Tax Changes Effective October 1: From New TDS Rates To Revised Taxation On Floating Rate Bonds; Everything You Need To Know

During the Union Budget 2024 presentation in July, Finance Minister Nirmala Sitharaman announced significant changes to the the Tax Deducted at Source (TDS) regulation. With an aim to ease the burden of many tax paying individuals in the country, some of these updates are set to take effect from October 1, 2024.

Here is a breakdown of the key changes that one should be aware of:

Before delving into the key change, let's take a look at what is meant by Tax Deducted at Source (TDS). In a simpler note, it is a method the government uses to collect taxes directly from the source of income and it applies to various types of income, such as Salary, Interest, Commission, Rent, Brokerage, Professional Fees, and Royalties.

After providing your Permanent Account Number (PAN), TDS is deducted at the specified rate and in the case, if you don not provide your PAN, a higher rate of 20 per cent is applied.

Key Changes Effective October 1, 2024 - Revised TDS Rates

Reduction in TDS Rates

For payments under Sections 194H, 194-IB, and 194M, the TDS rate has been reduced from 5 per cent to 2 per cent.

Furthermore, E-commerce operators will also see a drop from 1 per cent to 0.1 per cent under Section 194-O. Similarly, Section 194DA, concerning life insurance policy payments, will also decrease from 5 per cent to 2 per cent.

The TDS on commissions for lottery ticket sales (Section 194G) will be lowered from 5 per cent to 2 per cent.

Abolition of TDS on Mutual Fund Repurchases

The government has abolished the 20 per cent TDS on mutual fund unit repurchases.

Changes in Taxation of Buybacks

From October 1, the proceeds from share buybacks will be treated as dividend income. This means that these will be taxed according to the shareholder’s personal income tax slab.

New TDS on Floating Rate Bonds

In a similar note, from the first of this month, October, a 10 per cent TDS will be applicable on specified central and state government bonds, including floating rate bonds, after a threshold limit of Rs 10,000 and in the case, if the total revenue earned is below this threshold, no TDS will be deducted.

Increased Securities Transaction Tax (STT)

The Securities Transaction Tax (STT) has been raised to 0.02 per cent for Futures and 0.1 per cent for Options. Additionally, income from share buybacks will now be taxed at the beneficiary level.

TDS on Sale of Immovable Property

Under Section 194-IA, any payment that is exceeding Rs 50 lakh for the sale of immovable property will require a 1 per cent TDS deduction. Moreover, this rule applies collectively in transactions involving multiple buyers or sellers.