Key Changes in Income Tax Act 2025 vs 1961 | TDS and TCS

The differences in TDS and TCS between the Income Tax Act, 1961, and the Income Tax Act, 2025 highlight the government’s intent to simplify, modernize, and bring uniformity to tax deduction and collection procedures. Under the 2025 Act, all TDS provisions from Sections 193 to 196D of the 1961 Act have been consolidated into a single, streamlined framework, ensuring consistency across various income types. Key changes include the introduction of a uniform threshold limit for deduction of tax on all interest payments on securities, removal of exemptions for co-operative banks, inclusion of advertising within professional services for TDS purposes, and expanded definition of ‘rent’ to cover factory buildings and appurtenant land. The 2025 Act also empowers the CBDT to issue guidelines for the entire chapter on collection and recovery of tax, and extends the certificate for lower TDS rates to all provisions, enhancing taxpayer convenience. Additionally, it rationalizes TDS/TCS compliance timelines, aligns tax deduction on compensation payments, and eliminates the higher TDS rate on cash withdrawals for return defaulters. Overall, the 2025 Act modernizes India’s withholding tax regime by ensuring uniformity, digital compliance, and reduced ambiguity in interpretation—making it a significant reform in the evolution of TDS and TCS laws.

Table of Contents

1. Overview of Differences in the Provisions Relating to TDS and TCS in the Income Tax Act, 1961 vis-à-vis the Income Tax Act, 2025
2. Uniform Threshold for Deduction of Tax is Introduced for all Payments of Interest on Securities [Section 193 of the 1961 Act/Table 1, Sl. No. 5(i) of Section 393(1) of the 2025 Act]
3. Exemption from Deduction of Tax from Interest Payable to a Co-operative Bank is Omitted [Section 194A(3)(iii) of the 1961 Act/Table 4, Sl. No. 7 of Section 392(4) of the 2025 Act]
4. Tax to be Deducted on Payment or Credit of Interest on Compensation Awarded by the Motor Accidents Claims Tribunal [Section 194A(3)(ix) & (ixa) of the 1961 Act/Table 4, Sl. No. 7 of Section 392(4) of the 2025 Act]
5. A New Provision is Introduced to Empower the CBDT to Issue Guidelines for the Removal of Difficulties in Giving Effect to the Entire Chapter of Collection and Recovery of Tax [Section 400 of the 2025 Act]
6. Slight Change in the Threshold for TDS on Payment in Respect of a Life Insurance Policy [Section 194DA of the 1961 Act/Table 1, Sl. No. 8(i) of Section 393(1) of the 2025 Act]
7. Slight Change in the Threshold for TDS on Payment Under National Saving Scheme Policy [Section 194EE of the 1961 Act/Table 3, Sl. No. 6 of Section 393(3)]
8. Advertising Services Fall Within the Scope of “Professional Services” for TDS on Commission or Brokerage [Section 194H of the 1961 Act/Table 1, Sl. No. 1(ii) of Section 393(1) and Section 402(28)]
9. Expanding the Definition of ‘Rent’ for the Purpose of TDS on Payments Made by Certain Individuals or HUFs [Section 194-IB of the 1961 Act/Table 1, Sl. No. 2(i) of Section 393(1) and Section 402(29)]
10. Tax to Be Deducted on Credit or Payment in Case of Compulsory Acquisition of Immovable Property [Section 194LA of the 1961 Act/Table 1, Sl. No. 3(iii) of Section 393(1) of the 2025 Act]
11. No Higher TDS Rate & Lower Threshold on Cash Withdrawal for Return Defaulters [Section 194N of the 1961 Act/Table 3, Sl. No. 5 of Section 393(3)]
12. Certificate for Deduction of TDS at Lower Rates Extended to all TDS Provisions [Section 197(1) of the 1961 Act/Section 395(1) of the 2025 Act]
13. No Corresponding Provision is Introduced to Enable Notifying a Scheme for Processing of Statements Made by a Person Not Being a Deductor [Section 200A(3) of the 1961 Act/Section 399 of the 2025 Act]
14. In Case of Motor Vehicle and Notified Goods, the Tax is to be Collected at the Time of Collection or Debited to the Account of the Buyer [Section 206C(1F) of the 1961 Act/Table 1, Sl. No. 6(a) of Section 394(1)]

