Union Budget – 2024: Rationalisation of Tax Deducted at Source rates
There are various provisions of Tax Deduction at Source (TDS) with different thresholds and multiple rates between 0.1%, 1%, 2%, 5%, 10%, 20%, 30% and above. To improve ease of doing business and better compliance by taxpayers, the TDS rates are proposed to be reduced. However, no change would occur with respect to sections such as TDS on salary, TDS on virtual digital assets, TDS on winnings from lottery etc/ race horses, payment on transfer of immovable property and payments to non-residents, TDS rates for TDS on contracts etc.
2. Rationalisationof TDS rates is proposed as below.
| Section | Present TDS Rate | Proposed TDS Rate | With effect from |
| Section 194D – Payment of insurance commission (in case of person other than company) | 5% | 2% | 1.4.2025 |
| Section 194DA – Payment in respect of life insurance policy | 5% | 2% | 1.10.2024 |
| Section 194G – Commission etc on sale of lottery tickets | 5% | 2% | 1.10.2024 |
| Section 194H – Payment of commission or brokerage | 5% | 2% | 1.10.2024 |
| Section 194-IB – Payment of rent by certain individuals or HUF | 5% | 2% | 1.10.2024 |
| Section 194M – Payment of certain sums by certain individuals or Hindu undivided family | 5% | 2% | 1.10.2024 |
| Section 194-O – Payment of certain sums by e-commerce operator to e-commerce participant | 1% | 0.1% | 1.10.2024 |
| Section 194F relating to payments on account of repurchase of units by Mutual Fund or Unit Trust of
India |
Proposed to be omitted | 1.10.2024 | |
Section 194D – Payment of insurance commission
1. As per provisions of section 194D, any person responsible for paying to aresident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force which is at present 5% (in case of person other than company).
2. It is proposed that TDS under section 194D of the Act (in case of person otherthan company) be reduced from 5% to 2%.
3. Theamendment will take effect from 1st day of April 2025.
Section 194DA – Payment in respect of life insurance policy
As per provisions of section 194DA, any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated by way of bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, shall, at the time of payment thereof, deduct income-tax thereon at the rate of 5% on the amount of income comprised therein.
2. Itis proposed that TDS under section 194DA of the Act be reduced from 5% to 2%.
3. Theamendment will take effect from 1st day of October 2024.
[Clause 54]
Section 194G – Commission, etc on sale of lottery tickets
As per provisions of section 194G, any person who is responsible for paying, on or after the 1st day of October, 1991 to any person, who is or has been stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remuneration or prize (by whatever name called) on such tickets in an amount exceeding fifteen thousand rupees shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income- tax thereon at the rate of 5%.
2. It is proposed that TDS under section 194G of the Act be reduced from 5% to2%.
3.Theamendment will take effect from 1st day of October 2024.
[Clause 56]
Section 194H – Payment of commission or brokerage
As per provisions of section 194H, any person, not being an individual or a Hindu undivided family (as specified), who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being
insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 5%.
2. Itis proposed that TDS under section 194H of the Act be reduced from 5% to 2%.
3.Theamendment will take effect from 1st day of October 2024.
[Clause 57]
Section 194-IB – Payment of rent by certain individuals or HUF
As per provisions of section 194-IB, any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to 5% of such income as income-tax thereon.
2. Itis proposed that TDS under section 194-IB of the Act be reduced from 5% to 2%.
3. Theamendment will take effect from 1st day of October 2024.
[Clause 59]
Section 194M – Payment of certain sums by certain individuals or Hindu undivided family
Any person, being an individual or a Hindu undivided family (other than those who are required to deduct income-tax as per the provisions of section 194C, section 194H or section 194J) responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract, by way of commission (not being insurance commission referred to in section 194D) or brokerage or by way of fees for professional services during the financial year, shall, at the time of credit of such sum or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 5% of such sum as income-tax thereon.
2.Itis proposed that TDS under section 194M of the Act be reduced from 5% to 2%.
3.Theamendment will take effect from 1st day of October 2024.
