Understanding Tax Deduction at Source (TDS) Under the Income Tax Bill, 2025
The Income Tax Bill 2025 introduces a comprehensive modernization of India’s direct tax system, aiming to simplify compliance and improve clarity for taxpayers. One of the most impactful updates within this reform is the restructuring of Tax Deducted at Source (TDS) provisions.
This article explains how the new Bill changes the framework of TDS, key applicability thresholds, and the compliance measures businesses and individuals should adopt before implementation.
Overview: Why a New Income Tax Bill & Its Impact on TDS
The Income Tax Act, 1961 has undergone thousands of amendments over six decades, leading to complexity and confusion. The new Income Tax Bill 2025 seeks to replace outdated sections with simplified, consolidated provisions.
From IT Act 1961 to Income Tax Bill 2025
The new Bill replaces the earlier structure of “Previous Year” and “Assessment Year” with a single Tax Year model. This means that income earned and reported within the same year will be taxed in one period, reducing administrative layers and aligning TDS timing with income recognition.
Key Objectives of Reform
- Simplify TDS and TCS provisions.
- Merge overlapping or redundant sections.
- Rationalize threshold limits to reduce unnecessary deductions.
- Strengthen automation and data matching between deductor and deductee.
- Improve transparency while reducing litigation and compliance costs.
Structural & Conceptual Changes in TDS under Bill 2025
The Bill focuses on improving structure, consistency, and ease of compliance across all TDS provisions.
Introduction of the “Tax Year” Concept
The Tax Year replaces the “Previous/Assessment Year” model, aligning tax deduction, deposit, and reporting timelines within one financial cycle. This eliminates the lag between income generation and tax assessment.
Consolidation and Simplification
Multiple TDS sections that previously caused overlap are expected to be consolidated. The intent is to reduce compliance redundancy — for instance, bringing different forms of interest or commission payments under a single category.
Omissions and Restorations
The Bill omits obsolete or duplicative sections and restores certain provisions for better clarity. It also introduces the option for taxpayers to apply for advance NIL or lower-TDS certificates more efficiently through digital processes.
Revised TDS Applicability & Thresholds (Effective April 2025)
The new TDS rules from April 2025 bring enhanced threshold limits and simplified applicability norms.
Enhanced Threshold Limits
Thresholds for several categories of payments such as interest, rent, and dividends are proposed to increase, ensuring small taxpayers are not burdened by frequent TDS deductions.
- Interest income: Higher exemption limit for individuals and senior citizens.
- Rent payments: Revised annual limit for deduction to reduce unnecessary filings.
- Dividends: Higher threshold for TDS deduction on small investors.
Removal of Higher-Rate Sections
Sections imposing higher TDS or TCS rates for non-filers (such as 206AB and 206CCA) are proposed to be omitted, simplifying compliance and removing the need for deductors to verify return-filing status each year.
New and Revised TDS Sections
A few new sections have been introduced, such as one covering partner remuneration, interest, and commission, ensuring uniform TDS treatment across firm-partner transactions.
How TDS Deduction, Deposit & Reporting Will Change
Along with the structural updates, the Bill revises the timeline and process of TDS deduction and reporting for better synchronization with accounting systems.
Time of Deduction
TDS will be required to be deducted when income is credited or paid, whichever is earlier, maintaining consistency with accrual accounting. This ensures that tax is deducted in the same year when the income is recognized.
New Due Dates for Deposit
The deposit timelines are being realigned with the unified Tax Year framework.
- TDS for most months must be deposited by the 7th of the following month.
- TDS deducted in March must be deposited by 30th April of the following year.
Return Filing and Certificates
The return filing process is expected to be simplified with fewer forms, such as consolidated filing under revised Form 26Q structures. TDS certificates will be issued electronically within a shorter time window, ensuring quicker credit to deductees.
Integration with TCS and Other Withholding Provisions
The Bill aims to harmonize TDS and TCS provisions to remove overlap. For instance, where both withholding and collection provisions applied simultaneously, only one will remain applicable, reducing confusion.
Comparisons: Old Law vs. Bill 2025 TDS Rules
Here’s a snapshot of how the upcoming TDS regime differs from the current framework.
What’s Removed, What’s Unchanged, and What’s New
- Removed: Higher TDS/TCS rate provisions for non-filers, redundant clauses, and minor sub-sections.
- Unchanged: Fundamental structure of deductor responsibility, PAN requirements, and general TDS mechanisms.
- New: Broader threshold exemptions, NIL-TDS certificate options, higher automation, and a unified tax year concept.
Transitional Provisions
Businesses will get a transition window to migrate to the new framework. Existing TDS liabilities under the old Act will continue until the new law becomes fully operational. Records, challans, and pending certificates will remain valid during this transition phase.
Practical Implications & Compliance Strategies
These changes are designed to make compliance simpler, but taxpayers and organizations must still prepare adequately.
For Salaried Individuals & Businesses
- Review existing TDS deduction processes to align them with the new thresholds.
- Reassess agreements with vendors and professionals to ensure correct TDS sections apply.
- Understand how the new Tax Year affects salary, rent, or commission reporting.
Role of Software & Automation
Modern accounting and ERP tools will play a major role in adapting to these changes. Updated systems can automatically apply revised thresholds, generate new-format TDS certificates, and manage real-time reconciliation with Form 26AS or AIS.
Accounting platforms like BUSY can help by:
- Automatically calculating TDS as per new limits.
- Generating payment challans and TDS returns in new formats.
- Maintaining audit trails and vendor-wise compliance history.
Risks & Penalties for Non-Compliance
Even though the Bill simplifies compliance, core penalties remain stringent. Delays in deduction or deposit can attract interest, disallowance of expenses, and late filing fees. Hence, businesses should strengthen their internal compliance calendar before April 2025.
Conclusion
The Income Tax Bill 2025 marks a new chapter in India’s taxation system. For TDS, it introduces simplification, consolidation, and rationalization, ensuring businesses and individuals spend less time on compliance and more on value creation.
Key takeaways include the adoption of a single Tax Year, higher TDS thresholds, digital-first compliance, and elimination of overlapping provisions. Early planning, staff training, and system upgrades will help ensure a smooth transition to the new regime starting April 2025
Jagdish Prasad is a Chartered Accountant with over 5 years of experience. He helps people and businesses with GST, income tax, and HSN codes. Jagdish makes sure his clients follow all tax rules and save money the right way. He also enjoys writing simple articles to help others understand taxes and stay updated with the latest rules.
Frequently Asked Questions
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How will TDS rules change under the Income Tax Bill 2025?
The new Bill simplifies TDS by consolidating sections, increasing thresholds, removing redundant clauses, and introducing the single Tax Year concept
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What new thresholds for TDS are introduced in Bill 2025?
Thresholds for interest, rent, and dividend income are increased to ease compliance for small taxpayers and low-value transactions.
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Which existing TDS sections are omitted or modified in the new Bill?
Sections like 206AB and 206CCA, which imposed higher rates for non-filers, are proposed to be omitted. Some new sections are added for uniform treatment of specific payments.
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How will due dates for TDS deposit and return filing change?
While the general monthly schedule remains, the Bill aligns all timelines with the new Tax Year, ensuring uniformity across deduction, deposit, and reporting.
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How should businesses prepare for the transition to new TDS norms?
Businesses should update their accounting software, review vendor contracts, train staff on new provisions, and automate reporting processes for error-free compliance.