Income tax news: New TDS rates effective October 1 – What will change for taxpayers

Union Finance Minister Nirmala Sitharaman announced income tax changes in the Union Budget 2024, with certain updates scheduled to take effect from October 1. These crucial proposals, approved in the Finance Bill, include revised TDS rates that will be implemented on that date.

What is Tax Deducted at Source (TDS)?

TDS is the method of collecting tax directly from the source of income. This applies to various income types, including salary, interest, commission, rent, brokerage, professional fees, and royalties.

The tax department deducts TDS at the specified rate when the recipient provides their Permanent Account Number (PAN). If the PAN is not provided, TDS is deducted at 20%.

According to Deloitte's official website, new TDS rates on these transactions will apply from 1 October.

• The TDS burden on salaried employees will be reduced by including TCS credits and TDS credits when calculating TDS on salary.
• TDS Removal: The government has abolished the 20% TDS on mutual fund unit repurchases to lessen the tax burden on taxpayers.
• Taxation on Share Buybacks: Proceeds from share buybacks will now be considered dividend income, taxed according to the shareholder's personal income tax slab.

"To reduce the tax burden on taxpayers, the government has removed the 20% TDS on mutual fund unit repurchases. Additionally, proceeds from share buybacks will be treated as dividend income and taxed based on the shareholder’s personal income tax slab. October 1 also marks the start of the Vivad Se Vishwas scheme, which aims to settle pending disputes by reducing the outstanding tax amount," said Abhishek Soni, CEO and Co-founder of Tax2win.

"The tax liability on the buyback of shares is transferred from companies to shareholders. It is akin to1 the tax treatment of dividends and is taxable at the applicable slab rates in the hands of the shareholders, said Shefali Mundra, Tax Expert- ClearTax

• TDS on Government Bonds: It is proposed that TDS will be levied at a rate of 10% on interest from Floating Rate Savings Bonds, 2020 (Taxable), as well as on any securities notified by the central or state government.

"A new 10% TDS will apply to specific central and state government bonds, including floating-rate bonds when incomes from these exceed a threshold of Rs10,000," said Shefali Mundra

• It is proposed that, effective October 1, 2024, payments covered under Section 194J will be excluded from the provisions of Section 194C. According to Section 194J of the Income Tax Act, 1961, a person must deduct Tax Deducted at Source (TDS) at a rate of 10% when making certain payments to specific residents. This provision specifically applies to fees for professional or technical services.
• Additionally, to enhance ease of doing business, the application scope for obtaining a nil or lower withholding tax certificate has been expanded to include TDS/TCS on purchasing or selling goods. These provisions will also take effect from October 1, 2024.

The TDS rates for payments under sections 194DA, 194H, 194-IB, 194M of the Income Tax Act, 1961 have been reduced. Lowered TDS rates aims to reduce the tax burden on the taxpayers, added Mundra

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