Revised TDS Rates Effective from October 1, 2024: What You Need to Know

As part of its efforts to streamline tax compliance and reduce the administrative burden on taxpayers, the Government of India has announced significant changes to Tax Deducted at Source (TDS) rates, effective from October 1, 2024. These changes will impact various transactions, including payments for commissions, rent, life insurance, and e-commerce, among others. Here’s a breakdown of the revised TDS rates and how they affect you:

1. Commission and Brokerage Payments (Section 194H)

Current Rate: 5%
New Rate: 2% (effective October 1, 2024)
Applicable on payments made as commission or brokerage to residents. This will ease the tax burden on businesses that frequently deal with such transactions, allowing smoother operations and lower upfront tax deductions.

2. Rent Payments (Section 194IB)

Current Rate: 5% on monthly rent exceeding ₹50,000
New Rate: 2%
This change will benefit tenants, especially those in high-rent urban areas, by lowering the TDS burden on rent payments. It is aimed at simplifying compliance, especially for individuals and Hindu Undivided Families (HUFs).

3. Life Insurance Payouts (Section 194DA)

Current Rate: 5%
New Rate: 2%
This rate reduction will apply to the taxable portion of life insurance policy payouts. While the non-taxable component under Section 10(10D) remains unaffected, this change will reduce the tax outflow for beneficiaries receiving large insurance proceeds.

4. E-Commerce Transactions (Section 194O)

Current Rate: 1%
New Rate: 0.1%
Online sellers and businesses operating on e-commerce platforms will greatly benefit from this reduced TDS rate. It will lessen the cash flow impact, making e-commerce transactions more cost-effective for sellers.

5. Commission on Lottery Sales (Section 194G)

Current Rate: 5%
New Rate: 2%
This reduction will apply to payments made for the sale or distribution of lottery tickets. Those involved in lottery ticket businesses will experience a lower TDS deduction, helping improve their liquidity.

6. TDS on the Purchase of Immovable Property (Section 194IA)

A clarification has been introduced to simplify the application of TDS on property transactions valued above ₹50 lakhs. Regardless of whether the payment is divided among multiple buyers or sellers, the total transaction value will be considered, ensuring a consistent TDS deduction across the board.

7. Payments by Individuals or HUFs (Section 194M)

Current Rate: 5%
New Rate: 2%
This will apply to individuals or HUFs making large payments (exceeding ₹50 lakhs) for professional services, contracts, etc. It significantly reduces the tax burden on one-time or large payments by individuals.

8. Removal of TDS on Repurchase of Mutual Fund Units (Section 194F)

Current Rate: 20%
New Rule: The section has been abolished, meaning no TDS will be deducted on the repurchase of units from mutual funds or UTI. This change will encourage more liquidity in mutual fund investments.

Benefits of the New TDS Rules

The government’s decision to reduce these TDS rates aims to:

Improve Cash Flow: Lower TDS deductions will provide immediate cash flow relief, particularly to small businesses, individuals, and start-ups.
Simplify Compliance: The changes simplify the tax filing process by reducing the burden of high upfront deductions and streamlining the calculation for transactions involving multiple parties.
Boost Ease of Doing Business: With fewer TDS obligations, businesses will find it easier to manage financial transactions, especially for large-value transactions and payments like rent or commissions.

Unchanged TDS Rates

While these amendments represent significant relief, it’s important to note that some key sections will remain unchanged. These include:

Salaries (Section 192)
Winnings from Lotteries and Horse Races (Section 194B)
Payments to Non-Residents (Section 195)
TDS on the Sale of Property (Section 194IA), except for the clarifications.

Conclusion

The revised TDS rates effective from October 1, 2024, offer significant relief to both individuals and businesses. By lowering the rates on various transactions, the government aims to reduce the compliance burden and improve the ease of doing business. For those engaged in activities like renting property, selling online, or handling large commissions, these changes represent an opportunity to manage cash flow more efficiently while ensuring smooth tax compliance.

Disclaimer

This blog is intended for educational purposes only and should not be considered as professional tax, financial, or legal advice. For advice tailored to your specific situation, please consult with a certified tax professional or financial advisor.

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