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23. TDS/TCS: Key Applicability and Rates for FY 2025-26

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Tax Deducted at Source (TDS) & Tax Collected at Source (TCS) is an essential aspect of tax compliance in India, ensuring that taxes are collected at the source of income itself. As we move into FY 2025-26, staying updated on the latest TDS rates, threshold limits, and their applicability is crucial for businesses, professionals, and individuals. In this blog, we will explore the most important TDS & TCS provisions, breaking down their implications to make compliance easier for businesses.

1. TDS on Salaries (Section 192)

TDS on salaries is calculated based on the income tax slab rates applicable to the individual employee. Employers are responsible for deducting tax after accounting for investments, deductions, and exemptions declared by the employee.

2. TDS on Rent (Section 194I)

Payment of rent for property, machinery, or equipment must comply with TDS rules.

  • Threshold Limit: ₹50,000 per month.
  • TDS Rates:
    • 2% for plant and machinery.
    • 10% for land, building, or furniture.

3. TDS on Payment to Contractors (Section 194C)

Payments to contractors or subcontractors for work or services are subject to TDS under this section.

  • Threshold Limits:
    • ₹30,000 per transaction, or ₹1,00,000 aggregate annual payments during the financial year.
  • TDS Rates:
    • 1% for individuals and HUFs.
    • 2% for firms, companies & others.

4. Insurance Commission (Section 194D)

TDS applies to commission payments earned by insurance agents.

  • Threshold Limit: ₹20,000 annually.
  • TDS Rates:
    • 2% for individuals and HUFs.
    • 10% for others.

5. Sale of Immovable Property (Section 194IA)

TDS is deducted on the sale of immovable property where the transaction value exceeds ₹50 lakh.

  • Threshold Limit: ₹50,00,000.
  • TDS Rate: 1%.

6. TDS on Commission or Brokerage (Section 194H)

TDS applies to payments made as commission or brokerage (excluding insurance commission).

  • Threshold: ₹20,000 annually.
  • Rate: 2%

7. TDS on Professional & Technical Services (Section 194J)

 TDS applies to payments for professional services (lawyers, CAs, etc.) and technical services.

  • Threshold: ₹50,000 annually.
  • Rate:
  • 10% for professional services.
  • 2% for technical services, royalty payments, etc.

8. TDS on Purchase of Goods (Section 194Q)
TDS is applicable to buyer's purchasing goods from a resident seller, provided the total purchase value exceeds ₹50 lakh in a financial year.

  • Threshold: ₹50,00,000.
  • Rate: 0.1% of the purchase value exceeding the threshold limit

9. TDS on E-Commerce Transactions (Section 194O)

TDS applies to payments made by e-commerce operators to sellers using their platform.

  • Threshold: ₹5,00,000 annually.
  • Rate: 0.1% of the transaction amount.

10. TDS on Payments to Partners by Firms (Section 194T)

TDS is applicable on payments made by a partnership firm or LLP to its partners, covering salary, remuneration, commission, bonus, and interest.

  • Threshold Limit: ₹20,000 per financial year.
  • Rate: 10% of the amount

Tax Collected at Source (TCS) rates applicable for FY 2025-26:

1. TCS on Sale of Goods (Section 206C(1H))

As per Budget 2025, from 1st April, 2025, businesses are no longer required to collect TCS on sale of goods.

2. TCS on Foreign Remittance under LRS (Section 206C(1G))

A. For Education & Medical Treatment

If an individual sends money abroad for education or medical purposes, a lower TCS rate applies to ensure affordability of essential expenses.

  • Threshold: ₹10,00,000 per financial year.
  • TCS Rate: 5% for remittances above ₹10 lakh.

B. Education Funded by a Loan (Section 80E)

 To support higher education, no TCS is charged if the foreign remittance is funded by an education loan under Section 80E.

C. Other Foreign Remittances (Investment, Gifts, etc.)

If an individual sends money abroad for investments, gifts, or other personal transactions (excluding education/medical purposes), a higher TCS rate applies to ensure tax reporting.

  • Threshold: ₹10,00,000 per financial year.
  • TCS Rate: 20% for remittances exceeding ₹10 lakh.

D. Overseas Tour Packages

 TCS applies on payments made for tour packages booked through travel agencies.

  • Threshold: No threshold for tour packages.
  • TCS Rate:
  •        5% for package value up to ₹10 lakh.
  •        20% for package value exceeding ₹10 lakh.

Compliance Tips

  1. Verify PAN Details: Failure to provide a valid PAN may lead to higher TDS deductions at 20%.
  2. Use Online Tools: Keep track of TDS payments and file quarterly returns promptly using online TDS calculators and filing systems.
  3. Know Your Deadlines: Deducted TDS must be deposited with the government by the 7th of the following month.

Staying informed about TDS rates and their applicability ensures smooth tax compliance and minimizes penalties. Whether you're an individual, a business owner, or a financial professional, having clarity on these rules will go a long way in managing your finances efficiently.

~ Compiled by Subathra, Audit Executive, H M R R & Associates

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