Key Income Tax Changes Effective from October 1: Removal of 20% TDS on Mutual Fund Repurchases
Several major changes related to the income tax were introduced under the Union Budget 2024, effective October 1, 2024. The most striking changes brought in this Finance Bill would be the revision in TDS rates coming from different sectors. Some of the biggest updates witnessed here are the disconnection of the 20% TDS on mutual fund repurchases along with the introduction of new TDS rates imposed on floating-rate bonds, e-commerce transactions, and payout of life insurance.
TDS and Its Working
TDS or Tax Deducted at Source is a provision where the sources of income give all taxes directly to the recipients on their behalf before disbursing funds. TDS can be applied to various sectors of income, including salaries, interest, rent, professional fees, etc. If the recipient gives his/her PAN, then the TDS is deducted as per the rate. If the PAN is not provided, the tax is deducted at 20%.
Another improvement brought about by the Finance Bill is the amendment whereby TCS can be set-off against TDS for the salaried class employees by simplifying the procedure for taxing deductions.
Important Amendments Effective from October 1, 2024
TCS Credits and Amendments to TDS
The amendment in Section 192 of the Finance Bill allows employees to use TCS credits while computing the amount of TDS. The adjustment lowers the tax deductions on salaries by crediting payments of TCS, such as foreign tour packages, against the TDS amounts. This will automatically ease the monthly tax burden for the employees, letting them bring more money home.
Abolishing 20% TDS on Mutual Fund Redemptions
This is one of the most notable relief measures, having done away with a 20% TDS on mutual fund redemptions. Prior to its abolition through the repealed Section 194F of the Income-tax Act, a 20% TDS was levied on payment during redemption of mutual fund units. Therefore, this has saved the investors from TDS-cutting down that burden to a much lighter purse.
Taxation for Share Buybacks take a turn
The incidence of tax on share buy-backs too has changed. Earlier, a company would be taxed at 20% on the proceeds earned from buyback. However, from October 1st onwards, the amounts earned by way of buy-back will now be considered as dividends to the shareholders who will have to pay according to their respective tax slab rates.
Tax Deducted at Source on Floating Rate Bonds
Interest earned from central or state government’s floating rate bonds will now attract a new 10% TDS. If interest exceeds Rs 10,000 annually, it will attract the tax. Floating rate bonds are similar to savings bond where the interest payout keeps changing. These are issued by the government providing absolute security, and interest gets paid semi-annually in January and July.
TDS on Property Sales
All purchases of properties above Rs 50 lakh shall attract TDS at 1%. This would be applicable to both the single and multiple buyers and also to such properties with multiple sellers but one seller. It would be given by taking the maximum out of either the purchase consideration or the stamp duty value.
Changes in TDS Rate
The other changes have been made to TDS with the intention of reducing the load on the taxpayer. These include:
- E-commerce operators: The TDS on payments made by e-commerce operators is now reduced to 0.1% from 1%.
- TDS on payments under policies issued by life insurers stands reduced at 2% from 5%.
- Commission on lottery ticket sale attracts a TDS of 2%, as compared to earlier TDS of 5%.
- Rent payments: Individuals and HUF will now pay reduced TDS of 2% on rent, as against the earlier 5%.
Section 194F that governed TDS on redemption from mutual fund units stands abolished entirely with the intent to keep the current tax liabilities of mutual fund investors simplified.
Such changes in income taxes depict the broader effort of the government to make the process and tax burden easy on taxpayers, particularly in investment and real estate-related expenses.