[Clause 60]
Section 194-O – Payment of certain sums by e-commerce operator to e-commerce participant
Section 194-O of the Act provides that notwithstanding anything to the contrary contained in any of the provisions of Chapter XVII-B, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of 1% of the gross amount of such sales or services or both.
2. However,representations were received that offline transactions attract a lower TDS rate of 0.1% (under section 194Q relating to TDS on payment of certain sums for purchase of goods) or tax collection at source (TCS) rate of 0.1% [under section 206C(1H) relating to TCS on receipts from sale of goods]. To bring parity between these provisions, reduction of the TDS rate under section 194-O from 1% to 0.1% is proposed.
3.Theamendment will take effect from 1st day of October 2024.
[Clause 61]
Section 194F – TDS on payments on repurchase of units by mutual fund or UTI
It is proposed to omit section 194F relating to TDS on payments on repurchase of units by Mutual Fund or UTI which attracts a TDS rate of 20%.
2.Theamendment will take effect from 1st day of October 2024.
[Clause 55]
Excluding sums paid under section 194J from section 194C (Payments to Contractors)
Section 194C of the Act provides for TDS on payments to contractors at the rate of 1% when the payment is being made or credit is being given to an individual or HUF and 2% in other cases. Section 194J of the Act relates to TDS on fees for professional or technical services wherein the applicable TDS rates are 2% or 10% depending on the nature of payment being made.
2. Clause(iv) of the Explanation of section 194C defines “work” to specify which all activities would attract TDS under section 194C. However, there is no explicit exclusion of assessees who are required to deduct tax under section 194J from requirement or ability to deduct tax under section 194C of the Act. Therefore some deductors are deducting tax under section 194C of the Act when in fact they should be deducting tax under section 194J of the Act.
3. In view of the above, it is proposed to explicitly state that any sum referred toin sub-section (1) of section 194J does not constitute “work” for the purposes of TDS under section 194C.
4. Theamendment will take effect from 1st day of October 2024.
Change in TDS Rates for Foreig Company & NRI for the financial year (FY) 2024-25
1. The rates for deduction of income-tax at source during the FY 2024-25 underthe provisions of section 193, 194A, 194B, 194BB, 194D, 194LBA, 194LBB, 194LBC and 195 have been specified in Part II of the First Schedule to the Bill.
2. For sections specifying the rate of deduction of tax at source, the tax shallcontinue to be deducted as per the provisions of the relevant sections of the Act.
3. It is proposed that for deduction of income-tax at source on other income incase of company which is not a domestic company, rates shall be reduced from 40% to 35%.
4. It is proposed that for deduction of income-tax at source on the incomes in thenature of capital gains for non-residents, the rates shall be as per the Table below:
| Sl.No. | Income | For transfers taking place before 23rd day of July, 2024 / Rate of TDS | For transfers taking place on or after 23rd day of July, 2024 / Rate
of TDS |
| (1) | long-term capital gains referred to in section 115E | 10% | 12.5% |
| (2) | long-term capital gains referred to in sub-clause (iii) of clause (c) of sub- section (1) of section
112 |
10% | The clause is not applicable for transfers on or after 23rd July, 2024 |
| (3) | long-term capital gains referred to in section 112A exceeding one lakh twenty five thousand
rupees |
10% | 12.5% |
| (4) | long-term capital gains [not being long- term capital gains referred to in clauses
(33) and (36) of section 10] |
20% | 12.5% |
| (5) | short-term capital
referred to in section 111A |
15% | 20% |
5. Apartfrom the above, the rates will remain the same as those specified in Part II of the First Schedule to the Finance Act, 2023, for the purposes of deduction of income-tax at source during the FY 2024-25.
6. The surcharge on the amount of income-tax for the purposes of the Union isthe same as that specified for the FY 2023-24.
(2) Education Cess—
“Health and Education Cess” shall continue to be levied at the rate of four per cent. of income tax including surcharge wherever applicable, in the cases of persons not resident in India including company other than a domestic company.
