“So, the 69 sections for TDS are gone?” your client, a CFO, asks while reviewing the new compliance chart. “It all looks simpler with these tables, but am I missing something?”
As their Chartered Accountant, you point to a specific row. “It is simpler, but the devil is in the details. For instance, the definition of ‘professional services’ has been streamlined. That change alone moves advertising commissions from a 2% to a 10% TDS rate. We need to be vigilant.”
The Income-tax Act, 2025 (the 2025 Act), aims to simplify the complex TDS/TCS regime by consolidating 69 sections into a few table-based ones (392, 393, and 394). While this overhaul is designed for simplicity, it introduces subtle yet critical changes that every CA must master to ensure compliance and advise clients effectively.
Here are five key shifts in the new TDS/TCS regime that demand your immediate attention.
1. The New Architecture: From Sections to Tables
The biggest change is the shift from self-contained sections to tables. The Income-tax Act, 1961 (the 1961 Act) had mini-codes for each TDS rule; the 2025 Act uses tables for payment types, rates, and thresholds. This improves readability but requires cross-referencing multiple tables and the definitions in Section 402.
This new methodology demands a holistic approach, where a tool like Vidur AI becomes vital to link sections, tables, and definitions, preventing oversights.
2. The “Specified Person” Concept
The 2025 Act introduces the term “Specified Person” to categorize payers, replacing the repetitive provisos found in the old law. This definition is crucial for determining TDS applicability for individuals and HUFs.
Payer Categories Under the 2025 Act
| Payer Category | Definition | Implication |
|---|---|---|
| Specified Person | Any non-individual/HUF, OR an individual/HUF with business turnover > ₹1 crore or professional receipts > ₹50 lakh in the preceding tax year. | This is the default category for most TDS provisions, similar to the old law. |
| Any Other Person | A person who is not a “Specified Person” (i.e., smaller individuals/HUFs). | Generally exempt from most TDS obligations, unless specified otherwise. |
This consolidation simplifies the text but requires CAs to be precise in classifying their clients to ensure correct application of TDS rules.
3. Expanded Scope for Lower TDS Certificates
This is a welcome change. Under the 1961 Act, obtaining a lower/nil TDS certificate was restricted to specific payments. Section 395 of the 2025 Act expands this benefit significantly.
The Change
The facility to apply for a lower/nil TDS certificate is now available for all types of payments covered under the TDS provisions.
This provides much-needed flexibility for businesses with unique cash flow situations or those anticipating tax losses, allowing them to better manage their working capital without being constrained by fixed TDS rates.
4. Key Definitional and Rate Changes
Beneath the surface of consolidation lie important changes in the definitions and rates that directly impact tax liability:
- Advertising Services: These are now unambiguously classified as professional services, attracting a 10% TDS rate under Section 393 of the 2025 Act, a significant jump from the 2% often applied under Section 194H of the 1961 Act.
- EPF Withdrawals: The law now explicitly states that EPF withdrawals exceeding ₹50,000 will be subject to a 10% TDS.
- TCS on Motor Vehicles: The timing for TCS on motor vehicle sales over ₹10 lakh has been advanced to the time of debiting the buyer’s account or receipt of payment, whichever is earlier.
5. The End of an Exemption for Co-operative Banks
In a subtle but impactful change, the exemption from TDS on interest payments previously available to co-operative banks has been removed. The definition of “banking company” in the 2025 Act (Section 402) no longer includes co-operative societies.
This means interest payments from co-operative banks that cross the threshold will now be subject to TDS, bringing them in line with commercial banks and expanding the compliance net.
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