The financial year 2025–26 has ushered in significant updates to India’s tax compliance framework, particularly with regard to TDS (Tax Deducted at Source) and TCS (Tax Collected at Source). These changes, which came into effect on April 1, 2025, are designed to align tax administration with the growing digital economy, plug revenue leakages, and enhance the efficiency of tax collection.
Businesses across sectors—especially those engaged in digital services, foreign transactions, and high-volume payments—must understand and adapt to these regulatory shifts to ensure smooth compliance.
Key Changes in TDS Provisions
1. Lower TDS Threshold for Online Services (Section 194R)
One of the most notable changes affects payments made to social media influencers, freelancers, gig workers, and consultants. Under Section 194R, businesses are now required to deduct TDS at 10% on any benefit or perquisite provided to a resident individual, when the aggregate value exceeds ₹15,000 per annum.
Previously, this provision was less stringently enforced, but with increased digital payments, it is now mandatory for companies to deduct TDS on payments even in kind—such as free gadgets, promotional offers, or service benefits.
2. TDS on Online Gaming Winnings (Section 194BA)
With the booming online gaming industry, a new section has been introduced. Section 194BA mandates a 30% TDS on net winnings from online games, deducted at the time of withdrawal or at the end of the financial year, whichever is earlier. This applies to platforms offering fantasy sports, poker, rummy, and other online gaming activities.
Key Changes in TCS Provisions
1. TCS on Foreign Remittances (Section 206C(1G))
Under the Liberalised Remittance Scheme (LRS), individuals remitting money abroad for purposes such as education, investments, and travel are now subject to revised TCS rates:
- 5% TCS on remittances for education or medical treatment exceeding ₹7 lakh
- 20% TCS on other types of remittances such as overseas investments, crypto purchases, or foreign tour packages (no threshold)
2. Clarification on Credit Card Payments Abroad
TCS is now applicable even on international credit card spends, unless specifically excluded. Businesses dealing with international clients or travel bookings must stay updated on exclusions notified by the Ministry of Finance.
Practical Impact on Businesses
The changes have a direct operational impact:
- Accounting and ERP systems need to be updated to auto-detect applicable thresholds and rates.
- Businesses must retrain staff handling finance, vendor management, and payroll.
- Companies providing non-monetary incentives must now record and report perquisites carefully.
- Timely deposit of TDS/TCS and filing of returns has become even more crucial to avoid penal consequences.
Penalties for Non-Compliance
Failure to deduct or collect TDS/TCS appropriately may result in:
- Interest @ 1% or 1.5% per month on the default amount
- Penalty equal to the amount of tax not deducted/collected
- Disallowance of related expenditure under the Income Tax Act
- Prosecution in severe cases
What Should Businesses Do Now?
- Review All Payment Streams: Especially those involving influencers, consultants, foreign clients, and non-cash perks.
- Update Internal Controls: Ensure your finance systems are capable of identifying TDS/TCS applicability.
- Consult with Your Chartered Accountant: This is essential to assess exposure, mitigate compliance risks, and file returns accurately.
- Educate Stakeholders: Vendors and employees must be aware of changes in how their payments will be taxed.
Conclusion
The updates to TDS and TCS provisions from April 2025 mark a significant compliance milestone. As India’s economy becomes increasingly digitized and globally integrated, tax authorities are moving toward real-time, tech-enabled tracking of financial flows.
Staying informed and proactive is the best way to turn these regulatory changes into an opportunity for financial discipline and smoother tax administration. As always, professional advice from a Chartered Accountant will be key to navigating this transition efficiently.
