Contents
- Introduction: TDS Rates for FY 2025-26
- Overview of Key Changes for FY 2025-26
- TDS Rates for Resident Individuals
- TDS Rates for Non-Residents
- TDS Rates for Companies
- New Sections and Latest Amendments
- Practical Scenarios and Examples
- Categories of People Impacted
- Timeline of Changes and Cut-off Dates
- You may also like
- Frequently Asked Questions (FAQs)
- Conclusion
Introduction: TDS Rates for FY 2025-26
Tax Deduction at Source (TDS) is a crucial mechanism for collecting income tax in India, where tax is deducted at the source of income generation. For Financial Year 2025-26 (Assessment Year 2026-27), the government has introduced several important changes and amendments to TDS rates across various sections.
Understanding the correct TDS rates is essential for both deductors and deductees to ensure compliance and avoid penalties.
This comprehensive guide covers all TDS rates applicable for FY 2025-26, including the latest amendments introduced by the Finance Act 2025, with practical questions and answers to help you navigate the complex world of tax deductions.
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Always check if the payee has a lower TDS certificate (Form 13) or if DTAA provisions apply, as these can reduce the applicable TDS rate.
Overview of Key Changes for FY 2025-26
The Finance Act 2025 has introduced several significant changes to TDS provisions. The most notable addition is Section 194T, which comes into effect from April 1, 2025, covering payments to partners of firms.
Note: Section 194F provisions are no longer applicable from October 1, 2024, for payments on repurchase of mutual fund units.
Important: All TDS rates mentioned are subject to applicable surcharge and Health & Education cess for the final tax liability.
| Section | Type of Payment | Rate (%) | Status |
|---|---|---|---|
| 194T | Partner payments | 10% | New (w.e.f. 01-04-2025) |
| 194F | Mutual fund repurchase | 20% | Discontinued (w.e.f. 01-10-2024) |
| 194BA | Online game winnings | 30% | Continued |
| 194S | Virtual Digital Assets | 1% | Continued with thresholds |
TDS Rates for Resident Individuals
For resident individuals and HUFs, TDS rates vary significantly based on the nature of income and specific circumstances of the payment.
Q1: What is the TDS rate on salary payments under Section 192?
Answer: Under Section 192, TDS on salary is deducted at normal slab rates as applicable to the individual. There is no fixed percentage as it depends on the employee's total income and applicable tax slab.
Q2: What TDS rate applies to interest on securities under Section 193?
Answer: The TDS rate under Section 193 is 10% for all types of securities including:
- Debentures or securities issued by local authorities
- Listed company debentures
- Government securities (8% Savings Bonds, 7.75% Savings Bonds, Floating Rate Bonds)
- Any other security
Q3: How much TDS is deducted on dividend payments?
Answer: Under Section 194, dividend payments are subject to 10% TDS for both individuals and companies (domestic).
Q4: What is the TDS rate on bank interest under Section 194A?
Answer: Interest payments other than interest on securities are subject to 10% TDS under Section 194A. This includes bank interest, fixed deposit interest, and other similar interest payments.
Q5: What TDS rates apply to professional services under Section 194J?
Answer: Section 194J prescribes different rates based on the type of service:
- Technical services: 2% TDS rate
- Royalty for cinematographic films: 2% TDS rate
- Any other professional services: 10% TDS rate
- Call center operations: 2% TDS rate (special provision from June 1, 2017)
Q6: How is TDS calculated on contractor payments under Section 194C?
Answer: TDS rates under Section 194C depend on the status of the contractor:
- Individual/HUF contractors: 1% TDS
- Other contractors (companies, partnerships, etc.): 2% TDS
TDS Rates for Non-Residents
Non-resident taxation involves higher TDS rates and specific provisions under various sections.
Q7: What TDS rate applies to non-resident individuals under Section 195?
