What Are The Key Changes In The TDS Rules Coming Into Effect From April 1 & Who Will Benefit The Most?

In India, a mechanism known as TDS (Tax Deducted at Source) ensures timely tax collection by deducting taxes at the time of income payment. The government lowered TDS rates in 2024, and at the beginning of April 1, 2025, it plans to raise the threshold restrictions for a number of different payment categories. Additionally, the recently proposed income-tax bill, which would take effect on April 1, 2026, aims to amalgamate several provisions of the current legislation into a single section for TDS. Despite the fact that there have been substantial improvements, taxpayers may still face the same compliance burden.

Key Changes In The TDS Rules Coming Into Effect From April 1

The way the income tax department handles TDS (Tax Deducted at Source) will alter as of April 1, 2025. These are the TDS rule changes that will be implemented, as outlined in Budget 2025.

Higher TDS Threshold On Fixed Deposits

While the TDS exemption limit for non-senior citizens has increased from Rs 40,000 to Rs 50,000, elderly people will now be exempt from TDS on interest income from fixed deposits (FDs), recurring deposits (RDs), etc up to Rs 1 lakh annually, instead of the previous cap of Rs 50,000.

TDS Limit On Rental Income

Moreover, the Budget increased the TDS exemption threshold for rental income from Rs 2.4 lakh to Rs 6 lakh annually, or Rs 50,000 per month, from Rs 20,000 per month hitherto for senior citizens.

TDS On Lottery & Game Show Winnings

Lottery wins will be subject to TDS as of April 1, 2025, if a single transaction totals more than Rs. 10,000. As a result, if one seeks to avoid tax deductions, they must now plan their major prize money and make sure that each jackpot stays below Rs. 10,000.

According to Section 194B of the Income Tax Act, winnings from lotteries, game shows, horse races, or other prizes above Rs 10,000 are liable to a flat 30% TDS. Such income is not eligible for any exemptions or deductions.

TDS Threshold Revisions From April 1 On Brokerage/Commission Income (Section 194H) & Insurance Commission (Section 194D)

With effect from April 1, 2025, TDS at a rate of 5% would only be deducted if the total amount of insurance commission paid to an insurance agent in a fiscal year goes above Rs 50,000. Prior to this, the threshold was Rs 15,000 each fiscal year. In contrast, TDS at a rate of 5% will only be applied on broking or commission income that exceeds Rs 50,000 in a fiscal year, as opposed to the previous threshold of Rs 15,000 yearly.

New TDS Exemption Limits On Mutual Funds & Stocks

With the new regulation that states TDS would only apply if total dividend income surpasses Rs 10,000 across all mutual fund schemes or stocks, rather than the previous cap of Rs 5,000 per mutual fund, the Union Budget 2025 provides investors in mutual funds and listed shares with more relief.

New TDS Exemption Limits On Dividends

By raising the TDS exemption limit on dividend income, the Union Budget has provided a little breathing room for investors looking for dividend income as of April 1, 2025. According to the new regulation, the TDS barrier has been raised to Rs 10,000 annually from Rs 5,000 earlier. If a PAN is provided, the TDS rate stays at 10%; if not, it stays at 20%.

FAQs On TDS Rules 2025

Q. Can you briefly explain what TDS is and why it's deducted on FD interest and lottery winnings?

Answered By Anita Basrur, Partner, Sudit K. Parekh & Co. LLP: TDS stands for Tax Deducted at Source. It is a mechanism introduced by the Indian government with a view to collect taxes periodically rather than annually in order to manage the cash flow as well as to minimize tax evasion. Entities at the time of making payment in the nature of professional fees, rent, interest, commission, etc. are required to deduct a certain percentage of tax from such payment of another entity and the amount so deducted is subsequently remitted to the government.

Interest earned on FD forms part of the total income of the taxpayers and the payer of the interest (such as Banks, Financial Institutions, etc.) is required to deduct taxes on the interest paid at the rate of 10% where

• - Interest income exceeds Rs. 40,000 if paid by banks, post offices, cooperative societies
• - Interest income exceeds Rs. 5,000 if paid by others
• - Interest income exceeds Rs. 50,000 if paid to senior citizens.

These limits are proposed to be modified effective 1 April 2025 to Rs. 50,000, Rs. 10,000 and Rs. 100,000 respectively.

With the aim to collect taxes upfront, the Government has imposed responsibility on the payer of the winnings to deduct tax at the rate of 30%. The tax is required to be deducted where the aggregate amount of winnings exceeds Rs. 10,000. However, it is proposed to modify the threshold limit from an aggregate of Rs. 10,000 to a single payment of Rs. 10,000 effective 1 April 2025.

Q: What are the key changes in the TDS rules coming into effect from April 1, 2025?

Answered By Anita Basrur, Partner, Sudit K. Parekh & Co. LLP: While the Government is aiming to simplify TDS compliances for the taxpayers, there are no major changes apart from the below.

• - Provisions of TCS shall no longer be applicable in case of sale of goods
• - In 2024, the government brought in reduction of TDS rates and effective 1 April 2025, the government has proposed to increase threshold limits for various types of payments.
• Further, the new Income-tax Bill which will be effective 1 April 2026 further proposes to consolidate multiple sections in the existing law and provide for one single section for TDS under the new bill. While one may say that there are significant changes, the burden of compliance may still continue to be the same for the taxpayers.

