Guide to Tax, TDS & GST Changes Effective from 1st April 2025

Guide to Tax, TDS & GST Changes Effective from 1st April 2025

Executive Summary: Key Tax & Compliance Updates

Starting 1st April 2025, the government has introduced several significant changes in Income Tax, TDS (Tax Deducted at Source), and GST (Goods and Services Tax). These updates will have substantial implications for both businesses and individuals, including NRIs. Key changes include:

🔹 Revised Income Tax Slabs offering relief to middle-income earners.
🔹 Higher TDS Thresholds to reduce compliance burdens for various transaction types.
🔹 Updated Tax Audit Limits beneficial for businesses relying on digital transactions.
🔹 TCS on High-Value Transactions revised for improved tracking and compliance.
🔹 Stricter GST Compliance Rules, including mandatory e-invoicing and invoice matching.
🔹 Mandatory Disclosure Requirements for Foreign Assets & Cryptocurrency Transactions.
🔹 Tax Benefits for Startups extended until 2030.
🔹 Strategic Tax Planning Insights for businesses, professionals, and NRIs.

Income Tax, TDS & Compliance Updates

Key Changes in TDS Rules

Below are the major TDS (Tax Deducted at Source) updates, including threshold changes:

Transaction Type	TDS Rate (Until 31.03.2025)	New TDS Rate (From 01.04.2025)	New Threshold
Rental Income (Sec 194I)	10%	10%	₹6 lakh/year (previously ₹2.4 lakh)
Interest Income (Sec 194A)	10%	10%	₹1 lakh/year (previously ₹40,000)
Property Sale (Sec 194IA)	1%	1%	₹50 lakh (unchanged)
Commission & Brokerage (Sec 194H)	5%	5%	₹50,000 (previously ₹15,000)

 Tax Planning Strategies on TDS

• For Landlords: If your annual rent is close to ₹6 lakh, splitting the rental income across multiple tenants can help avoid TDS deductions.

• For Fixed Deposits (FDs): Reinvest across multiple banks or accounts to ensure interest income remains below ₹1 lakh per account, thus avoiding TDS deductions.

• For Property Sellers: Plan property sales across two financial years to stay under the ₹50 lakh threshold, reducing your TDS liability.

Tax Audit Threshold & Compliance Changes

Revised Tax Audit Limits

Changes in the tax audit limits now benefit digital businesses:

Entity Type	Previous Limit	New Limit (From 01.04.2025)
Businesses (Cash Transactions >5%)	₹1 crore	₹1 crore (unchanged)
Businesses (95%+ Digital Transactions)	₹10 crore	₹20 crore
Professionals	₹50 lakh	₹75 lakh

Compliance Action Plan for FY 2025-26

• Ensure digital transactions exceed 95% to avail a higher tax audit threshold.

• Review vendor contracts for updated TDS changes.

• Reconcile GST-ITR turnover to avoid mismatches and potential scrutiny.

GST Updates: Compliance & ITC Changes

Major GST Changes Effective from 1st April 2025

Change	Previous Rule	New Rule (From 01.04.2025)
E-Invoicing	Mandatory for businesses with ₹10 Cr+ turnover	Mandatory for ₹5 Cr+ turnover
Input Tax Credit (ITC) Matching	Allowed with minor mismatches	Strict invoice matching required
GST Amnesty Scheme	Last announced in 2024	No new scheme announced
Late Fee for GSTR-1 Non-Filing	₹50 per day	₹100 per day

Tax Planning Strategies for GST

• Ensure timely e-invoicing compliance to avoid penalties and ensure smooth filing.

• Reconcile GST filings with ITR to prevent mismatches and reduce the risk of scrutiny.

• Utilize available ITC optimally to reduce GST liabilities and ensure the full benefit of input credits.

 TCS on High-Value Transactions

 Major TCS Changes

Transaction Type	Previous TCS Rate	New TCS Rate (From 01.04.2025)	New Threshold
Foreign Remittance (LRS)	20%	10%	₹10 lakh/year
Purchase of Goods Above ₹50 Lakh	0.1%	Removed	Not Applicable
Overseas Tour Packages	5%	5%	₹10 lakh/year

 Tax Planning Tips on TCS

• For NRIs: Split remittances across multiple years to stay below the ₹10 lakh threshold and avoid the 10% TCS.

• For High-Value Goods Purchasers: The removal of TCS on goods purchases above ₹50 lakh is a major benefit for businesses involved in bulk purchases. Focus on ensuring TDS compliance under Section 194Q.

• For Overseas Tourists: Plan your travel expenses to ensure the total cost remains below ₹10 lakh per year to avoid TCS. If exceeding ₹10 lakh, the TCS rate increases to 20% on the excess.

New Disclosure Requirements & Risk Areas

Mandatory Disclosures in ITR

• Foreign Assets: NRIs and residents are now required to report foreign investments and assets more comprehensively.

• Cryptocurrency Transactions: Separate disclosure for cryptocurrency holdings and transactions is now mandatory.

• GST & Income Tax Turnover Matching: Businesses must ensure that the turnover reported in GST returns matches the figures in their Income Tax Returns (ITR).

