With the Finance Bill approving a number of noteworthy proposals from the Union Budget 2024, certain changes are all set to take effect starting from Tuesday, October 1 including the implementation of the revised Tax Deducted at Source (TDS) rates.
How does TDS work?
The concept of TDS aims to collect tax from the very source of income. It suggests that when the deductor, the person (deductor) who is liable to make payment of specified nature to any other person, called the deducted, shall deduct tax at source and remit the equal amount into the account of the Central Government.
Based on the form 26AS or TDS certificate issued by the deductor, the deductee from whose income tax has been deducted at source would be entitled to get credit for the amount so deducted.
About the new TDS rates: What will change?
The newly revised TDS rates include a significant cut from 5% to just 2% for payments made under sections 19DA, 194H, 194-IB, and 194M. As per the new rates proposed in the Union Budget 2024, the following changes will take place:
TDS rate for payments under sections 19DA, 194H, 194-IB, and 194M has been reduced from 5 percent to 2 percent.
TDS rate for e-commerce operators has been slashed to 0.1percent from 1percent.
Under Section 194DA, payment in respect of life insurance policy has been reduced from 5 percent to 2 percent.
Under Section 194G, the commission on sale of lottery tickets has been reduced from 5 percent to 2 percent.
Under Section 194-IB, payment of rent by certain individuals or HUF is proposed to be reduced from 5 percent to 2 percent.
Under Section 194M, the payment of certain sums by certain individuals or Hindu undivided families has been reduced from 5 percent to 2 percent.
Under Section 194-O, the payment of certain sums by e-commerce operators to e-commerce participants has been reduced from 1percent to 0.1%.
About the new rules for floating rate bonds and share buybacks
As per the new rules, a 10% rate of TDS is applicable for specific central and state government bonds, including floating rate bonds once the revenue earned throughout the year crosses rupees 10,000. Furthermore, share buybacks are now subject to shareholder-level taxes similar to dividends from this date onward.
The news rule is expected to increase the tax burden for investors as it will take into account the shareholder's acquisition costs of these shares when calculating any capital gains or losses.
Besides intorducing TDS deduction, the changes have also increased the securities transaction tax (STT) on Futures & Options (F&O) of securities to 0.02% and 0.1% respectively.
