New Updates in TDS and TCS Provisions for FY 2025-26

As we step into the financial year 2025-26, several important changes have been introduced to the TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) provisions under the Income Tax Act. These changes are aimed at enhancing tax compliance, curbing tax evasion, and improving transparency in financial transactions. In particular, the new TCS rules 2025 have garnered significant attention due to their impact on both individuals and businesses.

This blog provides a detailed overview of the new updates in TDS and new TCS rules 2025, highlighting key amendments, compliance requirements, and implications for taxpayers.

What is TDS and TCS?

Before diving into the changes, let’s briefly recap what TDS and TCS are:

• TDS is a mechanism where tax is deducted at the time of making specified payments such as salary, interest, rent, commission, etc.

• TCS is a mechanism where tax is collected by the seller from the buyer at the time of sale of certain goods or provision of services.

Overview of the New TCS Rules 2025

The new TCS rules 2025 introduce several updates, especially in high-value transactions, foreign remittances, and overseas tour packages. These updates are expected to improve tracking of large financial flows and bring more individuals into the tax net.

1. Higher TCS Rate on Foreign Remittances

Under the new TCS rules 2025, the TCS rate for foreign remittances under the Liberalized Remittance Scheme (LRS) has been revised:

• Remittances for education/medical purposes (if financed by a loan from a financial institution): TCS continues at 0.5% above ₹7 lakh.

• Other foreign remittances (not related to education/medical): TCS has been increased from 5% to 20% on amounts above ₹7 lakh.

This move under the new TCS rules 2025 aims to discourage frivolous foreign exchange transactions and ensure better revenue collection.

2. TCS on Overseas Tour Packages

The government has tightened provisions around international travel. As per the new TCS rules 2025, any purchase of an overseas tour package will attract a TCS of 20%, irrespective of the amount.

This is a steep rise compared to the earlier 5%, and it is expected to affect the travel industry and high-net-worth individuals. However, TCS paid can still be adjusted against income tax liability or claimed as a refund while filing ITR.

3. Exemptions Introduced Under New Rules

Not all remittances will attract the higher TCS rate. Under the new TCS rules 2025, remittances for:

• Education (not financed by a loan): 5%

• Medical treatment: 5%
  These rates are maintained, ensuring that essential needs aren’t financially burdened.

Key TDS Amendments for FY 2025-26

While the spotlight has been on the new TCS rules 2025, several important changes have also been made to TDS provisions:

1. Section 194R – TDS on Benefits or Perquisites

Under Section 194R, TDS at the rate of 10% must be deducted by any person providing benefits or perquisites to a resident arising from business or profession. From FY 2025-26, the threshold for deduction has been revised to ₹25,000 per year, down from ₹20,000.

This change is aimed at expanding the tax net and ensuring that freebies and promotional rewards are taxed appropriately.

2. Changes in TDS on Online Gaming

The Finance Act 2025 has introduced stricter provisions for online gaming platforms. TDS at 30% is now applicable on net winnings instead of gross winnings. Additionally, deduction will now occur at the time of withdrawal or at the end of the financial year, whichever is earlier.

This ensures better tax compliance in the rapidly growing digital gaming sector.

3. TDS on Purchase of Goods – Section 194Q

The threshold limit for applicability of Section 194Q remains at ₹50 lakh per annum. However, under the FY 2025-26 update, if the buyer fails to deduct TDS, the disallowance of expense under Section 40(a)(ia) has been tightened with stricter penalties.

Compliance and Reporting Under New Provisions

Taxpayers must stay compliant with both TDS and TCS provisions to avoid penalties. Under the new TCS rules 2025, entities collecting TCS must file quarterly TCS returns in Form 27EQ and issue TCS certificates in Form 27D within the stipulated timelines.

Similarly, deductors under TDS must file Form 24Q/26Q and issue Form 16/16A as applicable. Failure to deduct or collect tax, or late filing of returns, attracts interest, penalties, and in some cases, prosecution.

Practical Implications of New TCS Rules 2025

The new TCS rules 2025 have several real-world implications:

• For Individuals: Those sending money abroad for purposes other than education or medical expenses must factor in the 20% TCS. It increases upfront costs, although it can be claimed back as a refund.

• For Travel Agencies: Overseas tour operators must now collect and deposit 20% TCS on all international packages. This could make international tours costlier.

• For Businesses: Entities involved in goods and services that fall under TCS must update their invoicing and accounting systems to align with the new TCS rules 2025.

How to Adjust TCS Paid Against Income Tax

One of the common concerns about the new TCS rules 2025 is the high upfront cost. However, taxpayers can adjust the TCS amount while filing their Income Tax Return (ITR):

• TCS paid is reflected in Form 26AS.

• It can be adjusted against the final tax liability.

• If excess TCS is paid, a refund can be claimed.

This ensures that while the upfront cash outflow may be higher, there is no actual loss if your final tax liability is lower.

Conclusion

The updates in TDS and new TCS rules 2025 reflect the government’s intent to strengthen tax compliance and bring high-value transactions under scrutiny. While these changes demand increased awareness and compliance effort from taxpayers, they also provide an opportunity to streamline financial reporting and planning.

It is essential for individuals and businesses to stay updated with these rules, maintain accurate records, and consult tax professionals to ensure compliance. Ignorance of the new TCS rules 2025 can lead to penalties and cash flow issues, especially in high-value transactions.