 Risk Areas & Penalties

Non-Compliance	Penalty
Non-disclosure of foreign assets	Up to ₹10 lakh per default
Mismatch in GST & ITR turnover	Tax scrutiny and demand
TDS non-compliance	100% penalty on TDS amount + interest

Tax Planning Strategies for NRIs, Startups, and Businesses

For NRIs

• Invest in NRE Fixed Deposits to earn tax-free interest in India.

• Use Capital Gain Bonds (Sec 54EC) to reduce tax on property sale.

• Split foreign remittances across years to avoid TCS.

For Startups

• 80-IAC Tax Benefits for startups have been extended until 2030.

• Angel Tax Exemption is applicable for DPIIT-registered startups.

• Lower Corporate Tax (15%) for new manufacturing units until 2027.

For Businesses

• Explore Tax Incentives for Digital Transactions: Digital businesses can benefit from increased tax audit limits and other incentives.

• Lower Corporate Tax Rate for new businesses in the manufacturing sector (15% until 2027).

 Compliance Checklist for FY 2025-26

• ✅ Review new TDS limits for rent, interest, and commission.

• ✅ Verify tax audit applicability based on turnover and digital transactions.

• ✅ Ensure foreign asset & cryptocurrency disclosures in ITR.

• ✅ Update accounting software to comply with new GST-ITR reconciliation rules.

• ✅ Plan remittances to optimize TCS exposure and avoid penalties.

The tax landscape in India has undergone substantial changes with the new tax and compliance regulations. By understanding and implementing these updates, businesses, professionals, and NRIs can ensure that they remain compliant while optimizing their tax liabilities. Key areas to focus on include TDS threshold changes, updated tax audit limits, and GST reconciliation. With proper tax planning and strategic compliance, taxpayers can minimize penalties and avoid scrutiny

Note on GST, TDS for Invoice Issuance and Service Provision under GST and Income Tax (Up to 31st March 2025 and From 1st April 2025)

Introduction:

In the current tax framework, understanding the time limits for issuing invoices under GST and the implications of TDS under Income Tax is crucial for businesses, especially those offering HR services. The timing of the issuance of invoices directly impacts the GST filing, and the deduction of TDS must align with the time of payment or credit, whichever is earlier. Moreover, with the amendments coming into effect from 1st April 2025, businesses must stay updated with changes to ensure compliance.

This guidance note outlines:

• The time limits for invoice issuance under GST for HR services,

• The interplay between TDS and GST,

• The law language as per the CGST Act and Income Tax Act, and

• Examples and practical advisories to ensure seamless compliance.

Time Limit for Issuance of Invoices under GST

GST Time Limits for Issuing Invoices for Goods:

Section 31(1) of the CGST Act, 2017 stipulates the following for issuing invoices on the supply of goods:

1. In case of supply of goods involving movement: The tax invoice must be issued before the removal of goods for supply to the recipient. This means that the invoice is required before the goods are shipped to the buyer, ensuring that the tax is accounted for as soon as the goods are dispatched.

   Law Language: "A registered person supplying taxable goods shall issue a tax invoice before or at the time of removal of goods for supply to the recipient."
   Interpretation: If the goods are being shipped to a buyer in another state or location, the invoice must be issued before dispatch.

2. In case of supply of goods without movement: If the supply does not involve the movement of goods (for example, for installation or construction services), the invoice must be issued before or at the time of delivery of the goods.

   Law Language: "Where the supply does not involve the movement of goods, the tax invoice shall be issued before or at the time of delivery of goods to the recipient."
   Interpretation: The key point here is that the invoice must reflect the point at which the buyer gains control of the goods.

3. Continuous Supply of Goods: In cases of continuous supply of goods (e.g., subscription-based services or recurring supply), the invoice must be issued before or at the time of each payment or statement of accounts provided by the supplier.

   Law Language: "Where successive statements of accounts or successive payments are involved, the invoice shall be issued before or at the time of each such statement or payment."
   Interpretation: For continuous supplies, each payment or statement triggers the requirement to issue an invoice.

GST Time Limits for Issuing Invoices for Services:

As per Section 31(2) of the CGST Act, 2017, the time limits for issuing invoices for the supply of services are as follows:

1. Normal Supply of Services: For services provided, the invoice must be issued within 30 days from the date of supply of services.

   Law Language: "A registered person supplying taxable services shall, subject to the provisions of section 12 of the Act, issue an invoice, before or at the time of supply of such service."
   Interpretation: In essence, for HR services, such as outsourced manpower or professional services, the invoice must be raised within 30 days of providing the service.

2. Continuous Supply of Services: For services that are supplied continuously (e.g., HR outsourcing services), the invoice must be issued before or at the time of each payment or statement of accounts issued by the supplier.

   Law Language: "In case of continuous supply of services, the invoice shall be issued before or at the time of each payment or statement of accounts."
   Interpretation: In HR services, if payment is received monthly or quarterly, the invoice must be issued at each payment stage.

Example for HR Services: Invoice Issuance on 31st March 2025

Let’s consider a scenario in which an HR outsourcing service was provided throughout March 2025.

• Invoice for Services: The service provider must issue the invoice on or before 31st March 2025. This is because the service was provided during March 2025, and under Section 31(2), the invoice must be issued within 30 days of the service being provided. Hence, raising the invoice on 31st March 2025 is perfectly compliant.

