Reduction of tax withholding rates from 5% to 2%

At present there are certain payments whereon taxes are withheld at 5%. Effective from 01 October 2024, taxes on such payments shall be deducted at 2%. Only TDS on payment towards insurance commission to assessee other than a company would be effective from 01 April 2025.  

Credit of TCS to be considered while withholding tax on salary 

Effective from 01 October 2024, employers shall be under an obligation to consider credit of TCS while deducting TDS under section 192 of the Act

Buyback of shares to be treated as dividend – hence liable to TDS

Under the existing provisions, buyback of shares are taxes in the hands of payer company and the shareholders are liable to claim exemption under section 10(34A) of the Act. Proposal has been made to treat buy back consideration as dividend and taxable in the hands of recipient, akin to divided taxation. 

Accordingly, buy back transaction shall attract tax withholding. However, the rate of tax withholding would depend on the residential status of the shareholder. 

• In case of resident shareholder, applicable tax rate shall be 10% under section 194 of the Act.
• In case of non-resident shareholder, applicable tax rate shall be 20% subject to treaty benefit. 

Exclusion of sums paid under section 194J from section 194C

To remove overlap, with effect from 01 October 2024, section 194C of the Act is proposed to be amended to explicitly exclude payments for services from the definition of ‘work’ which fall within the ambit of section 194J of the Act.

Insertion of section 194T – TDS on payments to partners of Firms (w.e.f. 01/04/2025)

Under the erstwhile provisions of the Act, payment of salary, remuneration, commission, bonus, or interest, by a firm to partners was not liable to tax withholding. Section 194T(1) has been proposed to be inserted which requires tax withholding on such payment @ 10% if the payment exceeds INR 20,000. 

Time allowed for filing correction statement / Revised TDS Return

The existing provision of the Act allows a deductor/collector of tax of file TDS statement within the due date. It also allows a person to file correction statement for rectification of any mistake. However, there is no cap on the number of correction statement that could be filed neither there is a timeline beyond which correction statement could be filed.  

New proviso has been inserted in Section 200(3) with effect from 1^st April 2025 providing that no correction statement can be filed after the expiry of 6 years from the end of the relevant financial year.

Reduction of time limit for orders deeming any person to be assessee in default 

Uniform time limit (later of below) prescribed for passing TDS order (in respect of TDS default) for both resident as well as non-resident payees. 

- 6 years from the end of the financial year to which TDS/TCS pertains. 

- 2 years from the end of financial year in which correction statement is furnished.

Similar timelines prescribed for TCS provisions.

Under the existing provision, there was no time limit for passing order when there has been a failure to deduct the whole or any part of the tax from a non-resident. 

Section 206C -TCS provisions

• Proposal made to include any other goods such as luxury gods, as may be specified by the CG by notification in the Official Gazette for the purpose of TCS applicability. 
• No TCS correction statement (revised TCS return) shall be filed after the expiry of 6 years from the end of the relevant FY.
• Interest on late deposit of TCS proposed to be increased from 1% to 1.5% for every month or part thereof w.e.f. 01 April 2025. 
• Proposal made to include TCS under section 206C(1H) under ambit of collection of the tax at any lower rate, where the Assessing Officer is satisfied that the total income of the buyer justifies so.

Certificate for deduction at lower rate.

The scope of lower tax deduction expanded to cover payments for purchase of goods under section 194Q. Similar provisions have been made in respect of TCS on sale of goods. 

Applicable from 01^st October 2024.

Some relief from prosecution under section 276B 

Under the existing provision of section 276B of the Act, person responsible to deduct and pay TDS was liable for prosecution if there was a failure to pay any tax deducted at source. Proposal has been made to provide exemption from prosecution, if requisite taxes are deposited any time on or before filing of quarterly TDS statement.