Direct Taxes in India

Tax Deducted at Source (TDS)

The Finance Act 2025 continues the move towards decriminalizing TDS/TCS defaults by extending the time available for deposit and filing, while still levying interest and penalties on late submissions.

Contributing Advisor

Krishan Aggarwal

Senior Manager, International Business Advisory

Major updates under the Act include:

• Deductors no longer need to verify the ITR-filing status of payees, simplifying compliance procedures.
•  Higher exemption limits across various categories include:
  • Interest on securities: exempt up to ₹10,000
  • Interest from banks/co‑ops: ₹50,000 for non‑seniors, ₹1 lakh for seniors
  • Professional fees (194J): ₹50,000
  • Dividends, mutual fund income, and winnings: thresholds increased to around ₹10,000–12,000
• TDS on securitisation trust distributions reduced from 25–30 percent to 10 percent.
• New Provisions for Digital Transactions –
  • Crypto/NFT purchases taxed at 1 percent TDS under Section 194S.
  • Online game winnings subject to 30 percent TDS under Section 194BA.
• E-commerce & Marketplace Compliance –
  • TDS on partner remunerations now required (new Section 194R).
  • TCS at 1 percent imposed on e-commerce platform sales .
• TCS under Section 206C(1H) on sales has been abolished, though buyers still have TDS obligations under Section 194Q for certain purchases.
• Companies now have up to 85 days (or longer under the new SOP) to deposit TDS without facing prosecution, though interest remains payable.
• No TDS/TCS correction statements are allowed beyond six years from the end of the relevant financial year

Taxation of outbound remittances

The tax on outbound remittances from India will increase from five percent to 20 percent, affecting funds sent overseas for vacations, investments, and gifts. However, it is important to note that small transactions equal to or below INR 700,000, which are made using international debit or credit cards, will be exempted from the Liberalized Remittance Scheme (LRS scheme).

Minimum Alternate Tax (MAT)

All companies, whether domestic or foreign, are obligated to pay MAT.

MAT is exclusively applicable to companies and does not extend to individuals, HUFs, partnership firms, and similar entities. For foreign companies that generate profits through business operations in India, the provisions of Section 115JA apply.

As per the concept of MAT, the tax liability of a company will be higher of the following:

• Tax liability of the company computed as per the normal provisions of the Income-tax Act, that is, tax computed on the taxable income of the company by applying the tax rate applicable to the company. Tax computed in above manner can be termed as normal tax liability.
• Tax computed at 15 percent (plus surcharge and cess as applicable) on book profit (manner of computation of book profit is discussed in later part). The tax computed by applying 15 percent (plus surcharge and cess as applicable) on book profit is called MAT.

Features of MAT

Taxation on dividends

The taxation of dividends has now shifted to the ultimate shareholders from the earlier responsibility of the company under Dividend Distribution Tax (DDT).

TDS on dividends for residents

• TDS on dividends is now deducted only if aggregate dividend exceeds ₹10,000 in a financial year (raised from ₹5,000).
• TDS rate remains at 10 percent.
• No TDS if:
  • Dividend is below ₹10,000, or
  • Paid in non-cash form, or
  • Valid Form 15G/15H is submitted by those below the basic exemption limit.

Taxation of dividends for non-residents

• TDS on dividends continues at 20 percent plus surcharge and cess.
• Eligible for DTAA benefit under Section 90(2) if applicable.

Buy-back tax

The Finance Acts of 2024 and 2025 maintain that any proceeds received by shareholders from a buy‑back carried out on or after 1 October 2024 will be treated as deemed dividend income, taxable in the hands of the recipient according to their income‑tax slab rates.

Companies are required to deduct 10 percent TDS for resident investors (and applicable rates for non‑residents, subject to DTAA).

The original cost of the repurchased shares is classified as a capital loss, which can be set off against other capital gains and carried forward for up to eight years.

Corporate Income Tax

Corporate tax is levied on the income earned by companies at a rate varying between 20-40%, depending on the companies’ particulars.

Any company registered under the Companies Act, or any foreign company that has its place of effective management in India will be considered as a domestic company. All income earned by a domestic company is taxed under corporate income tax. For foreign companies, only the income received or accrued in India is taxed under corporate taxation.

Withholding Tax

The applicable withholding tax rate is the rate prescribed in the Income Tax Act, 1961 or relevant Double Taxation Avoidance (DTA) Agreement, whichever is lower. Non-residents are liable to pay taxes in India on source income, including:

• Interest, royalties, and fees for technical services paid by a resident
• Salary paid for services rendered in India
• Income arising from a business connection or property in India.