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1. Overview of Differences in the Provisions Relating to TDS and TCS in the Income Tax Act, 1961 vis-à-vis the Income Tax Act, 2025

The following are the key differences in the provisions relating to TDS and TCS in the Income Tax Act 1961 and Income Tax Act 2025:

• Uniform threshold for deduction of tax is introduced for all payments of interest on securities [Section 193 of the 1961 Act/Table 1, Sl. No. 5(i) of Section 393(1) of the 2025 Act]
• Exemption from deduction of tax from interest payable to a co-operative bank is omitted [Section 194A(3)(iii) of the 1961 Act/Table 4, Sl. No. 7 of Section 392(4) of the 2025 Act]
• Tax to be deducted on payment or credit of interest on compensation awarded by the Motor Accidents Claims Tribunal [Section 194A(3)(ix) & (ixa) of the 1961 Act/ Table 4, Sl. No. 7 of Section 392(4) of the 2025 Act]
• A new provision has been introduced to empower the CBDT to issue guidelines for the removal of any difficulty in giving effect to the entire chapter of collection and recovery of tax [Section 400 of the 2025 Act]
• Slight change in the threshold for TDS on payment in respect of a life insurance policy [Section 194DA of the 1961 Act/Table 1, Sl. No. 8(i) of Section 393(1) of the 2025 Act]
• Slight change in the threshold for TDS on payment under National Saving Scheme policy [Section 194EE of the 1961 Act/Table 3, Sl. No. 6 of Section 393(3)]
• Advertising services fall within the scope of “professional services” for TDS on commission or brokerage [Section 194H of the 1961 Act/Table 1, Sl. No. 1(ii) of Section 393(1) and Section 402(28)]
• Expanding the definition of ‘rent’ for the purpose of TDS on payments made by certain individuals or HUFs [Section 194-IB of the 1961 Act/Table 1, Sl. No. 2(i) of Section 393(1) and Section 402(29)]
• Tax to be deducted on credit or payment, whichever is earlier, in case of compulsory acquisition of immovable property [Section 194LA of the 1961 Act/Table 1, Sl. No. 3(iii) of Section 393(1) of the 2025 Act]
• No higher TDS rate & lower threshold on cash withdrawal for return defaulters [Section 194N of the 1961 Act/Table 3, Sl. No. 5 of Section 393(3)]
• Certificate for deduction of TDS at lower rates extended to all TDS provisions [Section 197(1) of the 1961 Act/Section 395(1) of the 2025 Act]
• No corresponding provision is introduced to enable notifying a scheme for processing of statements made by a person not being a deductor [Section 200A(3) of the 1961 Act/ Section 399 of the 2025 Act]
• In case of motor vehicle and notified goods, the tax is to be collected at the time of collection or debited to the account of the buyer [Section 206C(1F) of the 1961 Act/Table 1, Sl. No. 6(a) of Section 394(1)]
• Reference to furnishing an invalid/wrong PAN has been omitted since it is covered under the main provisions [Section 206AA and Section 206CC of the 1961 Act/Section 397(2)(a) of the 2025 Act]
• Time limit to furnish a correction statement of the TDS/TCS statement is reduced [Section 200(3) of the 1961 Act/Section 397(3)(f) of the 2025 Act]
• Ready reckoner of the TDS rates in the 2025 Act
• Ready reckoner of the TCS rates in the 2025 Act

All TDS provisions from Sections 193 to 196D of the 1961 Act have been consolidated into a single provision in the 2025 Act. The key changes in the provisions relating to TDS and TCS have been discussed in the subsequent paragraphs.

2. Uniform Threshold for Deduction of Tax is Introduced for all Payments of Interest on Securities [Section 193 of the 1961 Act/Table 1, Sl. No. 5(i) of Section 393(1) of the 2025 Act]

2.1 Provision of the 1961 Act

As per Section 193 of the 1961 Act, every person responsible for paying interest on securities to a resident person shall deduct tax at source from such interest at the rate of 10%. The Finance Act 2025 also introduced a threshold limit of Rs. 10,000 for the deduction of tax in respect to the payment of interest, effective from Assessment Year 2025-26.

Further, clause (v) of Proviso to Section 193 provides that no tax was deductible where any interest on debentures (issued by a widely-held company) was payable to a resident individual or HUF and if the amount, or the aggregate amount, of such interest paid (or likely to be paid) during the financial year is by an account payee cheque which does not exceed Rs. 10,000.