  Law Language: "The invoice for the services rendered in a month shall be issued within 30 days from the end of the month."

TDS and GST Interaction

The TDS provisions under Section 194J of the Income Tax Act apply to payments made for professional or technical services, including HR services. Under these provisions, the TDS is deducted at the time of payment or credit, whichever occurs first.

1. TDS Deduction: TDS on HR services is deducted at 10% when the payment exceeds INR 30,000 in a financial year.

   Section 194J of the Income Tax Act:
   "Any person making payment to a resident for professional or technical services shall deduct tax at the rate of 10% at the time of credit or payment, whichever is earlier."

   Interpretation: Whether the payment for the service is made on 31st March 2025 or 1st April 2025, the deduction should occur at the time of credit or payment, whichever is earlier.

   • Example: If the invoice is issued on 31st March 2025 for services rendered in March 2025, but the payment is made on 1st April 2025, TDS will be deducted on 1st April 2025, as that is when the payment was made.

Amendments in GST Law from 1st April 2025

Starting from 1st April 2025, there will be significant amendments to GST provisions affecting continuous supply of services, including HR services:

1. Continuous Supply of Services: New guidelines may be introduced for invoicing and GST returns related to the continuous supply of services. The amended provisions will likely streamline the timing of invoice issuance for periodic services (like HR outsourcing) to ensure more consistent reporting and GST compliance.

2. GST Returns and Filing Deadlines: As per the amendments, there will be more structured filing requirements for businesses engaged in continuous services, ensuring real-time matching of invoices and tax returns.

3. TDS on GST and Adjustments: There may be new provisions on how TDS deductions are reported and adjusted in the GST returns, which could affect businesses providing HR services.

Columnar Guidance on Invoice Issuance, TDS Deduction, and GST Filing

Aspect	Up to 31st March 2025	From 1st April 2025	Key Consideration
Invoice for Services	Raise by 31st March 2025 for services provided in March 2025	New GST invoicing rules for continuous services post-1st April 2025	Ensure timely invoice issuance for March 2025 services by 31st March
TDS on Payment	Deducted at the time of payment or credit (whichever is earlier)	TDS rules remain unchanged from 1st April 2025	Deduct TDS at the time of credit/payment to avoid mismatches in returns
Continuous Supply	Invoices issued after completion of service or at end of service period	New rules for continuous supply services for better matching in returns	Stay updated on new invoicing timelines for continuous services
GST Returns Filing	File GSTR-1 and GSTR-3B as per invoice dates	More structured filing requirements for continuous service providers	Review updated GST return filing procedures post-April 2025

Conclusion:

For HR services and continuous supply of services, the invoice must be issued by 31st March 2025 for services rendered during March 2025. The TDS will be deducted on the payment or credit (whichever is earlier), as per Section 194J of the Income Tax Act.

The amendments in GST from 1st April 2025 will bring in more streamlined procedures for continuous service providers, including HR outsourcing companies. As such, businesses must remain aware of the new rules to ensure compliance with both GST and TDS obligations.

This guidance note highlights the important aspects related to invoice issuance under GST, the interaction with TDS, and provides clear examples for better understanding. Stay prepared for the upcoming changes in GST law to maintain smooth compliance and avoid any mismatches or penalties.

Compliance Checklist for MSME Payments and Tax Audit Reporting under Section 43B(h) for AY 2025-26

Introduction

The Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, and the Income Tax Act are key legislative tools that regulate and govern the recognition of MSMEs in India. With MSMEs being a backbone of the Indian economy, playing a vital role in both goods and services sectors, ensuring their financial health through timely payments and compliance with legal obligations is crucial.

Effective from Assessment Year (AY) 2025-26, Section 43B(h) of the Income Tax Act introduces provisions for payments made to Micro and Small Enterprises (MSEs). According to this provision, businesses are required to make payments within specified time limits—15 days for goods and services without a written agreement, and 45 days if a written agreement exists. Any failure to adhere to these timelines will result in the disallowance of expenses related to such payments, leading to potential tax repercussions.

This checklist provides businesses and auditors with a clear, step-by-step approach to ensure compliance with the regulations under Section 43B(h). It covers crucial aspects, such as MSME classification, timelines for payments, handling delayed payments, and tax audit disclosures. By adhering to the following guidelines, businesses can reduce risks, avoid penalties, and streamline their tax processes.

Checklist for Compliance with Section 43B(h) of the Income Tax Act (Effective AY 2025-26 and onwards)

1. Applicability of Section 43B(h)

Scenario: A company purchases raw materials from an MSME supplier on May 1, 2025, without a written agreement. Payment is due on May 21, 2025. To comply, the company must ensure the payment is made by May 16, 2025 (15 days from acceptance).

• Ensure compliance from AY 2025-26 onwards.

• Payments to Micro and Small Enterprises (MSEs) must be made within the prescribed time limits:

  • 15 days from acceptance for goods and services without a written agreement.

  • 45 days from acceptance if a written agreement specifies the credit period.

• Medium Enterprises are not covered under this provision.

• Example: If the company buys professional services from an MSME on April 1, 2025, the payment must be made by April 16, 2025 if no written agreement exists. Delaying this payment will lead to the disallowance of the related expense for tax purposes.

