As part of the Union Budget 2024, significant amendments to the Tax Deducted at Source (TDS) system have been introduced. These changes, ratified in the Finance Bill, will come into effect on October 1, 2024, impacting various types of transactions. If you are a taxpayer, business owner, or simply interested in understanding how these changes affect you, here’s everything you need to know about the NEW TDS rates and other tax rules.

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What is TDS?

Tax Deducted at Source (TDS) is a system initiated by the government to collect tax directly from the source of income. When certain types of payments are made, the payer (referred to as the deductor) is responsible for deducting a portion of the payment as tax and submitting it to the government. The recipient (deductee) can then claim this deduction as part of their tax payments, using Form 26AS or the TDS certificate provided by the deductor.

This method ensures that taxes are collected in advance, making it easier for the government to manage and track tax compliance.

NEW TDS Rates (Effective from October 1, 2024)

As outlined in the Union Budget 2024, several key changes to TDS rates have been introduced, affecting various transactions:

1. Lowered TDS Rates for Certain Sections:
   • For payments covered under sections 19DA, 194H, 194-IB, and 194M, the TDS rate has been reduced from 5% to 2%. These sections typically apply to payments like rental income and payments for contracts and professional services.
2. E-Commerce Operators (Section 194-O):
   • The TDS rate for e-commerce operators has been reduced from 1% to 0.1%. This reduction provides significant relief to online marketplaces and businesses operating in the e-commerce sector, as it lowers the tax deduction on payments made to e-commerce participants.
3. Life Insurance Payments (Section 194DA):
   • For life insurance policy payments, the TDS rate has been slashed from 5% to 2%. This applies to policies where the maturity amount exceeds the sum assured and is subject to tax.
4. Lottery Commissions (Section 194G):
   • Commission on the sale of lottery tickets will now attract a TDS of 2% instead of the earlier rate of 5%. This change affects lottery agents and distributors who will see a reduced tax deduction on their commission earnings.
5. Rent Payments (Section 194-IB):
   • The TDS rate for rent paid by certain individuals or Hindu Undivided Families (HUFs) has been reduced from 5% to 2%. This change benefits tenants and property owners alike, especially those dealing with high-value rental agreements.
6. Payments by Individuals and HUFs (Section 194M):
   • TDS on certain sums paid by individuals or HUFs has also been reduced from 5% to 2%, making it easier for people who make contractual payments without having to deduct a higher tax amount.

Other Important Tax Changes Applicable from October 1, 2024

1. Floating Rate Bonds TDS:
   • Beginning October 1, 2024, a 10% TDS will be deducted on income from floating rate bonds issued by the central and state governments. However, no TDS will apply if the annual income from these bonds is less than Rs 10,000. This change ensures that bondholders who earn minimal income are exempt from the TDS burden.
2. Buy-back of Shares:
   • Buy-back of shares will now be subject to shareholder-level taxes, similar to dividends. This change could increase the tax burden on investors, as they will be taxed on the income from share buybacks. Additionally, the cost of acquisition will be considered when calculating capital gains or losses.
3. Securities Transaction Tax (STT):
   • The STT on Futures and Options (F&O) trading has been increased. For futures contracts, the tax will rise to 0.02%, and for options contracts, the tax will be increased to 0.1%. This change reflects the government’s attempt to raise revenue from the growing derivatives market while slightly increasing the cost of high-volume trading.
4. TDS on Sale of Immovable Property (Section 194-IA):
   • Transactions involving the sale of immovable property exceeding Rs 50 lakh will continue to attract 1% TDS. However, the 2024 budget clarifies that this rate applies to transactions where multiple buyers or sellers are involved. This clarification makes it clear that TDS will apply on the total transaction value, regardless of the number of parties involved.

How These Changes Will Impact You

These revised TDS rates bring relief to several sectors by reducing the tax burden on various transactions, especially for individuals, small businesses, and e-commerce operators. However, the changes also introduce new complexities, particularly for investors in the stock market, bondholders, and those involved in high-value property transactions.

If you’re a taxpayer or a business owner, here’s how you can be impacted:

• Lowered TDS Rates: If you pay or receive payments under the specified sections, you can expect a lower tax deduction at source, leading to more liquidity in hand.
• E-Commerce Operators and Participants: E-commerce businesses and participants will benefit from a significant reduction in TDS, which could improve cash flow and reduce the tax burden on transactions.
• Investors: Those who engage in share buybacks or invest in floating rate bonds should be aware of the increased tax implications. While bondholders benefit from exemptions up to Rs 10,000, higher tax burdens on share buybacks may affect investors’ net gains.
• Property Buyers and Sellers: If you’re involved in a property transaction exceeding Rs 50 lakh, the 1% TDS will apply regardless of how many buyers or sellers are part of the deal.

Conclusion

The TDS amendments effective from October 1, 2024, represent a mix of reliefs and adjustments across different financial transactions. While some sectors benefit from reduced TDS rates, investors and high-value transaction participants may face increased tax obligations.