2.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

The 2025 Act introduces a uniform threshold limit of Rs. 10,000 for the deduction of tax from interest on securities. Thus, the previous threshold of Rs. 10,000, which was limited to interest payable on debentures to a resident individual and HUF, has been merged with the uniform threshold of Rs. 10,000 for all recipients of interest.

3. Exemption from Deduction of Tax from Interest Payable to a Co-operative Bank is Omitted [Section 194A(3)(iii) of the 1961 Act/Table 4, Sl. No. 7 of Section 392(4) of the 2025 Act]

3.1 Provision of the 1961 Act

Section 194A of the 1961 Act requires the deduction of tax from the payment of interest other than on securities. Clause (iii) of Section 194A(3) provides that TDS provisions shall not apply to interest income credited or paid to:

(a) Any banking company to which the Banking Regulation Act, 1949, applies, or

(b) Any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank).

3.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

Under the 2025 Act, the exemption is limited to ‘any banking company’ only. The expression ‘any co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank)’ has been omitted.

Section 402 of the 2025 Act defines “banking company” as a banking company to which the Banking Regulation Act, 1949, applies. As per Section 5 of the Banking Regulation Act, 1949, “banking company” means any company which transacts the business of banking in India and a “company” means any company as defined in Section 3 of the Companies Act, 1956 and includes a foreign company. Section 5 does not include the co-operative banks within the definition of the banking company. However, Section 56 extends the provisions of the Act to co-operative banks. However, it does not treat them as ‘banking companies’.

Thus, this omission in the 2025 Act removes the exemptions available to a co-operative bank under the 1961 Act, even if it is subject to the same provisions as applicable to a “banking company”.

4. Tax to be Deducted on Payment or Credit of Interest on Compensation Awarded by the Motor Accidents Claims Tribunal [Section 194A(3)(ix) & (ixa) of the 1961 Act/Table 4, Sl. No. 7 of Section 392(4) of the 2025 Act]

4.1 Provision of the 1961 Act

Section 194A of the 1961 Act provides for the deduction of tax from the payment of interest other than on securities. Clause (ix) to Section 194A(3) provides an exemption from the TDS on the income credited by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal (MACT). However, clause (ixa) requires the deduction of tax at the time of payment of interest on compensation awarded by the Motor Accident Claims Tribunal if the aggregate payment in a year exceeds Rs. 50,000. In simple terms, tax is not required to be deducted at the time of crediting interest, but at the time of payment if it exceeds the threshold of Rs. 50,000.

4.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

Under the 2025 Act, clauses (ix) and (ixa) of the 1961 Act have been merged into a single provision. It provides that no tax shall be deducted on interest income credited or paid by way of interest on the compensation amount awarded by the MACT, where the amount of such income or the aggregate of the amounts of such income does not exceed Rs. 50,000 during the tax year.

The 2025 Act removes the timing difference for the deduction of tax at source. It applies a single, uniform condition that no TDS shall be deducted on interest related to MACT compensation if the total interest during the tax year does not exceed Rs. 50,000, irrespective of whether it is credited or paid.

This timing difference was created by the 1961 Act due to the provisions requiring the taxability of interest income on compensation or on enhanced compensation. As per Section 145B of the 1961 Act, interest received by an assessee on any compensation or on enhanced compensation shall be deemed to be the income of the tax year in which it is received. Therefore, deduction of tax on such interest on a mercantile/accrual basis results in undue hardship and a mismatch to the awardee. Hence, the provisions of section 194A(3) of the 1961 Act provided that the deduction of tax under section 194A from interest payment on the compensation amount awarded by the Motor Accident Claim Tribunal shall be made only at the time of payment.

Section 145B of the 1961 Act has been carried forward without any modification into Section 277 of the 2025 Act, thereby preserving the same legal position. Thus, even under the 2025 Act, any interest received by an assessee on compensation or enhanced compensation shall be deemed to form part of the income of the tax year in which the amount is actually received. However, the TDS provisions, as they stand in the 2025 Act, are not in sync with the taxability rules for interest income. Provisions allow tax to be deducted at the time of credit or payment, even if the income is not actually taxable in that year. This appears to be a drafting oversight, as it contradicts Section 277 of the 2025 Act, which clearly states that interest on compensation or enhanced compensation is taxable only in the year it is actually received.