2. MSME Classification & Registration Verification

Scenario: A business uses the services of an MSME registered as a manufacturer. The supplier's Udyam Registration is cross-verified, and their GST registration is checked to confirm that they are indeed registered as a service provider or manufacturer.

• Ensure the supplier has a valid Udyam Registration Certificate.

• Verify the supplier’s GST registration to confirm whether they are a trader, manufacturer, or service provider.

• Traders registered under MSME are not covered—only payments for goods and professional services are subject to disallowance under Section 43B(h).

• Example: An MSME supplier providing manufacturing services must be verified for both Udyam and GST registrations. Payments for goods and professional services provided by such MSMEs will fall under the Section 43B(h) disallowance if not paid within the specified timelines.

• New MSME Classification Limits (effective from April 1, 2025):

  • Micro: Investment up to ₹2.5 Cr, Turnover up to ₹10 Cr.

  • Small: Investment up to ₹25 Cr, Turnover up to ₹100 Cr.

  • Medium: Investment up to ₹125 Cr, Turnover up to ₹500 Cr (Not applicable for 43B(h)).

3. Disallowance Considerations

Scenario 1: A business purchases goods from an MSME supplier, records the expense, but makes the payment 60 days later. In this case, the expense will be disallowed under Section 43B(h) despite the goods being in inventory.

• Confirm that the supplier is a registered Micro or Small Enterprise under Udyam.

• Identify payments that remain outstanding beyond the 15 or 45-day timelines.

• Ensure that the purchase amount has been debited to the Profit & Loss account in the same financial year.

• Example: If a purchase is made from an MSME on January 1, 2025, and payment is made on March 1, 2025, the expense will be disallowed for FY 2024-25 as the payment was made beyond the 15/45-day limit.

• Payments made after March 31, but within the MSME Act’s timelines, will not be disallowed for tax purposes.

4. Interest Implications Under MSMED Act

Scenario: A business fails to make timely payments to an MSME supplier, and the supplier charges interest at three times the RBI-notified rate. The business is liable for interest payment, which is not tax-deductible.

• Interest on delayed payments is calculated at three times the RBI-notified rate, compounded monthly.

• Even if the MSME supplier waives the interest, it is still legally owed.

• Example: If a business delays a payment, leading to ₹5,000 interest being charged by the MSME supplier, this interest amount is not deductible for tax purposes.

• Interest paid or payable under Section 16 of the MSMED Act is not deductible under the Income Tax Act.

5. Disclosure & Compliance Requirements

Scenario: An auditor identifies a payment that was due to an MSME on January 30, 2025, but was paid on February 15, 2025. The auditor must disclose the delayed payment in the tax audit report.

• Financial Statements (As per Section 22, MSMED Act):

  • Outstanding principal and interest amounts (separately).

  • Interest paid during the year on delayed payments.

  • Interest accrued but not yet paid.

  • Interest payable for future periods.

• Tax Audit Report (Form 3CD, Clause 22 & Clause 26):

  • Clause 22 mandates the disclosure of unpaid amounts to MSMEs beyond the prescribed time limits. If payments remain overdue beyond the prescribed timelines, they must be reported in the tax audit report.

  • Clause 26 includes a specific sub-clause for reporting disallowance under Section 43B(h) of the Income Tax Act.

  • Auditors must verify and reconcile MSME payments with financial statements, ensuring that payments to MSMEs which are delayed beyond the prescribed timelines are disclosed properly.

  • Example: If a payment is overdue, the auditor must disclose the amount in Clause 22 and report disallowed expenses in Clause 26.

6. Revised MSME Payment Reporting in Clause 22 of Form 3CD

The latest amendment to Clause 22 of Form 3CD mandates more detailed reporting for payments made to MSMEs under India’s MSME Development Act, 2006. Taxpayers must disclose the following key details for enhanced compliance and transparency:

• Total amount payable to MSMEs under Section 15 of the MSMED Act.

• Amount of interest that cannot be claimed as a deduction under Section 23 of the MSMED Act due to delayed payments.

• A clear distinction between:

  • Payments made within the prescribed period (15/45 days).

  • Payments delayed beyond the due date (overdue payments).

This updated reporting requirement aims to improve the accuracy of disclosures and provide clearer insights into the taxpayer’s compliance with MSME payment obligations.

7. Modifications in Clause 26—Deduction under Section 43B of Income-tax Act, 1961

Clause 26 of Form 3CD has been revised to enhance the clarity of reporting and differentiate between various categories of payments covered under Section 43B. The modification emphasizes specific reporting of amounts allowed as deductions only upon actual payment:

• Previously, this clause only required the disclosure of amounts allowable upon actual payment of statutory dues (e.g., taxes, duties).

• The amendment refines the language and includes specific references to payments under Section 43B(h) (related to MSME payments) and clarifies that payments to MSMEs which are delayed beyond the prescribed timelines will result in disallowance of expense.

This change ensures that auditors properly distinguish between eligible payments and those that are disallowed for tax purposes, improving the accuracy and transparency of financial statements.

