Union Finance Minister Nirmala Sitharaman announced several income tax changes in the Union Budget 2024, which took effect from October 1, 2024. Among the key updates, approved as part of the Finance Bill, are adjustments to Tax Deducted at Source (TDS) rates.
The revisions include the removal of the 20% TDS on mutual fund repurchases, the introduction of a 10% TDS on floating rate bonds, and reductions in TDS rates for e-commerce transactions and life insurance payouts.
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What is TDS and how does it work?
Tax Deducted at Source (TDS) is a tax collection method where tax is deducted directly from the income source before it reaches the recipient. It applies to various forms of income, including salaries, interest, rent, and professional fees. If the recipient provides their Permanent Account Number (PAN), TDS is deducted at the specified rate. Without a PAN, the tax is deducted at 20%.
Changes related to TDS were part of the Union Budget’s announcements. One such change involves allowing credits from Tax Collected at Source (TCS) to be adjusted against TDS for salaried employees.
Changes effective from October 1
TCS credits and TDS amendments
Under the Finance Bill 2024, an amendment to Section 192 was introduced, allowing for the credit of Tax Collected at Source (TCS) while calculating TDS. This change is expected to make the tax deduction process easier for salaried employees.
Prashant Sharma, an independent chartered accountant, explained how the amendment would work: “If an employee, say Raj, has already paid Rs 5,000 in TCS on a foreign tour package, and his company deducts Rs 10,000 as TDS on his salary, the company will now consider the Rs 5,000 TCS credit. So, instead of deducting Rs 10,000 as TDS, they will only deduct Rs 5,000.” This will help employees reduce their monthly tax deductions and take home more income.
Abolition of 20% TDS on mutual fund repurchases
A key relief measure for taxpayers is the government’s decision to remove the 20% TDS on the repurchase of mutual fund units. This change, part of the Finance Bill, seeks to ease the financial burden on investors.
Previously, Section 194F of the Income-tax Act mandated a 20% TDS on payments from mutual fund repurchases. This section has now been removed, allowing investors to manage their finances with reduced tax obligations. “The withdrawal of the 20% TDS rate on mutual fund repurchases is a welcome relief,” said Feroze Azeez, Deputy CEO at Anand Rathi Wealth Limited.
Taxation on share buybacks
TDS on floating rate bonds
The Union Budget 2024 also introduced changes to TDS rates for floating rate bonds. Starting October 1, a 10% TDS will be deducted on interest from floating rate bonds issued by central or state governments, once the interest exceeds Rs 10,000 in a year.
Floating rate bonds are government-backed investments offering variable interest payouts. These bonds are a seven-year option, and investors receive interest payments twice a year, in January and July. The government aims to simplify tax processes while ensuring revenue collection with the new 10% TDS rule.
TDS on property sales
If you are purchasing property worth more than Rs 50 lakh, you will now have to pay a 1% TDS, even if the property is jointly purchased by multiple buyers. The same applies if multiple sellers are involved, with a combined sale price above Rs 50 lakh. The 1% TDS will apply to the purchase price or the stamp duty value, whichever is higher.
Other changes taking effect from October 1
Several other TDS rate changes have been introduced to reduce the financial burden on taxpayers:
E-commerce operators: TDS on payments made by e-commerce operators has been reduced from 1% to 0.1%.
Life insurance: TDS on payments from life insurance policies has been cut from 5% to 2%.
Lottery ticket sales: The TDS on commissions from lottery ticket sales has been lowered from 5% to 2%.
Rent payments: Individuals and Hindu Undivided Families (HUFs) now face a reduced TDS of 2% on rent payments, down from 5%.
E-commerce participant payments: TDS on payments by e-commerce operators to participants has been reduced from 1% to 0.1%.
Section 194F removal: This section, which pertained to TDS on payments for mutual fund repurchases, has been eliminated.
First Published: Oct 02 2024 | 1:23 PM IST
