Budget 2024: Changes in Tax Deducted at Source Rates

The Union Budget 2024 was presented in the parliament today by the Hon’ble Finance Minister Nirmala Sitharaman. FM has made many changes in income tax in the Budget this year.

There are various provisions of Tax Deduction at Source (TDS) with different thresholds and multiple rates between 0.1%, 1%, 2%, 5%, 10%, 20%, 30% and above.

To increase the ease of doing business and taxpayer compliance, TDS rates are planned to be cut. However, no changes will be made to areas such as TDS on salaries, TDS on virtual digital assets, TDS on lottery winnings, etc/race horses, payment on transfer of immovable property and payments to non-residents, TDS rates for TDS on contracts, etc.

Rationalisation of TDS rates is proposed as below:

Section 194D – Payment of Insurance Commission

As per provisions of section 194D, any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance, renewal or revival of policies of insurance) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force which are at present 5% (in case of a person other than company).

It is proposed that TDS under section 194D of the Act (in the case of a person other than a company) be reduced from 5% to 2%. The amendment will take effect from 1st day of April 2025.

Section 194DA – Payment in respect of Life Insurance Policy

According to section 194DA, any person responsible for paying to a resident any sum under a life insurance policy, including the sum allocated as a bonus on such policy, other than the amount not includible in the total income under clause (10D) of section 10, must deduct income tax at the rate of 5% on the amount of income comprised therein at the time of payment.

It is proposed that TDS under section 194DA of the Act be reduced from 5% to 2%. The amendment will take effect from 1st day of October 2024.

Section 194G – Commission, etc on Sale of Lottery Tickets

According to the provisions of section 194G, any person who is responsible for paying, on or after the 1st day of October 1991, to any person who is or has been stocking, distributing, purchasing, or selling lottery tickets, any income by way of commission, remuneration, or prize (by whatever name called) on such tickets in an amount exceeding fifteen thousand rupees shall, at the time of crediting such income to the payee’s account or at the time of payment of such income in

It is proposed that TDS under section 194G of the Act be reduced from 5% to 2%. The amendment will take effect from 1st day of October 2024.

Section 194H – Payment of Commission or Brokerage

As per provisions of section 194H, any person, not being an individual or a Hindu undivided family (as specified), who is responsible for paying, on or after the 1st day of June 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of 5%.

It is proposed that the TDS under Section 194H of the Act be decreased from 5% to 2%. The modification will take effect on October 1, 2024.

Section 194-IB – Payment of Rent by certain Individuals or HUF

Section 194-IB states that any person, whether an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194-I), who is responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to 5% of such income as income-tax.

It is proposed that TDS under section 194-IB of the Act be reduced from 5% to 2%. The amendment will take effect from 1st day of October 2024.

Section 194M – Payment of certain Sums by certain Individuals or Hindu Undivided Family

Any person, being an individual or a Hindu undivided family (other than those who are required to deduct income-tax as per the provisions of section 194C, section 194H or section 194J) responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract, by way of commission (not being insurance commission referred to in section 194D) or brokerage or by way of fees for professional services during the financial year, shall, at the time of credit of such sum or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 5% of such sum as income-tax thereon.

It is proposed that TDS under Section 194M of the Act be decreased from 5% to 2%. The amendment will be effective October 1, 2024.

Section 194-O – Payment of certain Sums by E-commerce Operator to E-commerce Participant

Section 194-O of the Act states that notwithstanding anything to the contrary contained in any of the provisions of Chapter XVII-B, where sale of goods or provision of services of an e-commerce participant is facilitated by an e-commerce operator through its digital or electronic facility or platform (by whatever name called), such e-commerce operator shall, at the time of credit of amount of sale or services or both to the account of an e-commerce participant or at the time of payment thereof to such e-commerce participant by any mode, whichever is earlier, deduct income-tax at the rate of 1% of the gross amount of such sales or services or both.

However, representations were received that offline transactions attract a lower TDS rate of 0.1% (under section 194Q relating to TDS on payment of certain sums for the purchase of goods) or a 0.1% tax collection at source (TCS) rate [under section 206C(1H) relating to TCS on receipts from the sale of goods]. To achieve parity between these provisions, the TDS rate under Section 194-O is recommended to be reduced from 1% to 0.1%.

The amendment will take effect from 1st day of October 2024.

Section 194F – TDS on Payments on Repurchase of Units by Mutual Fund or UTI

It is suggested to remove section 194F, which deals with TDS on payments made for the repurchase of units by a mutual fund or UTI, which carries a 20% TDS rate. The modification will take effect on October 1, 2024.