8. Key Differences Between MSMED Act & Section 43B(h)

Criteria	MSMED Act	Section 43B(h) (Income Tax Act)
Applicability	Micro & Small Enterprises	Micro & Small Enterprises
Due Date for Payment	15/45 days	15/45 days
Interest on Delay	3X RBI Bank Rate (compounded monthly)	No interest provision under IT Act
Disallowance	Not applicable	Deduction disallowed for delayed payment
Interest Deductibility	Not deductible (Sec 23, MSMED Act)	Not deductible
Coverage	Goods & Services	Goods & Professional Services

9. Practical Steps for Businesses

Scenario: A company implements an automated system to alert finance teams about payment due dates to ensure compliance with MSME payment timelines.

• Verify MSME status before recording purchases and availing professional services.

• Ensure timely payments (within 15/45 days) to avoid disallowance of expenses.

• Maintain records of outstanding MSME dues for financial reporting and tax audits.

• Recognize and disclose interest on delayed payments as per the MSMED Act.

• Implement automated payment tracking systems to avoid unintentional disallowance.

• Example: Set up automated reminders in the accounting system to ensure payments are made within the required timeframe, thus avoiding disallowance due to delays.

10. Summary & Final Takeaways

Scenario: A business must ensure that payments to MSMEs are always made within the prescribed timelines to avoid penalties and tax consequences.

• Section 43B(h) applies from AY 2025-26 onwards, impacting expense deductions for delayed payments.

• Payments to Micro & Small Enterprises must be made within 15/45 days to avoid disallowance.

• Traders registered as MSMEs are excluded—only payments to service providers and manufacturers are covered.

• Professional service payments to MSMEs must comply with 15/45-day payment timelines.

• Interest on late payments under the MSMED Act must be recognized and disclosed, but it is not tax-deductible.

• Form 3CD reporting and financial statement disclosures must be made to avoid penalties.

• Proactive payment management and MSME verification are crucial to ensure tax compliance and prevent financial impact.

 

Guide to TDS & TCS Rates Effective from April 1, 2025

The concept of TDS ensures tax collection at the very source of income. A deductor making specified payments to a deductee must deduct tax and deposit it with the government. The deductee can claim credit for TDS based on Form 26AS or the TDS certificate.

TDS Rates for FY 2025-26

Section	Particulars	Threshold (₹)	TDS Rate (%)
192	Salary Income	As per slab	Slab rates (Old/New Regime)
192A	EPF – Premature withdrawal	50,000	10% (30% if no PAN)
193	Interest on Securities	10,000	10%
193	Interest on Debentures	5,000	10%
194	Dividend	10,000	10%
194A	Interest from banks/post office	50,000 (100,000 for seniors)	10%
194A	Interest from others	10,000	10%
194B	Winnings from Lottery/Games	10,000 (Single transaction)	30%
194BB	Winnings from Horse Races	10,000 (Single transaction)	30%
194C	Contractor Payments	30,000 (Single)/100,000 (Aggregate)	1% (Ind./HUF), 2% (Others)
194D	Insurance Commission	20,000	5% (Ind.), 10% (Companies)
194DA	Life Insurance Proceeds	100,000	5%
194E	Payments to Non-resident Sportspersons	NA	20%
194EE	NSS Withdrawal	2,500	10%
194G	Lottery Commission	20,000	5%
194H	Commission/Brokerage	20,000	5%
194I	Rent (Land/Building/Furniture)	600,000	10%
194I	Rent (Plant & Machinery)	600,000	2%
194IB	Rental Payments by Individuals (Non-Tax Audit)	50,000 per month	5%
194IA	Property Sale (except Agriculture Land)	5,000,000	1%
194IC	Joint Development Agreement Payments	NA	10%
194J	Professional/Technical Fees	50,000	2% (Technical), 10% (Others)
194LA	Compensation for Immovable Property Acquisition	500,000	10%
194LB	Interest on Infrastructure Bonds to NRIs	NA	5%
194LD	Interest on Bonds/Govt. Securities	NA	5%
194N	Cash Withdrawal > ₹1 Crore	10,000,000	2%
194Q	Purchase of Goods	5,000,000	0.1%
194T	Remuneration, Interest, Commission to Partners	20,000	10%
206AB	TDS for Non-filers of ITR	NA	5% or Twice the rate in force
194P	TDS for Senior Citizens (75+ with No ITR)	NA	Slab rates

Tax Collected at Source (TCS) Rates

Certain transactions require sellers to collect tax at source while receiving payments.

TCS Rates for FY 2025-26

Section	Goods/Services Liable for TCS	Threshold (₹)	TCS Rate (%)
206C(1)	Alcoholic Liquor for Human Consumption	NA	1%
206C(1)	Timber (Forest Lease)	NA	2.5%
206C(1)	Timber (Other Sources)	NA	2.5%
206C(1)	Other Forest Produce (excluding Timber/Tendu)	NA	2.5%
206C(1)	Scrap	NA	1%
206C(1)	Tendu Leaves	NA	5%
206C(1)	Minerals (Coal/Lignite/Iron Ore)	NA	1%
206C(1C)	Parking Lot, Toll Plaza, Mining & Quarrying	NA	2%
206C(1F)	Sale of Motor Vehicles (>₹10 lakh)	1,000,000	1%
206C(1G)	Overseas Tour Packages	1,000,000	5% (10% if no PAN)
206C(1G)	Education Loan Remittance (LRS)	700,000	Nil
206C(1H)	Sale of Goods	5,000,000	0.1%

Key Compliance Considerations:

1. Higher TDS/TCS Rates for Non-filers: Non-compliant taxpayers face a higher TDS rate of 5% or twice the standard rate.

2. Senior Citizens (75+): Section 194P allows automatic TDS deduction, exempting them from ITR filing.

3. Lottery & Winnings: Flat 30% TDS applies on winnings from lotteries, games, and horse races.

4. Rental Payments: Individuals (non-tax audit cases) must deduct 5% TDS if monthly rent exceeds ₹50,000.

5. TCS on Overseas Tour Packages: Sellers must collect 5% TCS on tour packages above ₹10 lakh, increasing to 10% if PAN/Aadhaar is not provided.

