TDS Threshold Rationalisation in Budget 2025: New Limits for Section 194, 194A, 194I, 194J

The Finance Act 2025 rationalised tax-deducted-at-source (TDS) thresholds across seven sections of the Income Tax Act 1961, with effect from 1 April 2025. The CBDT projects roughly 65 lakh fewer low-value TDS entries flowing into Form 26AS each financial year, easing reconciliation work for landlords, retired depositors, and consultants. For a salaried filer earning Rs 18 lakh a year with side income from interest, dividend, and rent, the practical effect is fewer tax-deducted credits to claim and lower working-capital lock-in across the financial year.

This Morning Tax Tip walks through the four most consequential changes — Sections 194, 194A, 194I, and 194J — using the statutory wording, a worked example, and the pitfalls our team has seen flagged in scrutiny notices issued under Section 143(2). Every figure here is sourced from the Income Tax Department circular page and India Code (Income Tax Act 1961), and has been cross-checked against the Oquilia TDS calculator.

What the Section Says

Section 194 governs the deduction of tax at the time a domestic company declares, distributes, or pays a dividend to a resident shareholder. The pre-Budget 2025 threshold of Rs 5,000 per shareholder per year has been doubled to Rs 10,000 per shareholder per year with effect from 1 April 2025. The deduction rate remains 10% of the gross dividend, and rises to 20% if the shareholder fails to furnish a valid PAN under Section 206AA.

Section 194A covers TDS on interest other than interest on securities, most commonly paid by banks, co-operative societies, and post offices on fixed and recurring deposits. Budget 2025 raised the threshold for senior citizens (60 years and above) from Rs 50,000 to Rs 1,00,000 per financial year, and for non-senior depositors at banks/co-op/post office from Rs 40,000 to Rs 50,000 per financial year. For interest paid by any other deductor, the threshold was raised from Rs 5,000 to Rs 10,000.

Section 194I governs TDS on rent paid to a resident landlord. The earlier annual aggregate threshold of Rs 2,40,000 has been replaced with a monthly threshold of Rs 50,000 per single payee, effective 1 April 2025. The rate is 10% on rent for land or building (including factory buildings) and 2% on rent for plant, machinery, or equipment. This is distinct from Section 194-IB, which applies to individuals and HUFs not subject to tax audit; the Rs 50,000 monthly threshold under 194-IB was already in place and was not amended.

Section 194J covers fees for professional services, fees for technical services, royalty, and non-compete fees paid to a resident. The threshold has been raised from Rs 30,000 per category per financial year to Rs 50,000 per category per financial year. The rate stays at 10% for professional fees and 2% for technical services and call-centre operations.

A consolidated comparison appears below.

Worked Example

Take Sneha, a 62-year-old resident of Pune, with the following income for FY 2025-26:

• Bank fixed-deposit interest of Rs 92,000 from Bank of Baroda
• Equity dividend of Rs 8,500 from a Tata group company on her demat folio
• Monthly rent of Rs 48,000 from the tenant occupying her ground-floor flat
• Professional fee of Rs 42,000 received from a private hospital for casual auditing work

The table below shows the TDS impact under the old and new threshold regimes.

Pre-Budget 2025, Sneha would have suffered Rs 71,850 in TDS through the year — money she could only claim back at ITR-filing time, a working-capital lock-in of roughly nine months. Under the rationalised post-Budget 2025 thresholds, no deduction is triggered on any of the four heads. Sneha still owes income tax on these amounts (she will pay it via advance tax instalments under Section 211 or self-assessment under Section 140A), but her cash flow is no longer encumbered through the year. Test the impact for your own income mix using the Oquilia TDS calculator and compute the final liability through the income tax calculator.

If Sneha's bank interest had instead been Rs 1,05,000, the deduction would resume — but on the entire amount, not just the excess. The bank would deduct 10% of Rs 1,05,000 = Rs 10,500 (Rs 21,000 if PAN is missing per Section 206AA). This "cliff" behaviour is unchanged by Budget 2025; the threshold only suspends deduction below the floor, it does not exempt the first slab once breached.

Common Mistakes

Mistake 1: Aggregating monthly rent above Rs 50,000 across payees. The Section 194I threshold from 1 April 2025 is single-payee, single-month. A landlord receiving Rs 30,000 from one tenant and Rs 35,000 from a second tenant in the same month is below the threshold for both, and no TDS is due. A tenant company paying Rs 40,000 each to two landlords is also below the trigger for both — aggregation across payees does not apply.