Q: Who will benefit the most from these new TDS thresholds-salaried individuals, senior citizens, or high-net-worth individuals?

Answered By Anita Basrur, Partner, Sudit K. Parekh & Co. LLP: Apart from interest income, there is no major increase in the threshold limits and thus there may not be major benefits for the taxpayers apart from interest income.

Q: How will the increased TDS limit on FD interest impact retail investors and senior citizens?

Answered By Anita Basrur, Partner, Sudit K. Parekh & Co. LLP: As stated above, the increase in the threshold limits will definitely benefit salaried individuals and senior citizens and would lead to higher liquidity in their hands. However, there isn't much for the HNIs considering that they would be earning substantial interest income.

Q: Should investors change their FD strategy based on the new TDS limits?

Answered By Anita Basrur, Partner, Sudit K. Parekh & Co. LLP: Considering that threshold limits for TDS on interest income is proposed to be increased, the investors may consider changing their strategy for investing in FD so as to ensure minimum tax impact.

Q: How can one still avoid TDS on FD interest entirely-do Form 15G/15H still apply?

Answered By Anita Basrur, Partner, Sudit K. Parekh & Co. LLP: Form 15G / 15H are still in existence and with the increase in the basic exemption limits under the new regime, it would benefit the taxpayers extensively in cases where their income only comprises interest from FDs.

Q: Does the new rule reduce the actual tax liability or just the upfront deduction on FD interest?

Answered By Anita Basrur, Partner, Sudit K. Parekh & Co. LLP: While the increase in the threshold of TDS does not result in reduction of tax liability, the increase in basic exemption limit under the new regime will certainly reduce the actual tax liability.

Q: How should someone plan for taxes if they receive a large lottery or prize win after April 1?

Answered By Anita Basrur, Partner, Sudit K. Parekh & Co. LLP: Effective 1 April 2025, lottery winnings will be subject to TDS if a single transaction exceeds Rs. 10,000. Accordingly, one will now be required to plan their large lottery winnings and ensure that each winnings remain below Rs. 10,000 if they intend to avoid tax deduction.

Q: Could this move encourage more people to park money in FDs again, given the rise in interest rates and now TDS relief?

Answered By Anita Basrur, Partner, Sudit K. Parekh & Co. LLP: Considering the fact that the equity segment is in the correction mode and banks have raised interest rates, the proposed increase of the threshold of TDS would definitely encourage the investors to park their funds in FDs again.

Q: Are there any tax-saving strategies that can be aligned with the updated TDS limits?

Answered By Anita Basrur, Partner, Sudit K. Parekh & Co. LLP: While there may not be major tax-saving strategies in light of the updated TDS limits, opting for a new tax regime would certainly provide tax relief to the taxpayers.

Q. Can you briefly explain what TDS is and why it's deducted from FD interest and lottery winnings?

Answered By Mr. Pankaj Dhingra, CA, US CPA, Managing Partner, FinTram Global LLP: TDS (Tax Deducted at Source) is a system in India where tax is deducted at the time of income payment to ensure timely tax collection.

TDS on Fixed Deposit (FD) Interest:

• Banks deduct TDS on FD interest if the total interest earned in a financial year exceeds ₹40,000 (₹50,000 for senior citizens).
• The TDS rate is 10% if the depositor provides their PAN; otherwise, it is 20%.
• This deduction ensures that tax is collected upfront rather than at the time of filing returns.

TDS on Lottery Winnings:

• Winnings from lotteries, game shows, horse races, or other prizes exceeding ₹10,000 are subject to a flat 30% TDS as per Section 194B of the Income Tax Act.
• No exemptions or deductions are allowed on such income, ensuring tax compliance before payout.

Q. Who will benefit the most from these new TDS thresholds-salaried individuals, senior citizens, or high-net-worth individuals?

Answered By Mr. Pankaj Dhingra, CA, US CPA, Managing Partner, FinTram Global LLP: Senior citizens will benefit the most as the TDS exemption limit on FD interest has doubled from ₹50,000 to ₹1,00,000, reducing their tax burden.

Salaried individuals may see minor relief from increased TDS thresholds on interest and dividend income but won't experience significant tax savings.

High-net-worth individuals (HNIs) will have limited benefits since their income mainly comes from capital gains and business profits, which are not impacted by these TDS changes.

Dividend and insurance commission earners will benefit as the TDS exemption limits have increased, allowing them to receive more tax-free income.

Overall, senior citizens gain the most, as the relaxed TDS rules help them retain more of their interest income, which is often their primary source of earnings.

Q. How will the increased TDS limit on FD interest impact retail investors and senior citizens in India?

Answered By Mr. Pankaj Dhingra, CA, US CPA, Managing Partner, FinTram Global LLP: More Tax-Free Interest - Retail investors can now earn up to ₹50,000 (₹1,00,000 for senior citizens) in FD interest without TDS, improving cash flow.

Reduced Compliance Burden - Fewer investors will need to claim TDS refunds, making tax filing easier.

Encourages More FD Investments - The higher limit makes fixed deposits more attractive, especially for senior citizens relying on them for income.