Answer: Section 195 covers various types of income for non-residents with different rates:
| Type of Income | TDS Rate |
|---|---|
| Investment income (NRI) | 20% |
| Long-term capital gains (Section 115E) | 12.5% |
| Short-term capital gains (Section 111A) | 20% |
| Dividend (general) | 20% |
| Interest on foreign currency borrowings | 20% |
| Royalty payments | 20% |
| Technical services fees | 20% |
| Any other income | 30% |
Q8: What is the TDS rate on payments to non-resident sportsmen?
Answer: Under Section 194E, payments to non-resident sportsmen or sports associations are subject to 20% TDS.
Q9: How are capital gains taxed for non-residents?
Answer: Capital gains for non-residents have specific rates:
- Long-term capital gains (Section 112): 12.5% TDS
- Long-term capital gains (Section 112A) exceeding ₹1,25,000: 12.5% TDS
- Short-term capital gains (Section 111A): 20% TDS
TDS Rates for Companies
Q10: What is the TDS rate on insurance commission for companies?
Answer: Under Section 194D, insurance commission paid by companies is subject to 10% TDS (compared to 5% for individual payers).
New Sections and Latest Amendments
Q11: What is the new Section 194T introduced in FY 2025-26?
Answer: Section 194T, effective from April 1, 2025, covers payments to partners of firms including salary, remuneration, commission, bonus, or interest. Key features:
- TDS Rate: 10%
- Threshold: No deduction if aggregate payments don't exceed ₹20,000 in a financial year
- Applicability: All types of payments to partners, other than Capital withdrawl
Q12: What happened to Section 194F?
Answer: Section 194F, which covered TDS on mutual fund repurchase payments at 20%, is no longer applicable from October 1, 2024. This means no TDS is required on mutual fund redemptions from this date.
Q13: What are the threshold limits for Virtual Digital Asset TDS under Section 194S?
Answer: Section 194S has specific threshold exemptions:
- General persons: No TDS if consideration doesn't exceed ₹10,000 per financial year
- Specified persons: No TDS if consideration doesn't exceed ₹50,000 per financial year
Note: Specified persons include individuals/HUFs with turnover below ₹1 crore (business) or ₹50 lakhs (profession).
Practical Scenarios and Examples
Q14: How does the new cash withdrawal TDS under Section 194N work?
Answer: Section 194N applies to large cash withdrawals with different rates:
| Withdrawal Amount | ITR Filing Status | TDS Rate |
|---|---|---|
| Above ₹1 crore | ITR filed | 2% |
| Above ₹20 lakhs | ITR not filed for 3 years | 2% |
| Above ₹1 crore | ITR not filed for 3 years | 5% |
Q15: What is the TDS rate on e-commerce transactions?
Answer: Under Section 194O, e-commerce operators must deduct TDS at 0.1% on payments to e-commerce participants. This is a very low rate but applies to a large volume of transactions.
Categories of People Impacted
Q16: Who are the main categories affected by TDS changes in FY 2025-26?
Answer: The following categories are significantly impacted:
- Partnership firms and partners: New Section 194T requirements
- Mutual fund investors: Relief from Section 194F discontinuation
- Senior citizens (75+ years): Special provisions under Section 194P
- Non-residents: Various rate changes and DTAA considerations
- Cryptocurrency traders: Continued 1% TDS under Section 194S
Q17: How does Section 194P affect senior citizens?
Answer: Section 194P allows specified banks to deduct tax for senior citizens aged 75 years or more at the applicable income tax rate instead of following other TDS sections. This simplifies tax compliance for elderly citizens.
Timeline of Changes and Cut-off Dates
Q18: What are the key dates to remember for TDS changes in FY 2025-26?
Answer: Important timeline and cut-off dates:
- April 1, 2025: Section 194T becomes effective for partner payments
- October 1, 2024: Section 194F discontinued for mutual fund payments
- September 1, 2019: Section 194M became effective (ongoing)
- June 1, 2017: Special 2% rate for call centers under Section 194J
Q19: When do the new TDS rates become applicable?
Answer: The TDS rates for FY 2025-26 (Assessment Year 2026-27) are applicable from April 1, 2025, for most sections. However, Section 194T specifically starts from April 1, 2025, while the discontinuation of Section 194F was effective from October 1, 2024.