Adhering to the revised TDS and TCS rates is crucial for tax compliance and avoiding penalties.

Guide on Partner’s Contribution in an LLP: Legal, Statutory, and Taxation

A Limited Liability Partnership (LLP) combines the flexibility of a partnership with the advantages of limited liability. The partnership agreement in an LLP governs the contributions made by each partner, and it is crucial to ensure that all legal, statutory, and tax obligations are met.

This article explores the different types of contributions in an LLP, the compliance requirements, and the tax implications, with practical examples to ensure clarity.

Legal Framework Governing Partner’s Contribution in an LLP

Forms of Contribution under the LLP Act, 2008

The LLP Act, 2008 outlines the various forms in which a partner may contribute to the LLP. These include:

• Monetary Contributions: Cash, bank deposits, or promissory notes.

• Tangible Assets: Real estate, machinery, or any other physical property.

• Intangible Assets: Intellectual property, goodwill, patents, trademarks, etc.

• Service Agreements: Contributions may also include agreements to contribute services.

Example:

• Partner A contributes Rs. 10 lakh in cash.

• Partner B contributes office space valued at Rs. 20 lakh.

• Partner C contributes technical services worth Rs. 15 lakh (valued by an expert).

Valuation of Non-Monetary Contributions

For non-monetary contributions, such as property or services, it is mandatory that these be valued by a Chartered Accountant or an approved valuer.

Example:

• Partner D contributes a trademark valued at Rs. 5 lakh.

• A registered valuer will assess its fair market value, and this value will be recorded in the LLP’s accounts.

Obligation to Contribute

Partners must honor their contribution obligations as stated in the LLP Agreement. If a partner fails to contribute as agreed, it may lead to operational disruption or disputes.

Example:

• Partner E has agreed to contribute Rs. 20 lakh within 6 months of incorporation but delays payment. To avoid issues, the LLP Agreement should specify a clear timeline for contributions.

Statutory Compliance for LLP Contributions

LLP Agreement Filing

The LLP Agreement must be filed with the Registrar of Companies (ROC) within 30 days of incorporation. Ensure that the LLP Agreement clearly states the partner contributions (monetary and non-monetary), profit-sharing ratios, and timelines for contributions.

Annual Filings

• Form 11 (Annual Return) must be filed by May 31st every year. This form includes details of the partners, their contributions, and profit-sharing ratios.

• Form 8 (Statement of Account & Solvency) is to be filed by October 30th every year.

Accounting and Disclosure Requirements

Contributions, both monetary and non-monetary, must be disclosed in the LLP’s financial statements. Non-cash contributions must be valued by an authorized valuer and recorded accurately.

Audit Requirements

If the LLP’s turnover exceeds Rs. 40 lakh or if contributions exceed Rs. 25 lakh, a statutory audit is mandatory.

Taxation of Partner's Contribution in an LLP

Taxation of Capital Contributions

• Monetary Contributions: The capital contribution made by a partner (cash or assets) is not taxable when made.

• Non-Monetary Contributions: Capital gains tax may be applicable on assets like property or goodwill when they are contributed. The capital gains will depend on the difference between the market value and acquisition cost.

Example:

• Partner F contributes a commercial property bought for Rs. 5 lakh, but the current market value is Rs. 15 lakh.

• The capital gains tax will apply on the difference of Rs. 10 lakh (market value – acquisition cost).

Tax Treatment of LLP Income

• LLP Income Tax: LLPs are taxed at 30% on their total income (plus surcharge and cess, if applicable).

• Partners' Remuneration: The LLP can deduct the remuneration paid to partners under Section 40(b) of the Income Tax Act. The amount should not exceed the prescribed limits.

• Interest on Capital: LLPs can deduct interest on capital contributions up to 12% per annum under Section 40(b). Any excess is treated as taxable income in the hands of the partner.

Example:

• Partner G receives Rs. 6 lakh as remuneration and Rs. 2.5 lakh as interest on capital.

• The LLP can deduct the remuneration (subject to limits) and interest on capital up to Rs. 2.5 lakh. Excess amounts will be taxed as income for the partner.

Taxation on Profit Withdrawals

• Profit Distribution: Profits distributed to partners are not taxable in the hands of the LLP, as they are only taxed when withdrawn by the partner.

• Partner's Share of Profits: The share of profits is not taxed in the LLP but may be taxed as per the partner’s income bracket if they are withdrawing amounts regularly.

Example:

• Partner H withdraws Rs. 3 lakh from the LLP’s profits.

• This withdrawal is not taxed in the LLP but will be subject to tax in Partner H’s hands, depending on their income tax bracket.

