TDS rates: Several key changes to income tax regulations, announced by Finance Minister Nirmala Sitharaman during the Union Budget presentation, came into effect in October. These changes include multiple adjustments to Tax Deducted at Source (TDS) rates, intended to simplify the tax system and offer relief to taxpayers.
Among the key revisions in the Finance Bill 2024 are the removal of the 20% TDS on mutual fund repurchases, the introduction of a 10% TDS on floating rate bonds, and reductions in TDS for e-commerce transactions and life insurance payouts.
Understanding TDS
Tax Deducted at Source (TDS) is a method of tax collection in which tax is deducted directly from the income before it is disbursed to the recipient. This applies to various forms of income, such as salaries, rent, and interest payments. The deduction rate varies based on whether the recipient provides their Permanent Account Number (PAN). Without a PAN, the tax is deducted at a higher rate of 20%.
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Major TDS Changes from October 1
Credit for Tax Collected at Source (TCS)
An amendment to Section 192 of the Income Tax Act now allows salaried employees to adjust TCS credits against TDS. This move is expected to streamline the tax deduction process for employees, reducing administrative burden.
Abolition of 20% TDS on Mutual Fund Repurchases
One of the most significant changes is the removal of the 20 per cent TDS on mutual fund repurchases. This decision, part of the Finance Bill, is intended to ease the financial pressure on investors by eliminating the tax previously imposed on these transactions.
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Taxation of Share Buybacks
In a shift from previous rules, shareholders will now be responsible for taxes on share buybacks. Earlier, companies were taxed at 20 per cent on buyback proceeds, but with the new regulation, buyback amounts will be treated as dividend income and taxed according to the shareholder’s tax slab.
10% TDS on Floating Rate Bonds
The Budget also introduced a 10 per cent TDS on floating rate bonds, which are issued by central or state governments. This will apply to interest exceeding Rs 10,000 annually. Floating rate bonds are long-term government investments with variable interest payments, and the new tax rule seeks to maintain simplicity while ensuring proper revenue collection.
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1% TDS on Property Sales
Property buyers will now face a 1 per cent TDS on purchases above Rs 50 lakh, even if there are multiple buyers or sellers involved. The TDS will apply to either the purchase price or the stamp duty value, whichever is higher.
Other Key TDS Reductions
Several additional TDS cuts have been introduced to reduce the financial burden on taxpayers:
E-commerce Transactions: TDS on payments by e-commerce operators has been slashed from 1 per cent to 0.1 per cent.
Life Insurance Payouts: TDS on payments from life insurance policies has been reduced from 5 per cent to 2 per cent.
Lottery Commissions: TDS on commissions from lottery ticket sales has been lowered from 5 per cent to 2 per cent.
Rent Payments: Individuals and Hindu Undivided Families (HUFs) will now pay a reduced TDS of 2 per cent on rent, down from 5 per cent.
Additionally, Section 194F, which governed TDS on mutual fund repurchases, has been removed entirely.
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Summary of TDS Rate changes is as follows:
| Section | Present TDS rate | Proposed TDS rate | With effect from |
| 194D – Payment of insurance commission (in case of a person other than a company) | 5% | 2% | 01.04.2025 |
| Section 194DA -Payment in respect of life insurance policy | 5% | 2% | 01.10.2024 |
| Section 194G – Commission etc on sale of lottery tickets | 5% | 2% | 01.10.2024 |
| Section 194H – Payment of commission or brokerage | 5% | 2% | 01.10.2024 |
| Section 194-IB – Payment of rent by certain individuals or HUF | 5% | 2% | 01.10.2024 |
| Section 194M – Payment of certain sums by certain individuals or Hindu undivided family | 5% | 2% | 01.10.2024 |
| Section 194-O – Payment of certain sums by e-commerce operator to e-commerce participant | 1% | 0.1% | 01.10.2024 |
| Section 194F – Payments on account of repurchase of units by Mutual Fund or Unit Trust of India | Proposed to be omitted | Proposed to be omitted | 01.10.2024 |
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