Because of this mismatch, tax may be deducted in a year when the interest is credited but not received. This can cause a gap between the year in which TDS is deducted and the year in which the income is included in the tax return. While TDS is only a method to collect tax and does not decide when income is taxable, taxpayers can follow Section 277 and report the interest income in the year they actually receive it. They can carry forward the TDS credit from the earlier tax year and claim it in the year the income is offered to tax.

5. A New Provision is Introduced to Empower the CBDT to Issue Guidelines for the Removal of Difficulties in Giving Effect to the Entire Chapter of Collection and Recovery of Tax [Section 400 of the 2025 Act]

5.1 Provision of the 1961 Act

Under the 1961 Act, various TDS sections provide that if any difficulty arises in giving effect to the provisions of the section, the Board may, with the prior approval of the Central Government, issue guidelines to remove the difficulty. Every such guideline issued by the Board shall be laid before each House of Parliament, and it shall be binding on the income-tax authorities and on the person liable to deduct income-tax.

The list of such sections is:

• Section 194BA – TDS on winnings from online games
• Section 194-O – TDS from payment by e-commerce operator
• Section 194Q – TDS on Purchase of Goods
• Section 194R – TDS on benefit or perquisite arising from business or Profession
• Section 194S – TDS on payment for the transfer of Virtual Digital Assets (VDAs)

Similarly, Section 206C(1J) of the 1961 Act empowers the Central Government to issue the guidelines in respect of the collection of TCS from the remittances made under the Liberalised Remittance Scheme (LRS) and the sale of overseas tour packages, which will be binding on tax authorities and collectors.

5.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

A new section 400 has been introduced in the 2025 Act, which empowers the Board to issue guidelines with the previous approval of the Central Government, to remove any difficulty arising in giving effect to the provisions of this Chapter, and these guidelines shall be laid before each House of Parliament. The 2025 Act extends the powers to issue guidelines in respect of the entire Chapter XIX, which includes all provisions of TDS, TCS, advance tax, collection & recovery and interest for defaults. Further, the provision contained in the 1961 Act, which required that these guidelines shall be binding on the person responsible for deducting income tax or on the income-tax authorities subordinate to the CBDT, has been removed.

The removal of the binding effect of the guidelines on taxpayers and income-tax authorities may alter the legal status of such guidelines. In the 1961 Act, this binding effect created a statutory obligation for both the deductor and the departmental authorities to follow the CBDT’s interpretation, ensuring uniformity and predictability in the application of TDS provisions. If deductors complied with a CBDT guideline, they could take comfort that their action would not later be challenged by the tax department, even if a different interpretation emerged subsequently.

With the binding nature now removed, CBDT’s guidelines may be viewed more as clarificatory or advisory documents rather than mandatory directions. Deductors would no longer have any obligation to follow these guidelines, and no legal protection merely by adhering to such guidelines. This opens the door to interpretational differences, possible inconsistencies in enforcement across jurisdictions, and an increased likelihood of disputes and litigation.

6. Slight Change in the Threshold for TDS on Payment in Respect of a Life Insurance Policy [Section 194DA of the 1961 Act/Table 1, Sl. No. 8(i) of Section 393(1) of the 2025 Act]

6.1 Provision of the 1961 Act

Under the 1961 Act, any payment in respect of a life insurance policy to a resident person shall be subject to deduction of tax at source at the rate of 2% on the income component comprised within the amount payable by the insurance company. The tax shall be deducted at the time of payment if the gross amount of payment made in respect of a life insurance policy is Rs. 1,00,000 or more.

6.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

Under the 2025 Act, the provisions preserve the substance and intent of the earlier section, but with a minor change in the threshold’s applicability. Section 393 states that tax shall be deducted only if the amount, or the aggregate of amounts, exceeds the threshold limit of Rs. 1,00,000. This means that under the 2025 Act, no tax is required to be deducted if the sum is exactly Rs. 1,00,000. In contrast, under the 1961 Act, the TDS liability arose even when the amount was Rs. 1,00,000.

7. Slight Change in the Threshold for TDS on Payment Under National Saving Scheme Policy [Section 194EE of the 1961 Act/Table 3, Sl. No. 6 of Section 393(3)]

7.1 Provision of the 1961 Act

Section 194EE of the 1961 Act requires the deduction of tax from the payment of any amount as referred to in Section 80CCA(2).