Tax Planning Tips for LLP Partners

• Optimize Remuneration and Interest on Capital: Ensure that the remuneration and interest on capital do not exceed the limits under Section 40(b) to maximize deductions.

• Utilize Capital Gains Exemptions: If contributing property, explore exemptions under Sections 54 and 54F of the Income Tax Act to reduce tax liabilities.

• Expense Management: Properly track and manage business expenses to claim eligible deductions and reduce taxable income.

• Consider Structuring as a Holding Entity: For NRIs, structuring the LLP as a holding entity could allow better management of profits and tax optimization, particularly with respect to Double Taxation Avoidance Agreements (DTAA).

• Timely Withdrawals: Ensure that profit withdrawals are made strategically to optimize tax obligations, especially for NRIs who might also be subject to taxes in their home country.

Special Considerations for NRIs in LLPs

Foreign Direct Investment (FDI) in LLPs

NRIs can invest in LLPs through 100% Foreign Direct Investment (FDI), provided the LLP operates in a sector where FDI is allowed and the LLP adheres to FEMA regulations.

Repatriation of Funds

NRIs can repatriate their share of profits without restrictions, but the process must comply with FEMA and RBI guidelines. The capital contributions and profit distributions must be reported to the RBI.

Tax Residency Certificate (TRC)

NRIs should obtain a Tax Residency Certificate (TRC) from the country of their residence to avail benefits under the Double Taxation Avoidance Agreement (DTAA). This helps avoid double taxation of the income in both countries.

Conclusion

Understanding partner contributions in an LLP is critical for maintaining legal compliance and optimizing tax efficiency. By ensuring proper documentation of contributions, filing statutory returns on time, adhering to accounting norms, and keeping track of taxation requirements, LLPs can avoid penalties and defaults. NRIs should pay special attention to FDI regulations and FEMA guidelines when investing in LLPs, ensuring smooth operations and repatriation of profits.

The Central Board of Direct Taxes (CBDT) Notifies Waiver of Interest on Late Payments of TDS/TCS Due to Technical Glitches

The Central Board of Direct Taxes (CBDT) has issued a notification regarding the waiver of interest on the late payment of tax deducted at source (TDS) or tax collected at source (TCS) due to technical glitches. This waiver has been granted under the authority of section 119 of the Income-tax Act, 1961.

Legal Provisions for Interest Levy

Section 201(1A) of the Income-tax Act provides for the levy of interest on failure to deduct or remit TDS to the credit of the Central Government by the deductor. Similarly, section 206C(7) of the Act prescribes interest for failure to collect or remit TCS to the credit of the Central Government by the collector.

Background and Justification

The CBDT has received representations from taxpayers regarding difficulties encountered while making payments of TDS and TCS as per sections 200 and 206C of the Act. Due to technical issues, despite taxpayers initiating payments and their accounts being debited on or before the due date, the actual credit to the Central Government occurred after the deadline. Consequently, taxpayers received notices for the levy of interest under section 201(1A)(ii) or section 206C(7) of the Act.

Directive for Waiver

Exercising its powers under section 119 of the Act, the CBDT has directed that:

• The Chief Commissioner of Income-tax (CCIT) or Director General of Income-tax (DGIT), or in their absence, the Principal Chief Commissioner of Income-tax (PrCCIT), may reduce or waive interest charged under section 201(1A)(ii) or section 206C(7) in cases where:

  • The taxpayer/deductor/collector initiated the payment and the amount was debited from their bank account on or before the due date.

  • The delay in crediting the tax to the Central Government was due to technical issues beyond the taxpayer's control.

Refund Eligibility

Even if the interest under section 201(1A)(ii) or section 206C(7) has already been paid, the taxpayer may apply for a waiver, and if granted, a refund of the paid interest may be processed.

Timeframe for Waiver Applications

The Board has clarified that no waiver application shall be entertained beyond one year from the end of the financial year for which the interest was charged under section 201(1A)(ii) or section 206C(7) of the Act.

Official Notification

Notification Details

• Circular No.: 05/2025

• Date: 28/03/2025

• Issued By: Central Board of Direct Taxes (CBDT)

• Subject: Waiver of Interest on Late Payments of TDS/TCS Due to Technical Glitches

This notification aims to provide relief to taxpayers facing undue interest levies due to delays caused by unavoidable technical issues. Taxpayers are encouraged to apply for the waiver within the prescribed timeframe to avail of the benefits

Guide to Section 17(2) Proviso (ii)(b): Certification of Hospitals for Tax-Exempt Medical Benefits

Introduction

Section 17(2) of the Income Tax Act provides tax exemptions for medical facilities provided by employers to employees. Under Proviso (ii)(b) of this section, hospitals can obtain certification from the Chief Commissioner of Income Tax (CCIT) to qualify as an approved medical facility. Once certified, medical treatment provided by such hospitals to employees is considered a tax-exempt perquisite, benefiting both the employer and the employees.

This guidance note provides a comprehensive overview of the benefits, eligibility, application procedure, compliance requirements, and conditions for obtaining certification under Section 17(2) Proviso (ii)(b).

Benefits of Certification under Section 17(2) Proviso (ii)(b):

For Employees:

• Tax-Free Medical Treatment – Employees receiving treatment at certified hospitals enjoy complete tax exemption on medical reimbursements from their employer.

