why These Changes Matter

  • April 1, 2025: A pivotal date for Indian taxpayers and businesses.
  • Budget 2025 Reforms: Significant updates to TDS and TCS rules.
  • Goal: Streamline tax administration, ease compliance, and manage cash flow.
  • Impact: Affects individuals, businesses, and financial transactions from FY 2025-26 (AY 2026-27 onwards).

 

Key Threshold Revisions: More Transactions Tax-Free

  • Interest on Securities (Sec 193): Threshold increased from Nil to ₹10,000.
  • Interest Income (Sec 194A):
    • Senior Citizens: Raised from ₹50,000 to ₹1,00,000.
    • Others (Banks, etc.): Increased from ₹40,000 to ₹50,000.
    • Other Cases: Doubled from ₹5,000 to ₹10,000.
  • Dividend Income (Sec 194) for Individuals: Threshold increased from ₹5,000 to ₹10,000.
  • Mutual Fund Income (Sec 194K): Threshold increased from ₹5,000 to ₹10,000.

 

Easing the Burden: Rent, Fees, and Compensation

  • Rent Payments (Sec 194-I): Threshold revised from ₹2.4 lakh/year to ₹50,000 per month.
  • Professional/Technical Fees (Sec 194J): Threshold increased from ₹30,000 to ₹50,000.
  • Enhanced Compensation (Sec 194LA): Threshold doubled from ₹2,50,000 to ₹5,00,000.

 

Changes in Transaction-Based Deductions

  • Lottery Winnings (Sec 194B): Now ₹10,000 per transaction (previously aggregate > ₹10,000/year).
  • Horse Race Winnings (Sec 194BB): Now ₹10,000 per transaction (previously aggregate > ₹10,000/year).

 

TCS Adjustments: Foreign Remittances and Forest Produce

  • TCS on Foreign Remittances (Sec 206C(1G)):
    • Threshold for LRS remittances increased from ₹7 lakh to ₹10 lakh.
    • 5% rate for education remittances has been removed.
  • TCS on Forest Produce: Rate reduced to 2% (from 2.5%) for timber and other forest produce obtained under a forest lease.

 

New Provisions and Removed Burdens

  • New Section 194T: Introduced for TDS @10% on payments to partners (Salary, Bonus, Incentives).
  • TCS on Sale of Goods (Sec 206C(1H)): Omitted effective from April 1, 2025.
  • Elevated TDS/TCS for Non-Filers (Sec 206AB/206CCA): Proposed to be removed.

 

Compliance and Penalties: What’s New?

  • Correction Statements: Now restricted to a six-year period from the end of the relevant financial year.
  • Delayed TCS Deposit: Interest rate raised from 1% to 1.5% per month under Section 206C(7).
  • TDS Return Filing: Proposed change allows filing within one month after the due date to avoid penalties under Section 271H.

 

Impact on Taxpayers and Businesses

  • Relief: Increased thresholds and removal of certain provisions ease compliance.
  • New Obligations: Introduction of Section 194T requires attention.
  • Cash Flow: Changes in TCS and TDS can impact working capital.
  • Key Takeaway: Staying informed is crucial for accurate tax filing and avoiding penalties.

 

Preparing for AY 2026-27: Your Action Plan

  • Review Transactions: Understand how new thresholds affect your payments and collections.
  • Update Systems: Ensure accounting and payroll systems reflect the new rules.
  • Consult Experts: Seek professional advice for complex situations.
  • Stay Vigilant: Monitor further clarifications and updates from tax authorities.