How Finance Minister plans to rationalise TDS, reduce burden and ensure compliance
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New Delhi: The Union budget 2025-26 has prioritized personal income tax reforms with a special focus on the middle class, rationalising TDS/TCS, encouraging voluntary compliance and reducing compliance burden. The budget proposes rationalising Tax Deduction at Source (TDS) by reducing the rates and thresholds above which TDS is deducted. Further, threshold amounts for tax deduction will be increased for better clarity and uniformity, said Finance Minister Nirmala Sitharaman.
The limit for tax deduction on interest for senior citizens has been doubled from the present Rs 50,000 to Rs 1 lakh. Similarly, the annual limit of Rs 2.40 lakh for TDS on rent has been increased to Rs 6 lakh. This will reduce the number of transactions liable to TDS, thus benefitting small taxpayers receiving small payments, the Minister said.
The threshold to collect tax at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS) was proposed to be increased from Rs 7 lakh to Rs 10 lakh. It was also proposed to remove TCS on remittances for education purposes, where such remittance is out of a loan taken from a specified financial institution.
At present both TDS and TCS are applied on any transaction relating to sale of goods, to prevent such compliance difficulties, the Minister proposed to omit the TCS. Besides, the higher TDS deduction provisions will now apply only in non-PAN cases.
As part of encouraging voluntary compliance, the budget has proposed to extend the time limit to file updated returns for any assessment year from the current limit of two years to four years. The additional tax payable shall be 60 per cent of the aggregate of tax and interest payable on additional income for filing updated returns during the period of 24 months to 36 months from the end of the relevant assessment year. Additional tax payable shall be 70 per cent of the aggregate of tax and interest payable for filing updated returns during the period of 36 months to 48 months from the end of the relevant assessment year, subject to certain conditions.
The compliance burden for small charitable trusts/institutions will be reduced with an increase in the registration period from 5 years to 10 years.
The Minister said that presently, taxpayers can claim the annual value of self-occupied properties as nil only on the fulfilment of certain conditions. Considering the difficulties faced by taxpayers, it was proposed that the benefit of two such self-occupied properties be allowed without any condition, the Finance Minister said.