Synopsis
- Introduction of TDS on income from online gaming (Section 194BA)
- Non-residents earning income from mutual funds in India can provide a Tax Residency Certificate to avail of the benefit of TDS (Section 196A)
- The TDS rate is reduced to 20% from the maximum marginal rate on PF withdrawal for employees who do not have PAN (Section 192A)
- No exemption from TDS on interest from listed debentures. (Section 193)
- The enhanced limit for cooperative society (Section 194N)
- Standard deduction introduced in the new tax regime
- The rebate increased to Rs 7 lakh under the new tax regime.
- No tax if income is up to Rs 7.5 lakh
- Hike in basic exemption limit in the new tax regime.
- Tweaked the tax slabs under the new income tax regime
- Surcharges reduced for the super-rich
What is TDS?
For the quick and efficient collection of taxes, the income tax law has incorporated a system of deduction tax at the point of income generation. This system is called”Tax Deduction at Source”, commonly known as TDS. In this system, income tax is deducted at the source. The organization that pays you deducts taxes from your income and sends it to the government on your behalf. Tax deduction provisions at source apply to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, etc.
TDS on cash withdrawal u/s Section 194N
As per Section 194N of the Act, if a sum or a total amount withdrawn in cash exceeds a specific limit, TDS (tax deducted at source) must be applied by a person in a particular FY (Financial year) that exceeds the:
- ₹ 20 lacks (if no ITR has been filed for all the three previous AYs (Assessment year)
- ₹ 1 crore (if Income Tax Returns have been filed for all/any one of three previous AYs).
At what rate is TDS on cash withdrawal u/s 194N deducted?
If an individual has filed income tax returns for all three previous assessment years, TDS will be deducted 2% on cash withdrawals above ₹1 crore. TDS will be deducted 2% on cash withdrawals of more than ₹ 20 lakhs and 5% for withdrawals exceeding ₹ 1 crore if the person withdrawing the cash has not filed ITR for any of the preceding three AYs.
Changes in 194N Before the Budget of 2023
The Finance Act 2021 amended Section 194N to reduce the threshold limit for TDS on cash withdrawals from Rs. 1 crore to Rs. 20 lakhs for persons who have not filed their ITR for the previous three AYs and whose accounts are not linked with their Aadhaar. This provision is effective from July 1st 2021.
Further, the Finance Act of 2021 introduced a new provision under Section 206AB, which provides higher TDS rates for certain non-filers of income tax returns. If a person has not filed their ITR for the previous two years and their aggregate TDS and TCS (Tax Collected at Source) exceeds Rs. 50,000 in each of these two years, then the TDS rate will be twice the applicable rate or 5%, whichever is higher. This provision is effective from July 1st 2021.
Key Changes
With a hike in the basic exemption limit and rebate and tweaks to the income tax slabs, the new update has made the new income tax regime attractive for salaried individuals. Budget 2023 has also introduced standard deductions in the new tax regime.
Budget 2023 TDS updates
- Introduction of TDS on income from online gaming (Section 194BA)
Suppose you are responsible for paying out any income from online games to anyone, regardless of their residency status. In that case, you must deduct TDS during the financial year on the net winnings in their user account, computed as prescribed, at the end of the financial year at the prevailing rates. TDS is calculated on the net winnings from online gaming during the previous year at the rate of 30%. Additionally, as per section 115BBJ, income tax is calculated on the net winnings at 30%. There is no threshold limit on the amount, and the tax will be deducted from the entire net winning amount.
Example: Suppose you paid an entry fee of Rs. 10,000/- and won Rs. 1,00,000/-. The online gaming company would deduct TDS on Rs. 90,000/- (Rs. 1,00,000 – Rs. 10,000). The tax of Rs. 27,000/- (Rs. 90,000 * 30%) would be deposited to the government, and the remaining Rs. 63,000/- would be credited to your account. If you do not withdraw the winning amount, TDS will be deducted and deposited to the government at the end of the FY.
- Non-residents earning income from mutual funds in India can provide a Tax Residency Certificate to avail of the benefit of TDS (Section 196A)
This is a welcome step towards boosting investments in India. By ensuring a consistent rate of tax deduction and income offering, this measure eliminates any financial hurdles for non-residents in India. In other words, it bridges the gap and promotes uniformity.
- The TDS rate is reduced to 20% from the maximum marginal rate on PF withdrawal for employees who do not have PAN (Section 192A)
The lower tax deduction rate will relieve many employees who do not have/furnish their PAN to employers. Additionally, this will lead to reduced tax refund claims, thereby bringing down the administrative burden of the government.
- No exemption from TDS on interest from listed debentures. (Section 193)
The proposed amendment will ensure accurate disclosures in the tax returns and enable the government to collect due taxes.
- The enhanced limit for cooperative society (Section 194N)
In the case of cash withdrawals by a cooperative society, the threshold is now proposed at INR 3 crores instead of INR 1 crore for the deduction of taxes from April 1st 2023. This proposed amendment intends to provide relief to cooperative societies given the numerous cash transactions with farmers/ low-income group people.
- Standard deduction introduced in the new tax regime
The Budget 2023 has extended the standard deduction of Rs 50,000 to the salaried, pensioners, and family pensioners. Earlier, the standard deduction was only available under the old income tax regime. Salaried persons will get a standard deduction of Rs 50,000 if they opt for the new tax regime. As per the Budget 2023 proposal, family pensioners will get the standard deduction of Rs 15,000.
- The rebate increased to Rs 7 lakh under the new tax regime.
The total income limit for rebates under section 87A of the Income-tax Act, 1961, has been increased from Rs 5 lakh to Rs 7 lakh for those opting for the new tax regime. I.e., if your taxable income is below Rs 7 lakh, you do not have to pay any income tax in the new tax regime. The maximum rebate limit available under section 87A of the Income-tax Act, 1961 has been increased to Rs 25,000 from Rs 12,500 in Budget 2023.
- New income tax slab 2023-24: No tax if income is up to Rs 7.5 lakh
As a result of the deduction, rebate, and tweak in the income tax slabs announced in the Budget 2023, salaried pensioners and family pensioners need not pay any tax if their income is up to Rs 7.5 lakh.
Let’s see how it works. Budget 2023 extended standard deduction to the new income tax regime. Salaried employees and pensioners can claim a standard deduction of Rs 50,000 under the new income tax regime.
Income tax will only be payable if your taxable income is at most Rs 7.5 lakh. However, you must pay income tax if your total taxable income exceeds Rs 7.5 lakh. So, if your taxable income is up to Rs 7,50,000, you will not have to pay any income tax.
- Hike in basic exemption limit in the new tax regime.
The basic exemption limit under the new tax regime has been revised from Rs 2.5 lakh to Rs 3 lakh. Individuals with an income of up to Rs 3 lakh do not have to pay any income tax under the new tax regime.
- Tweaked the tax slabs under the new income tax regime
Budget 2023 tweaked the income tax slabs under the new tax regime. The maximum exemption limit will be Rs 3 lakh; the next slab rate will apply for every additional Rs 3 lakh income.
- Surcharges reduced for the super-rich
In the new tax regime, the highest surcharge rate of 37 percent on income above Rs 5 crore is reduced to 25 percent.
Please note:
Do not confuse this with a basic exemption limit
Do not confuse this rebate with the basic exemption limit. The Budget 2023 has hiked the basic exemption limit to Rs 3 lakh from Rs 2.5 lakh. Thus, an individual’s income becomes taxable if it exceeds Rs 3 lakh in a financial year. However, those with an income of up to Rs 7.5 lakh do not have to pay any income tax under the new tax regime, as they can claim rebates and deductions.