Section 80CCA of the 1961 Act allowed deductions to individuals and Hindu
Undivided Families (HUFs) for amounts deposited in the National Savings Scheme (NSS) or annuity plans of the LIC as notified by the central government. No deduction was allowed in this section where the amount was deposited or paid on or after April 1, 1992. Sub-section (2) of section 80CCA provided that where any amount standing in the credit of the assessee under NSS (in respect of which deduction was allowed under this section), with interest accrued on such amount, is withdrawn in whole or part, it shall be deemed to be the income of the assessee in the year in which such withdrawal was made.

The Department of Economic Affairs issued a notification¹, providing that no interest would be paid on the balances in the NSS after 01-10-2024. As a result of this notification, representations were received requesting an amendment to section 80CCA to provide relief to individuals facing hardship who are compelled to withdraw funds. Accordingly, to provide relief in this regard, the Finance Act, 2025 inserted a second proviso in Section 80CCA(2) to exempt the withdrawals made by an individual from NSS on or after August 29, 2024. The exemption shall be available to an individual investor only for withdrawing any amount standing to the credit of the individual under NSS with interest accrued on such amount.

Though the exemption is given to the individual investor, no corresponding amendment was made to Section 194EE of the 1961 Act, which requires every person responsible for paying any amount (principal plus interest) standing to the credit of any person under the National Savings Scheme shall deduct tax therefrom at the rate of 10%. Tax is deductible if the sum paid or aggregate of sums paid during the financial year is Rs. 2,500 or more.

However, the Central Government vide Notification No. 27, 2025, dated 04-04-2025 specified that tax shall not be deducted from the payment of the amount standing in the credit of the assessee under NSS (in respect of which deduction was allowed under section 80CCA) and the interest accrued on such amount, which is withdrawn by an individual on or after 4th April, 2025.

7.2 Provision of the 2025 Act

Under the 2025 Act, there is no corresponding provision of Section 80CCA, but the TDS provision has been retained to provide for the deduction of tax from the amount referred to in Section 80CCA(2)(a) of the 1961 Act. The provision remains the same, as it preserves the substance and intent of the earlier law, but with a minor change in the threshold’s applicability. Section 393 states that tax shall be deducted only if the amount, or the aggregate of amounts, exceeds the threshold limit of Rs. 2,500. This means that under the 2025 Act, no TDS is required if the sum is exactly Rs. 2,500. In contrast, under the 1961 Act, TDS liability arose even when the amount was Rs. 2,500.

8. Advertising Services Fall Within the Scope of “Professional Services” for TDS on Commission or Brokerage [Section 194H of the 1961 Act/Table 1, Sl. No. 1(ii) of Section 393(1) and Section 402(28)]

8.1 Provision of the 1961 Act

Section 194H of the 1961 Act requires every person paying commission (other than insurance commission) or brokerage to deduct tax therefrom at the rate of 2%. Explanation (i) to Section 194H defines the term ‘Commission’ or ‘Brokerage’ to include any payment received, directly or indirectly, by a person acting on behalf of another person, for services rendered (not being professional services) or for any services in the course of buying or selling of goods or for any transaction relating to any asset, valuable article or thing but not being securities.

The expression “professional services”, as defined in Explanation (ii) to Section 194H, means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy, technical consultancy, interior decoration or such other profession as is notified by the Board for the purposes of section 44AA. In short, the TDS provisions under section 194H do not apply if any sum is received towards rendering of specified professional services.

8.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

Section 393(4) of the 2025 Act retains the provisions of Section 194H of the 1961 Act. However, the term ‘professional services’, as defined in Section 402(28) of the 2025 Act, expands the scope by expressly including ‘advertising’ within its ambit.

By bringing ‘advertising’ within the scope of ‘professional services’ for the purposes of TDS on commission or brokerage, the 2025 Act closes a long-standing gap between two key TDS provisions – TDS on commission/brokerage and TDS on fees for professional or technical services.

Under the 1961 Act, Section 194J dealt with TDS on fees for professional or technical services and explicitly included ‘advertising’ as part of the definition of professional services. In contrast, Section 194H, which governed TDS on commission or brokerage, also defined ‘professional services’ but omitted ‘advertising’ from its ambit.

