TDS Changes Effective from 1st October 2024: A Detailed Overview
The Income Tax Department has introduced significant changes to the Tax Deducted at Source (TDS) framework, effective from 1st October 2024. These modifications, primarily focusing on reducing TDS rates across several key sections, are intended to reduce compliance burdens and ease cash flows for individuals and businesses alike. In this article, we will delve into these changes, explain the legal provisions, and provide examples and clarifications on how these revised rates will impact various stakeholders.
Key Sections with Revised TDS Rates
The most notable TDS rate reductions effective from 1st October 2024 are:
- Section 194DA: TDS on payments in respect of life insurance policy – reduced from 5% to 2%.
- Section 194G: TDS on commission on the sale of lottery tickets – reduced from 5% to 2%.
- Section 194H: TDS on commission or brokerage – reduced from 5% to 2%.
- Section 194-IB: TDS on rent payments by individuals or HUF – reduced from 5% to 2%.
- Section 194M: TDS on certain payments by individuals or HUF – reduced from 5% to 2%.
- Section 194-O: TDS on payments by e-commerce operators to participants – reduced from 1% to 0.1%.
Let’s explore each section in detail.
1. Section 194DA: Payment in Respect of Life Insurance Policy
- Previous Rate: 5%
- New Rate (From 1st October 2024): 2%
Overview: Section 194DA applies to payments made under a life insurance policy where the proceeds are taxable. This section covers instances where the policy proceeds are not exempt under Section 10(10D) of the Income Tax Act, 1961. The deduction was previously at 5%, but from October 2024, it has been reduced to 2% on the amount of taxable proceeds.
Example: Suppose a life insurance policy pays out ₹500,000, and the taxable portion of the proceeds is ₹100,000. Under the new rules, the TDS would be ₹2,000 (2% of ₹100,000) instead of ₹5,000 earlier.
Impact: This reduction will provide more liquidity to taxpayers receiving life insurance proceeds, as a smaller portion of the payment will be deducted at source.
2. Section 194G: Commission on Sale of Lottery Tickets
- Previous Rate: 5%
- New Rate (From 1st October 2024): 2%
Overview: This section mandates TDS on commission payments made to agents or distributors on the sale of lottery tickets. The TDS rate has now been slashed from 5% to 2%.
Example: If a lottery distributor receives a commission of ₹50,000 on ticket sales, TDS under the revised rates will now be ₹1,000 (2% of ₹50,000), instead of ₹2,500 under the old rate.
Impact: Lower TDS on commissions will benefit lottery distributors and agents, helping them maintain better cash flow, especially in smaller transactions.
3. Section 194H: TDS on Commission or Brokerage
- Previous Rate: 5%
- New Rate (From 1st October 2024): 2%
Overview: Section 194H applies to TDS on commission or brokerage payments made by any person to a resident. This applies to services like real estate agents, brokers, and commission agents. The reduction from 5% to 2% is a significant relief for many small business owners.
Example: If a real estate broker earns ₹100,000 in commission, the TDS under the new rate would be ₹2,000 (2% of ₹100,000), compared to ₹5,000 before the changes.
Impact: This reduction ensures that brokers and agents receive a larger portion of their earnings upfront, improving their working capital.
4. Section 194-IB: TDS on Rent by Individuals or HUF
- Previous Rate: 5%
- New Rate (From 1st October 2024): 2%
Overview: This section applies to individuals and HUFs (Hindu Undivided Families) who pay rent exceeding ₹50,000 per month. Earlier, the TDS rate was 5%, but it has now been reduced to 2%.
Example: If an individual pays rent of ₹75,000 per month, under the new rates, the TDS would be ₹1,500 (2% of ₹75,000) compared to ₹3,750 earlier.
Impact: This provides substantial relief to both tenants and landlords. Tenants will now need to deduct a smaller portion of the rent, leaving landlords with more disposable income.
5. Section 194M: TDS on Certain Payments by Individuals or HUF
- Previous Rate: 5%
- New Rate (From 1st October 2024): 2%
Overview: Section 194M governs TDS on payments made by individuals or HUFs for contractual work, professional services, or commission (not covered under 194C, 194H, or 194J). This typically applies to non-business individuals paying contractors or professionals.
Example: For instance, if an individual makes a payment of ₹200,000 for home renovation services, the TDS would be ₹4,000 (2% of ₹200,000) under the new regime, instead of ₹10,000 earlier.
Impact: The lowered TDS rate will make it easier for individuals and HUFs to manage their cash outflows when availing professional or contractual services.
6. Section 194-O: TDS on Payments by E-Commerce Operators
- Previous Rate: 1%
- New Rate (From 1st October 2024): 0.1%
Overview: E-commerce platforms are required to deduct TDS on payments made to sellers (e-commerce participants). With the new reduction from 1% to 0.1%, the change is highly favorable for small businesses and sellers on these platforms.
Example: If an e-commerce platform makes a payment of ₹500,000 to a seller, the TDS would now be ₹500 (0.1% of ₹500,000) instead of ₹5,000 under the old rules.
Impact: This will substantially reduce the tax burden on e-commerce participants, helping boost their profitability and improve cash flows, especially for small sellers.
Frequently Asked Questions (FAQs)
- Q: Why has the government reduced TDS rates? A: The reduction in TDS rates is aimed at easing compliance burdens, improving liquidity, and supporting businesses, especially smaller enterprises and individuals.
- Q: Do these TDS rate reductions apply to all payments under these sections? A: Yes, the reduced rates apply universally to all payments covered under the respective sections, effective from 1st October 2024.
- Q: Will the TDS deducted be adjusted at the time of filing income tax returns? A: Yes, TDS is just a deduction at source. Any excess TDS can be claimed as a refund while filing the income tax return.
- Q: Do I still need to submit TDS returns at the new rates? A: Yes, the TDS returns must be filed as usual. Only the deduction rates have changed, not the compliance process.
- Q: Does the TDS rate reduction mean that the overall tax liability has decreased? A: No, the reduction in TDS only affects the amount withheld at source. The overall tax liability is determined when filing the income tax return.
Legal Reference
The changes in the TDS rates have been notified under Chapter XVII-B of the Income Tax Act, 1961. The notification specifically amends TDS provisions under the relevant sections as discussed above. Taxpayers are advised to review the official circular for full legal details and consult a Chartered Accountant for personalized guidance.
Conclusion
The changes to TDS rates from 1st October 2024 reflect the government’s effort to streamline taxation and ease the burden on individuals and small businesses. The reduced TDS rates will improve liquidity across various sectors, helping taxpayers retain more money in hand while maintaining tax compliance. Taxpayers should ensure that they update their accounting systems and software to reflect these changes, and file TDS returns accordingly.
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