TDS and TCS Changes Effective from October 1st, 2024: Detailed Provisions and Rules

With the upcoming changes to Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) from October 1st, 2024, it is crucial for taxpayers to understand the underlying sections and rules of the Income Tax Act, 1961, that govern these amendments. Here’s a breakdown of the key changes, along with relevant sections and subsections for your reference.

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

The Liberalised Remittance Scheme (LRS) allows Indian residents to remit money abroad for specific purposes. Effective from October 1st, 2024, there are changes to TCS on foreign remittances as follows:

- Section: 206C(1G) of the Income Tax Act, 1961

- Subsections and Provisions:

- Personal or Leisure Remittances: The TCS rate has been increased to 20% on remittances for foreign tours and personal expenses (other than education and medical).

- Educational Remittances: TCS is charged at 5% for amounts exceeding ₹7 lakh when remitted for education. However, for remittances funded through education loans, TCS is at 0.5% on amounts exceeding ₹7 lakh.

- Medical Treatment Remittances: The TCS rate remains at 5% for amounts exceeding ₹7 lakh.

- Rule Reference: The detailed provisions for TCS compliance under Section 206C(1G) can be found in Rule 37BB of the Income Tax Rules, 1962, which governs the submission of Form 15CA/15CB for reporting foreign remittances.

2. TDS on Online Gaming Winnings (Section 194BA)

Given the surge in online gaming activities, the government has introduced specific TDS provisions for taxing net winnings.

- Section: 194BA (newly introduced through the Finance Act, 2024)

- Subsections and Provisions:

- TDS at 30% is applicable on net winnings from online gaming.

- The deduction is mandatory before payment, whether in cash or non-cash forms.

- No threshold exemption, meaning any winnings will be subject to TDS without any minimum limit.

- Rule Reference: Detailed compliance guidelines will be outlined under Rule 31A (related to TDS returns), where the deductor must report winnings on a quarterly basis in TDS returns (Form 26Q).

3. TCS on E-Commerce and Digital Services (Section 206C(1H))

To address tax compliance issues within the growing e-commerce and digital services sector, changes have been introduced in TCS provisions.

- Section: 206C(1H) of the Income Tax Act, 1961

- Subsections and Provisions:

- On Sale of Goods: Sellers on e-commerce platforms will face a higher TCS rate of 2% on the sale of goods if their aggregate sales cross ₹50 lakh during the financial year.

- On Services Provided: TCS of 5% will be applied on the sale of services if aggregate receipts exceed ₹50 lakh.

- Rule Reference: Section 206C(1H) refers to Rule 37C, which covers the collection and reporting of TCS on sales. The rule mandates the filing of TCS returns (Form 27EQ) on a quarterly basis.

4. TDS on Mutual Fund Dividends (Section 194K)

There’s a revision in the TDS rates applicable on dividends from mutual fund investments.

- Section: 194K of the Income Tax Act, 1961

- Subsections and Provisions:

- TDS on dividends from mutual funds has been increased to 15% (previously 10%).

- The provision applies to resident investors who receive dividends exceeding ₹5,000 in a financial year.

- Rule Reference: TDS compliance for mutual fund dividends falls under Rule 31, which governs the issuance of TDS certificates (Form 16A) and the filing of quarterly TDS returns (Form 26Q).

5. Other Changes in TDS and TCS Thresholds

Several other threshold-related changes in TDS and TCS provisions are also coming into effect from October 1st, 2024. Some of the key provisions include:

- TDS on Interest, Commission, and Brokerage:

- Section 194A (Interest other than interest on securities): The threshold limit for deduction has been increased from ₹10,000 to ₹15,000.

- Section 194H (Commission or Brokerage): The TDS deduction limit has been revised from ₹15,000 to ₹20,000.

- TCS on Sale of Motor Vehicles:

- Section 206C(1F): TCS at 1% continues to apply on the sale of motor vehicles exceeding ₹10 lakh. However, the government has introduced new reporting requirements for dealers selling vehicles exceeding this limit.

Key Rules for Compliance and Filing

For the effective implementation of these changes, taxpayers and businesses must ensure compliance with the following important rules:

1. Rule 31A (TDS Returns): This rule governs the filing of quarterly TDS returns in Form 24Q and Form 26Q. All entities subject to TDS deductions must adhere to this rule for compliance.

2. Rule 31AA (TCS Returns): Entities collecting TCS must file quarterly returns in Form 27EQ, detailing collections from customers. This rule will cover the newly increased TCS rates on foreign remittances and e-commerce sales.

3. Rule 37BB (Foreign Remittance Reporting): Mandates filing of Form 15CA/15CB for foreign remittances exceeding specific limits. This will cover remittances under Section 206C(1G) where TCS is applicable on foreign tour packages, education, and medical remittances.

Conclusion

The changes in TDS and TCS, effective from October 1st, 2024, reflect the government’s continuing effort to strengthen tax compliance in areas like foreign remittances, online gaming, e-commerce, and mutual funds. Understanding these amendments, especially the relevant sections and rules under the Income Tax Act and Rules, is crucial for both businesses and individuals to avoid penalties and ensure seamless operations.