Important: Always verify the exact effective date for each section as they may have different implementation timelines.
Frequently Asked Questions (FAQs) on TDS Rates FY 2025-26
What is the highest TDS rate for FY 2025-26?
The highest TDS rate is 50% applicable to certain royalty payments under Section 195 for non-resident companies where agreements were made between March 31, 1961, and April 1, 1976. For general purposes, rates of 35% apply to foreign companies under Section 195 for other income.
Is there any minimum threshold for TDS deduction?
Yes, most TDS sections have minimum thresholds. For example, Section 194T requires a minimum of ₹20,000 aggregate payment before TDS applies. Section 194S has thresholds of ₹10,000 for general persons and ₹50,000 for specified persons.
Can TDS rates be reduced through certificates?
Yes, taxpayers can apply for lower TDS certificates (Form 13) from the income tax department if their tax liability is lower than the prescribed TDS rate. Additionally, DTAA provisions may provide for lower rates for non-residents.
What happens if wrong TDS rate is applied?
If a lower TDS rate is applied incorrectly, the deductor may face penalties and interest charges. If a higher rate is applied, the excess can be claimed as refund while filing income tax returns. It's crucial to apply correct rates to avoid complications.
Are there any exemptions from TDS deduction?
Yes, several exemptions exist such as payments below prescribed thresholds, certain government payments, payments to specified entities, and cases where Form 15G/15H is submitted by eligible individuals claiming no tax liability.
How is TDS calculated on goods purchase under Section 194Q?
Under Section 194Q, TDS is deducted at 0.1% on purchases of goods exceeding ₹50 lakhs in aggregate during a financial year. The TDS is calculated only on the amount exceeding ₹50 lakhs, not on the entire purchase value.
What is the impact of surcharge and cess on TDS rates?
The TDS rates mentioned in the tax tables are base rates. Applicable surcharge and Health & Education cess (4%) are added to arrive at the final TDS rate. This can significantly increase the effective TDS rate, especially for high-income individuals.
How does Section 194R work for business benefits?
Section 194R requires 10% TDS on benefits or perquisites provided by businesses to residents when the aggregate value exceeds ₹20,000 in a financial year. This includes loyalty rewards, gifts, and other business-related benefits.
Are cryptocurrency transactions still subject to TDS?
Yes, Section 194S continues to apply 1% TDS on Virtual Digital Asset transfers, subject to specified threshold limits. This includes cryptocurrency, NFTs, and other virtual digital assets as defined under the Income Tax Act.
What documentation is required for TDS compliance?
Essential documents include TDS certificates (Form 16/16A), quarterly TDS returns, challan details for TDS payments, and maintenance of proper books of accounts. For claims of lower rates, DTAA certificates or Form 13 approvals are required.
How often do TDS rates change?
TDS rates typically change annually through the Finance Act. However, some rates may be modified during the year through amendments or clarifications. It's important to stay updated with the latest notifications from the income tax department.
What is the penalty for non-compliance with TDS provisions?
Non-compliance with TDS provisions can result in penalties under Section 271C (for failure to deduct TDS) and Section 271CA (for failure to deposit TDS). Additionally, interest charges apply under Section 201(1A) for delayed deposits of TDS amounts.
Conclusion: Staying Compliant with TDS Rates for FY 2025-26
Understanding and correctly applying TDS rates for FY 2025-26 is crucial for maintaining tax compliance and avoiding penalties. The introduction of Section 194T and discontinuation of Section 194F represent significant changes that will impact various taxpayers. Whether you're an individual, business owner, or tax professional, staying updated with these rates and their applicability ensures smooth tax operations and compliance with income tax regulations.
Remember to consider applicable surcharge and cess while calculating final TDS amounts, and always verify if lower certificate provisions or DTAA benefits apply to reduce the tax burden legitimately. Regular consultation with tax advisors and staying updated with latest amendments will help maintain effective TDS compliance throughout the financial year.