• Access to Quality Healthcare – Certification ensures that hospitals maintain infrastructure and hygiene standards, leading to better healthcare services.

For Employers:

• Seamless Reimbursement Process – Certified hospitals allow employers to reimburse medical expenses without additional tax liability.

• Employee Welfare & Retention – Providing tax-free medical benefits improves employee satisfaction and retention.

For Hospitals:

• Increased Patient Footfall – Employers prefer sending employees to certified hospitals, leading to an increase in patients and revenue.

• Enhanced Credibility & Recognition – Certification by the Income Tax Department enhances the hospital’s reputation and credibility.

• Compliance with Standards – Hospitals adhering to required norms improve healthcare quality and operational efficiency.

Procedure for Obtaining Certification under Section 17(2) Proviso (ii)(b):

Eligibility Check

• The hospital must comply with Rule 3(1) of the Income Tax Rules regarding infrastructure, medical equipment, and staffing.

• It should be a registered medical institution with the relevant local authority.

Submission of Application

• The hospital must submit an application to the Chief Commissioner of Income Tax (CCIT) in the prescribed format.

• The application must include documentary evidence of compliance with required conditions.

Document Submission

The following documents must be submitted:

• Hospital Registration Certificate from local health authorities.

• Proof of Infrastructure Compliance – Building compliance certificates, hygiene certifications, and operational approvals.

• List of Medical Equipment & Staff – A complete list of medical instruments, ICU facilities, and details of qualified medical staff.

• Treatment Facilities for Specified Diseases – Documents proving that the hospital provides treatment for diseases listed in Rule 3(2).

Inspection & Verification

• The Chief Commissioner of Income Tax (CCIT) may conduct a site inspection to verify compliance with the required norms.

• Any deficiencies noted during the inspection must be rectified before approval.

Issuance of Certification

• Upon successful verification, the CCIT grants certification, allowing the hospital to provide tax-exempt medical treatment under Section 17(2), Proviso (ii)(b).

Conditions for Certification under Section 17(2) Proviso (ii)(b):

As per Rule 3(1) of the Income Tax Rules, the following conditions must be met by the hospital:

Infrastructure & Hygiene Requirements:

• Building Compliance – The hospital building must comply with applicable municipal regulations.

• Hygiene & Ventilation – Rooms must be well-lit, ventilated, and maintained with high hygiene standards.

• Minimum Bed Requirement – The hospital must have at least ten iron spring beds.

• Operation Theatre – A fully equipped operation theatre with at least 180 square feet of floor space and a separate sterilization room.

• Labour Room – If providing maternity services, a labour room of at least 180 square feet is mandatory.

• Infectious Patient Isolation – Proper arrangements for isolating patients with infectious diseases.

• Safe Drinking Water & Storage Facilities – Availability of potable water and separate storage for medicines and food.

Medical Equipment & Facilities:

• Essential Equipment:

  • Sterilization Units – High-pressure sterilizer and instrument sterilizer.

  • Oxygen Cylinders & Attachments – Adequate oxygen supply for emergency use.

  • Surgical Instruments & Pathological Laboratory – Fully equipped laboratory for diagnostic tests.

  • Electrocardiogram (ECG) Machine – Essential for heart disease monitoring.

  • Backup Power Supply – Stand-by generator for uninterrupted medical services.

Staffing & Doctor Availability:

• Doctor Availability:

  • At least one qualified doctor must be available 24/7 for every 20 beds.

  • If ICU facilities are provided, at least two dedicated ICU doctors must be available round-the-clock.

• Nursing Staff Ratio:

  • At least one nurse per 5 beds, available 24/7.

  • ICU must have one nurse per ICU bed, with a minimum of four nurses per four ICU beds.

• Patient Health Records:

  • Detailed health records for each patient, including name, address, diagnosis, and treatment details.

Specified Diseases Covered for Tax-Exempt Medical Benefits:

Hospitals seeking certification must provide treatment for the specified diseases listed in Rule 3(2), including:

• Cancer

• Tuberculosis (TB)

• Acquired Immunodeficiency Syndrome (AIDS)

• Major Organ & System Diseases Requiring Surgery:

  • Heart, blood, bone marrow, respiratory system, nervous system, urinary system, liver, gall bladder, endocrine glands, etc.

• Skeletal & Fracture Treatments:

  • Bone fractures and dislocations requiring orthopedic intervention.

• Gynecological & Obstetric Ailments:

  • Cesarean sections, laparoscopic interventions, and related treatments.

• Severe & Prolonged Medical Treatments:

  • Conditions requiring hospitalization for three continuous days.

  • Mental disorders, drug addiction treatments, severe allergic reactions, etc.

Hospitals must maintain proper documentation of treatment history to ensure compliance with tax exemption rules.

Conclusion

Obtaining certification under Section 17(2) Proviso (ii)(b) is a strategic step for hospitals, offering tax advantages and enhancing their credibility. Hospitals must diligently meet all infrastructure, staffing, and operational standards to qualify. Adhering to stringent compliance norms, maintaining accurate patient records, and ensuring regular audits will facilitate approval and continued certification. By fulfilling these obligations, hospitals can effectively leverage tax benefits while providing high-quality healthcare services to employees