TDS & TCS Changes – New Thresholds Explained (2025-26)

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TDS & TCS Changes – New Thresholds Explained (2025-26)

Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) play a big role in India’s tax compliance system. Budget 2025-26 has introduced higher thresholds and simplified rules to reduce the compliance burden on individuals and small businesses.

In this post, we will explain what has changed, new TDS/TCS limits, and who benefits from these updates.

What is TDS & TCS?

  • TDS (Tax Deducted at Source): A portion of your payment is deducted as tax before it reaches you.
    Example: Your bank deducts TDS on interest if it exceeds the specified limit.

  • TCS (Tax Collected at Source): Certain sellers collect tax while selling specified goods or services.
    Example: TCS is collected on foreign remittances under LRS or purchase of foreign tour packages.

Both are credited against your final tax liability when you file your Income Tax Return (ITR).

Key TDS Changes in FY 2025-26

1. Higher TDS Limit on Bank Interest

  • The TDS threshold on interest for senior citizens is now ₹1,00,000 (earlier ₹50,000).

  • For other taxpayers, the threshold remains ₹40,000.

Impact: Senior citizens can now earn higher interest on deposits without TDS deduction.

2. TDS on Rent (Section 194-IB)

  • The limit for deducting TDS on rent paid by individuals/HUFs not subject to tax audit is raised to ₹75,000 per month (earlier ₹50,000).

Impact: Fewer tenants need to deduct and deposit TDS, reducing compliance hassle.

3. TDS on Commission & Brokerage (Section 194H)

  • The threshold has been increased from ₹15,000 to ₹50,000 per financial year.

Impact: Small commission earners (e.g. insurance agents) will face less frequent deductions.

4. TDS on Purchase of Goods (Section 194Q)

  • The threshold for purchase of goods has been raised to ₹75 lakh (earlier ₹50 lakh).

  • Rate remains 0.1% on amount exceeding threshold.

Impact: Small & medium businesses will benefit as fewer transactions now attract TDS.

Key TCS Changes in FY 2025-26

1. TCS on Foreign Remittances (LRS)

  • Threshold increased to ₹10 lakh per year per individual (earlier ₹7 lakh).

  • Rate of 5% applies beyond this limit (except education/medical remittances which have lower rates).

2. TCS on Foreign Tour Packages

  • Limit increased to ₹10 lakh per year before TCS is applied.

  • Rate remains 5% above the threshold.

3. TCS on Sale of Goods (Section 206C(1H))

  • Threshold for turnover remains at ₹10 crore,

  • But annual collection threshold increased to ₹1 crore (earlier ₹50 lakh).

Impact: Businesses with smaller B2B transactions will have reduced compliance work.

Who Benefits from These Changes?

✅ Senior citizens – More interest income without TDS.
✅ Small landlords & tenants – Higher rent threshold reduces TDS filing.
✅ Commission agents – Less frequent TDS deduction improves cash flow.
✅ SMEs & traders – Higher limits mean fewer TDS/TCS deductions and filings.
✅ Travelers & parents sending money abroad – Larger LRS threshold before TCS kicks in.

Compliance Tips for 2025-26

  • Update your PAN/Aadhaar with banks and employers to avoid higher TDS rates.

  • Track cumulative payments – thresholds apply per year, not per transaction.

  • Use Form 26AS / AIS to verify TDS/TCS credits before filing ITR.

  • If eligible, file Form 15G/15H to prevent unnecessary TDS deduction.

Conclusion

The 2025-26 TDS & TCS changes are designed to ease compliance, especially for small taxpayers and businesses. By raising thresholds, the government reduces unnecessary deductions and refunds, making the tax process smoother.

If you regularly pay rent, earn commission, run a business, or send money abroad, these updates will impact you directly. Stay aware of limits, plan transactions smartly, and make sure your TDS/TCS credits match before filing your return.

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