Withholding tax (WHT), also called retention tax, is an obligation on the individual (either resident or non-resident) to withhold tax when making payments of a specified nature - such as rent, commission, salary, for professional services, to satisfy contract provisions, etc. – at rates specified in India’s tax regime.

Taxation on gaming

As gaming—both online and offline—continues to grow in India, tax authorities have introduced specific regulations to ensure proper tax compliance on winnings. Whether playing skill-based games, online betting, or traditional gambling, individuals must be aware of the tax implications under the Income Tax Act and the Goods and Services Tax (GST) framework.

Tax Deducted at Source (TDS) on gaming winnings

• TDS is deducted on winnings from offline betting, gambling, or lottery games if the total winnings exceed INR 10,000 in a financial year.
• If the winnings are below INR 10,000, no TDS is deducted.
• The TDS rate is a flat 30 percent on the total amount.

• No minimum threshold for online game winnings—TDS is deducted even on INR 1 won.
• The TDS rate is also 30 percent, applicable on the full amount won.
• Online platforms are responsible for deducting and depositing TDS before crediting winnings to the player's account.

Both skill-based and chance-based games are taxed at a uniform 28 percent GST rate. The tax is applied to:

• Gross Gaming Revenue (GGR) – The total revenue earned by the platform.
• Platform & Registration Fees – Charges imposed by gaming websites or apps.

Advance tax

Advance tax is a pay-as-you-earn system where taxpayers estimate their total income and tax payable for the year, and make advance tax payments at specified intervals during the financial year itself, as required by the Income-tax Act, 1961.

Although tax is deducted at source by the taxpayer in several cases, it may not cover the final tax amount that needs to be paid. Therefore, it's crucial for taxpayers to understand their obligation to pay advance tax and the consequences of non-payment or insufficient payment.

Who needs to pay advance tax?

Advance tax is payable during a financial year in every case where the amount of such tax payable by the taxpayer during that year is INR 10,000 or more.

Individuals not liable to pay advance tax

A resident senior citizen (an individual of the age of 60 years or above during the relevant financial year) not having any income from business or profession is not liable to pay advance tax.

While salaried taxpayers are also covered for payment of advance tax, they are generally not required to pay advance tax as their employers are obligated to deduct withholding tax or TDS on their salaries. However, such a salaried person would still be liable to make advance tax payment on income under other heads such as dividend income, interest income, rental income, shortfall of TDS for salary income, etc.

Due dates to pay advance tax

The due dates for payment of different instalments of advance tax for both corporate as well as non-corporate assessee are as follows:

Capital gains tax

It is levied on the transfer of a capital asset.

Capital gains are computed by deducting the cost of acquisition/improvement from the sale consideration. Capital gains are categorized into short-term capital gain (STCG) and long-term capital gain (LTCG) depending on the period of holding of the transferred asset.

Capital gains will be computed by reducing the cost of acquisition of the debenture and the expenditure incurred wholly or exclusively in connection with the transfer or redemption of such debenture from the sales consideration. Furthermore, no deduction is to be allowed for STT.

In 2024, India introduced significant revisions to its capital gains tax rules, aimed at simplifying holding periods, revising tax rates, and improving compliance for both residents and non-residents.

Key amendments to capital gains tax (Union Budget 2024)

• Long-Term Capital Gains (LTCG) on Listed Equities and Equity-Oriented Mutual Funds are exempt up to INR 125,000 per year, up from the previous limit of INR 100,000.
• The LTCG tax rate has been reduced from 20 percent to 12.5 percent, making investments in these instruments more attractive.
• New tax treatment for unlisted bonds and debentures previously taxed at a flat 20 percent rate, these will now be taxed as per individual income tax slabs.
• For properties sold before July 23, 2024, taxpayers can choose between:
  • 20 percent tax with indexation (adjusted for inflation)
  • 5 percent tax without indexation
• For sales made after this date, only the 12.5 percent LTCG tax without indexation applies.
• Short-Term Capital Gains (STCG) Tax Rates experienced no changes—they continue to be taxed as per applicable income tax slab rates.