Mistake 2: Treating non-bank interest as covered by the Rs 50,000 limit. Interest paid by a private company on inter-corporate deposits, or by an unlisted NBFC outside the scheduled-bank list, falls under the Rs 10,000 threshold (raised from Rs 5,000), not the Rs 50,000 bank threshold. A frequent error in old vs new regime calculator inputs is to lump all interest under one bucket — split it by payer type instead, since the trigger differs.

Mistake 3: Forgetting Section 206AA when PAN is unavailable. If the deductee fails to furnish PAN, the rate jumps to 20% on dividend, professional fee, and rent (or the contractual rate, whichever is higher). The Rs 50,000 / Rs 10,000 thresholds offer no relief once breached — they only suspend the deduction below the floor. Once a deduction is triggered, 20% applies on the gross amount.

Mistake 4: Conflating Section 194J with Section 194-O for digital platforms. A doctor receiving Rs 47,000 directly from a hospital is below the Section 194J Rs 50,000 trigger. The same doctor receiving Rs 47,000 via an aggregator platform is covered by Section 194-O at 1% with a Rs 5 lakh threshold. The Budget 2025 changes do not relax 194-O.

Mistake 5: Ignoring the senior-citizen Form 15H opportunity. A senior citizen with FD interest of Rs 95,000 (below the Rs 1,00,000 194A threshold) does not need to file Form 15H. Those with Rs 1,05,000 can still submit Form 15H, provided estimated total income is below the basic exemption limit of Rs 4,00,000 in the new regime under Section 115BAC. Confirm your basic exemption position via the income tax new regime calculator before submitting.

Mistake 6: Backdating rent receipts to fall under the new threshold. Rent paid before 1 April 2025 is governed by the old Rs 2,40,000 aggregate threshold. The CBDT memorandum to the Finance Bill 2025 is unambiguous that the rationalised limits apply to amounts credited or paid on or after 1 April 2025 only. Backdating payment vouchers to dodge TDS is treated as under-reporting under Section 270A and attracts a penalty of 50% of tax payable (200% if treated as misreporting).

FAQ

Does the new Rs 10,000 dividend threshold apply per company or aggregate across all companies?

The Rs 10,000 threshold under Section 194 is per deductor — that is, per dividend-paying company — not aggregate across the shareholder's portfolio. A retail investor holding shares of 12 companies, each paying Rs 8,000 in dividends, will not face TDS from any one of them. The investor must still declare the full Rs 96,000 in the ITR under "Income from Other Sources" and pay tax at the applicable slab.

What is the TDS rate on rent if the landlord does not have a PAN?

Section 206AA overrides the standard 10% / 2% rates and prescribes the higher of 20% or the contractual rate. The Rs 50,000 monthly threshold under Section 194I still applies first — below the threshold no deduction is needed. Once the threshold is crossed, Section 206AA's 20% rate applies on the gross monthly rent if the landlord has not shared PAN.

Is the senior-citizen Rs 1 lakh threshold for FD interest available under both regimes?

Yes. Section 194A thresholds are independent of the regime choice under Section 115BAC. The threshold simply governs whether the bank deducts TDS at source. Taxability of the interest in the ITR depends on the regime — under both, FD interest is fully taxable as "Income from Other Sources" with no separate exemption.

How does the new monthly rent rule interact with Section 194-IB?

Section 194-IB applies to individuals or HUFs not subject to tax audit who pay rent above Rs 50,000 per month, and its 5% rate is unchanged by Budget 2025. Section 194I covers all other tenants. Budget 2025 changed the 194I monthly threshold to Rs 50,000; 194-IB's threshold of Rs 50,000 was already in place and was not amended.

Will Form 26AS show fewer entries from FY 2025-26 onwards?

Yes. The CBDT projection cited in the Budget 2025 Memorandum is roughly 65 lakh fewer TDS entries from FY 2025-26 onwards, mostly low-value dividend, interest, and rent receipts. Reconcile your AIS and TIS at the Income Tax e-Filing portal before filing — absence of an entry no longer means the income is missing, only that no TDS was deducted.

Can a deductor still deduct TDS voluntarily below the threshold?

Yes — Section 194 thresholds are floors below which deduction is not mandatory, but a deductor may deduct voluntarily at the prescribed rate if it suits its compliance posture. The deductee can claim full credit through Form 26AS and the ITR, provided the deductor has correctly filed Form 26Q within the quarterly due dates under Rule 31A.

What happens if a tenant pays the March 2026 rent on 5 April 2026?

Under Section 194I, the trigger is the date of credit or payment, whichever is earlier. If the tenant credited the March 2026 rent in the books on 31 March 2026, the monthly threshold rule for FY 2025-26 applies. If the credit was on 5 April 2026 with no prior accrual entry, the same Rs 50,000 monthly threshold applies but to FY 2026-27, with deposit timing under Rule 30 (by the seventh of the following month).