The omission created an inconsistency between two provisions, leading to ambiguity in the treatment of advertising payment. Under the 1961 Act, payment for advertising services could potentially fall under two sections. Since ‘advertising’ was not expressly included in the definition of ‘professional services,’ such payments could be interpreted as forming part of ‘commission or brokerage’ for the purposes of Section 194H, thereby attracting TDS under that provision. On the other hand, because the definition of ‘professional services’ under Section 194J specifically included ‘advertising,’ the same payment could also be interpreted as falling within the ambit of Section 194J, leading to a different TDS rate. Recognising the need for clarity and consistency, the 2025 Act addresses this gap by harmonising the definition of ‘professional services’. It should be noted that the payment for advertising is covered under Table 1, Sl. No. 6(i) of Section 393(1) [corresponding to Section 194C of the 1961 Act], while payment for professional services relating to the advertising is excluded from this provision and covered under Table 1, Sl. No. 6(iii) of Section 393(1) [corresponding to Section 194J of the 1961 Act].

9. Expanding the Definition of ‘Rent’ for the Purpose of TDS on Payments Made by Certain Individuals or HUFs [Section 194-IB of the 1961 Act/Table 1, Sl. No. 2(i) of Section 393(1) and Section 402(29)]

9.1 Provision of the 1961 Act

As per Section 194-IB, every individual and HUF, whose turnover or gross receipts from business or profession does not exceed Rs. 1 crore in case of business and Rs. 50 lakhs in case of a profession in the immediately preceding financial year, is required to deduct tax at the rate of 2% from the payment of rent.

“Rent”, for the purpose of this provision, means any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or building or both.

9.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

Under the 2025 Act, the definition of rent has been expanded to include any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any:

(a) land; or

(b) building (including factory building); or

(c) land appurtenant to a building (including a factory building).

The words marked in bold are the new insertions.

Under the 1961 Act, the term rent has been defined differently under Section 194-I and Section 194-IB for the purpose of TDS. While Section 194-I adopts a wider meaning covering rent paid for land, buildings, machinery, plant, equipment, furniture, etc. Section 194-IB restricts its scope to rent paid for land or buildings only. Further, in the context of land or buildings, Section 194-I specifically includes rent for land appurtenant to a building and factory buildings. These were not covered under Section 194-IB. To bring uniformity in the treatment of TDS on rent for land and buildings, the definition of rent under Section 194-IB has now been expanded to include factory buildings and land appurtenant to a building (including factory buildings).

Accordingly, every individual or HUF whose turnover or gross receipts do not exceed Rs. 1 crore in case of business or Rs. 50 lakhs in case of profession in the immediately preceding financial year, is liable to deduct tax on rent payments made in respect to factory buildings and land appurtenant to a building (including factory building).

10. Tax to Be Deducted on Credit or Payment in Case of Compulsory Acquisition of Immovable Property [Section 194LA of the 1961 Act/Table 1, Sl. No. 3(iii) of Section 393(1) of the 2025 Act]

10.1 Provision of the 1961 Act

Section 194LA of the 1961 Act provided that where any immovable property, other than agricultural land, is compulsorily acquired under any law in force, the person responsible for paying any sum to a resident by way of compensation or enhanced compensation is required to deduct tax at the rate of 10%. Tax shall be deducted at the time of payment of compensation or enhanced compensation.

10.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

In contrast, the 2025 Act broadens the timing for deduction. It mandates that tax be deducted at source on the amount of compensation or enhanced compensation at the earlier of the following events:

• when the amount is credited to the payee’s account, or
• when payment is made, whether in cash, by cheque, draft, or by any other mode.

11. No Higher TDS Rate & Lower Threshold on Cash Withdrawal for Return Defaulters [Section 194N of the 1961 Act/Table 3, Sl. No. 5 of Section 393(3)]

11.1 Provision of the 1961 Act

Section 194N requires every bank, co-operative bank or post-office to deduct tax at source from any sum paid in cash from one or more accounts maintained by the recipient. TDS at the rate of 2% applies if the aggregate of cash withdrawal exceeds Rs. 1 crore (Rs. 3 crores, where the recipient is a co-operative society). However, if a person has not filed a return of income for all of three assessment years immediately preceding the previous year in which cash is withdrawn, and the due date for filing the return under section 139(1) has expired, the tax shall be deducted at the rates specified in following sub-clauses (a) and (b):

(a) At the rate of 2% of the sum, if the aggregate of the amount withdrawn exceeds Rs. 20 lakhs during the previous year but does not exceed Rs. 1 crore (Rs. 3 crores where the recipient is a co-operative society);

(b) At the rate of 5% of the sum, if the aggregate of the amount withdrawn exceeds Rs. 1 crore (Rs. 3 crores where the recipient is a co-operative society) during the previous year.