The government has restructured the holding period requirements, simplifying them into two main categories:

• Listed Financial Assets (Held for Over 12 Months) → Long-Term Capital Gains (LTCG). Includes stocks, ETFs, bonds, REITs, and InvITs.
• LTCG taxed at 12.5 percent
• STCG taxed at 20 percent
• Unlisted and non-financial assets (Held for Over 24 Months) → Long-Term Capital Gains (LTCG). Includes real estate, gold, and foreign stocks.
  • LTCG taxed at 12.5 percent (without indexation)
  • STCG taxed as per individual income tax slabs

Notes:

• Income-tax at the rate of 10 percent (without indexation benefit and foreign exchange fluctuation) to be levied on long-term capital gains exceeding INR 125,000 provided transfer of such units is subject to Securities Transaction Tax (STT).
• Surcharge to be levied at:

• 37 percent on base tax where specified income exceeds INR 50 million
• 25 percent where specified income exceeds INR 20 million but does not exceed INR 50 million
• 15 percent where total income exceeds INR 10 million but does not exceed INR 20 million; and
• 10 percent where total income exceeds INR 5 million but does not exceed INR 10 million
  In case total income includes income by way of dividend on shares and short-term capital gains on units of equity oriented mutual fund schemes and long-term capital gains on mutual fund schemes, the rate of surcharge on the said type of income not to exceed 15 percent. In case investor is opting for ‘New Regime’, the rate of surcharge not to exceed 25 percent.
• Further, Health and Education Cess to be levied at the rate of four percent on aggregate of base tax and surcharge.
• Surcharge at seven percent on base tax is applicable where total income of domestic corporate unit holders exceeds INR 10 million but does not exceed INR 100 million and at 12percent where total income exceeds INR 100 million. However, surcharge at flat rate of 10 percent to be levied on base tax for the companies opting for lower rate of tax of 22percent/15percent.
• Further, “Health and Education Cess” to be levied at the rate of four percent on aggregate of base tax and surcharge.
• Short term/ long term capital gain tax (along with applicable Surcharge and Health and Education Cess) will be deducted at the time of redemption of units in case of NRI investors. Tax treaty benefit can be claimed for withholding tax on capital gains subject to fulfilment of stipulated conditions.

Notes:

(a) These rates will further increase by applicable surcharge and health and education cess.

(b) Income-tax rate of 20 percent with indexation and 10 percent without indexation.

(c) LTCG arising to a non-resident from transfer of unlisted securities or shares of a company, not being a company in which the public are substantially interested, subject to 10 percent tax (without benefit of indexation and foreign currency fluctuation).

(d) If total turnover or gross receipts in the FY 2021-22 does not exceed INR 4 billion.

(e) This lower rate is optional and subject to fulfilment of certain conditions as provided in section 115BAA.

(f) This lower rate is optional for companies engaged in manufacturing business (set-up and registered on or after 1 October 2019) subject to fulfilment of certain conditions as provided in section 115BAB.

(g) Co-operative societies have the option to be taxed at progressive slab rates or 22 percent subject to fulfilment of certain conditions as provided in section 115BAD.

(h) This lower rate is optional for co-operative societies engaged in manufacturing or production business (set-up and registered on or after 1 April 2023) subject to fulfilment of certain conditions as provided in section 115BAE.

Taxation of virtual digital asset in India

India has a 30 percent tax rate on income from virtual digital assets, such as cryptocurrency and NFT. Income from transfer of VDA is taxable without deduction of any expenditure, allowance or set-off of loss, except cost of acquisition of such virtual asset, if any. Further, loss on the transfer of VDA can neither be carried forward nor be set off against any other income.

The virtual digital assets attracting the new tax liability include crypto assets like Bitcoin, Dogecoin, etc., Non-Fungible Tokens (NFTs), and includes any digital representation of value on a blockchain or equivalent technology—covering future crypto-like tokens and expansions.

Features of cryptocurrency tax in India

• • From FY 2025–26 onward, crypto exchanges and users must report VDA transactions in the dedicated Schedule‑VDA section in ITR.
  • A flat 30 percent tax (plus 4% cess) applies to income from virtual digital assets (VDAs), including cryptocurrencies (Bitcoin, Dogecoin, etc.) and Non-Fungible Tokens (NFTs).
  • No deductions allowed, except for the cost of acquisition of the asset.
  • Losses cannot be carried forward or set off against other income.
  • Gifts of crypto assets are taxed at 30 percent, paid by the recipient.

Calculating capital gains for NRIs

Taxable income for NRIs includes:

• Salary received in India or for services provided in India;
• Income from house property in India;
• Capital gains from transferring assets situated in India; and,
• Interest from fixed deposits or savings accounts in India.