Union Budget: TDS relief for small taxpayers, TCS boost for international trip

Budget 2025 aims to reduce the number of transactions subject to tax deducted at source (TDS) by increasing threshold limits across various income categories, providing relief to small taxpayers receiving modest payments. Likewise, the Finance Minister proposed raising the tax collected at source (TCS) threshold on remittances under the RBI's Liberalised Remittance Scheme (LRS) from Rs 7 lakh to Rs 10 lakh.

While TDS and TCS are set off against the final tax liability of an individual, a higher threshold definitely helps small taxpayers and props up their immediate cash flow. To illustrate: the threshold on TDS on dividend income has increased from Rs 5,000 to Rs 10,000. This will help a small taxpayer who has insignificant dividend income to avoid the hassle of adjusting the TDS against his tax liability and claiming a refund.

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Likewise, gig workers, who earn from multiple sources, were previously subject to TDS on payments exceeding Rs 30,000 per year from each entity. The threshold under Section 194-J has now been raised to Rs 50,000, providing them with greater flexibility and reduced tax liability.

However, it should be noted that there has been no change in the TDS rates, which, for example, in case of dividend is 10% and, for gig workers (professional services), is 10%.

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Certain finer aspects also need to be kept in mind. If the tenant is an individual, they don't have to deduct tax at source on paying rent. Thus, only if they have given out their flat to a tenant that is a corporate entity (many companies take flats on lease for their employees) will they benefit from the increase in threshold limits of TDS against rent payment.

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An individual can remit up to $2.5 lakh annually without seeking prior approval from Reserve Bank of India - this automatic route is under LRS, which enables them to send money to a child studying overseas (for education) or invest overseas or even indulge in a much-needed overseas vacation. However, outward remittances are subject to TCS.

Tax collection at source (TCS) adds extra cash outflow when remittances are made, impacting an individual's finances. Therefore, raising the threshold limit for TCS on outward remittances provides some relief. Additionally, the finance minister proposed removing TCS on education-related remittances funded by loans from specified financial institutions, where currently a 0.5% TCS is applied.

(With TOI inputs)