11.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

Section 393(3) of the 2025 Act retains the provisions of Section 194N of the 1961 Act. However, it removed the provisions requiring TDS on cash withdrawals above Rs. 20 lakh, and an enhanced 5% TDS on withdrawals exceeding Rs. 1 crore. The reason for such removal is the practical difficulty for banks, co-operative banks, and post offices in verifying whether a person has filed their income-tax return.

The change is consistent with the Finance Act, 2025, which also omitted Sections 206AB and 206CCA. These sections had earlier imposed higher TDS and TCS on non-filers of returns. The government recognised that this compliance burden on deductors and collectors created operational hurdles and increased the risk of errors.

12. Certificate for Deduction of TDS at Lower Rates Extended to all TDS Provisions [Section 197(1) of the 1961 Act/Section 395(1) of the 2025 Act]

12.1 Provision of the 1961 Act

Under the 1961 Act, the facility of obtaining a certificate for deduction of tax at a lower rate was available only in respect of certain specified provisions, such as Section 192 (salary), Section 193 (interest on securities), Section 194 (dividends), and Section 194A (interest other than securities). This meant that taxpayers whose income was subject to deduction under other provisions had limited recourse, even if their overall tax liability was lower than the standard rate of deduction.

12.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

The 2025 Act has addressed this limitation by significantly broadening the
scope of the lower deduction/collection certificate. Now, such certificates can be issued for any income or sum on which TDS is required to be deducted under Chapter XIX-B. This expansion ensures uniformity by removing inconsistencies, where certain types of income qualified for lower deduction certificates while others did not.

13. No Corresponding Provision is Introduced to Enable Notifying a Scheme for Processing of Statements Made by a Person Not Being a Deductor [Section 200A(3) of the 1961 Act/Section 399 of the 2025 Act]

Section 200A contains provisions for the processing of TDS statements. A TDS Statement is processed to identify the errors committed by the deductor, to calculate the amount of interest payable by him, etc. These defaults are intimated to the deductor/collector so that he can rectify the same within the prescribed time. To enable the processing of other statements such as Form 26QF, the Finance (No. 2) Act 2024 has inserted a new sub-section (3) to section 200A, which provides that in respect of statements that have been made by any other person, not being a deductor, the Board may make a scheme for processing of such statements. This provision is effective from 01-04-2025.

Under the 2025 Act, the corresponding Section 399 does not contain the amendment made by the Finance (No. 2) Act, 2024, which appears to be a drafting oversight.

14. In Case of Motor Vehicle and Notified Goods, the Tax is to be Collected at the Time of Collection or Debited to the Account of the Buyer [Section 206C(1F) of the 1961 Act/Table 1, Sl. No. 6(a) of Section 394(1)]

14.1 Provision of the 1961 Act

Section 206C(1F) of the 1961 Act mandates that tax be collected at source at the rate of 1% on the entire sale consideration, at the time of receipt from the buyer, if the value of a motor vehicle or other specified goods exceeds Rs. 10 lakhs. This threshold is applied individually to each motor vehicle or specified good.

14.2 Analysis of Change in the 1961 Act vis-à-vis the 2025 Act

The 2025 Act, in Section 394(1), retains the framework of Section 206C of the 1961 Act. However, there is a slight difference with respect to the timing for the collection of tax at source towards motor vehicles and notified goods.

With respect to all goods wherein tax is to be collected, including motor vehicles or specified goods, it is mentioned under Section 393(4)(1) that tax shall be collected at the earliest of the following:

(a) At the time of debiting of the amount payable by the buyer, licensee, or lessee, to the account of the seller or licensor, or lessor, or

(b) At the time of receipt of such amount from the said buyer, licensee, or lessee in cash or by way of a cheque, a draft, or any other mode.

TCS has to be collected either at the time of debiting of the amount payable by the buyer or at the time of receipt of such amount from the said buyer by any mode. The change has been made to bring consistency and to ensure that the tax is collected at the earliest possible stage of the transaction, preventing delays in compliance and securing timely revenue collection.

1. G.S.R. 537(E)/538(E) [F. No. 14/1/2018-NS-Part(1)], dated 29-08-2024