The reduction in tax deduction at source (TDS) and tax collection at source (TCS) will benefit self employed, professionals and senior citizens with sources of rental or interest income but will not benefit the salaried class.
Following the announcement by Finance Minister Nirmala Sitharaman on reducing these rates as part of the fiscal package announced yesterday, the Finance Ministry has announced new slabs which have been reduced by 25 per cent in all categories.
The rates of TDS/TCSin respect of specified payments/receipts shall be reduced by 25%. This concession in the rate shall be available for the tax deducted or collected between May 14, 2020 till March 31, 2021.
According to Taxmann, this relief shall not be available to a salaried and non-resident taxpayer.
By reducing the rate of TDS/TCS, the government helps taxpayers to have more liquidity in their hands. In this difficult time, this announcement will benefit self-employed,professionals and senior citizens earning interest income or rental income. It does not provide any relief to the salaried persons, according to Taxmann.
“However, it should be noted that the relaxation in the rate of TDS/TCS will not have any impact on the ultimate tax liability of a taxpayer. Thus, any deficit in tax liability, due to reduced rate of TDS/TCS, should be payable through advance-tax instalments”, it added.
Any short-fall in the deposit of advance tax will attract interest under section 234B and 234C. The first instalment of advance-tax is due on 15 June 2020. A taxpayer should re-calculate his advance-tax liability to be deposited next month to avoid any payment of interest.
As per the new slabs of TDS rates, the interest on securities has been reduced from 10% 7.50%, on dividend from 10% to 7.50%. For this category, the threshold limit for deduction of tax is Rs 5,000 in case of individual.
On interest other than interest on securities, the rate of 10% has been cut to 7.50%. For this category, the threshold limit for deduction of tax is Rs 5,000 to Rs 50,000.
On payment to contractors, the current TDS rate is 1% if deductee is an individual or HUF and 2% in any any other case.
In the new slab, the rate is 0.75% if the deductee is an individual or HUF and 1.50% in any other case. The threshold limit for deduction is a single payment of Rs. 30,000 and aggregate payment of Rs 1 lakh.
On TDS rates for rent, the current rate is 10% if the rent pertains to hiring of immovable property and 2% if rent pertains to hiring of plant and machinery.
This has been reduced to 7.50% and 1.50% respectively. The threshold limit for deduction is Rs 2.4 lakh.
For payment of rent by by certain individuals or HUF, the TDS rate was 5% which has been reduced to 3.75%. The threshold limit for deduction is Rs 50,000.
For cash withdrawal the current rate is 2% in general if cash withdrawn exceeds Rs 1 crore. It is also 2% if assessee has not furnished return for last 3 assessment years and cash withdrawn exceeds Rs. 20 lakhs but does not exceed Rs 1 crore.
The TDS rate is 5% if assessee has not furnished return for last 3 assessment years and cash withdrawn exceeds Rs 1 crore.
It has been reduced to 1.50%, 1.50% and 3.75% for the three above mentioned categories.
If a person defaults in filing of return, the threshold limit for deduction is Rs 20 lakhs but if no default is made in filing of return, the limit is Rs 1 crore.
Taxpayers who have not furnished Pan or Aadhaar numbers while filing tax returns will not get the benefit of lower rates of Tax Collection at Source (TCS) and Tax Deduction at Source (TDS), the government has clarified.
As part of Rs 20 lakh economic package, Finance minister Nirmala Sitharaman on Wednesday reduced TDS/TCS for the non-salaried specified payments made to residents by 25 per cent for balance period of FY21. This was done to provide more money into the hands of the taxpayers to deal with the economic situation amid COVID-19 pandemic.
However, it has now been clarified that reduced rates would not be applicable to tax payers who have been denied lower rates (of TCS/TDS) due to non-furnishing of PAN/Aadhaar. The tax is required to be deducted at a rate of 20 per cent or higher for this category of taxpayers as per the provisions of section 206 AA of the Income-tax Act.
As per the government announcement, the reduced rate of TDS will be applicable to payment for contract, professional fees, interest, rent, dividend, commission, brokerage.
This reduction will be applicable for the remaining part of the FY 2020-21 i.e. from Thursday (May 14) to March 31, 2021.
It is estimated that the move will release liquidity of Rs 50,000 crore in the difficult period of Covid-19 pandemic.
TCS is applicable on sale of Tendu Leaves, timber obtained under a forest lease, any other forest produce, scrap, minerals, grant of licence, lease of parking lots, mining and quarrying, sale of motor vehicles, above rates of Rs 10 lakh. The existing rates here vary from 1 to 5 per cent. This now stands reduced between 0.75-3.75 per cent.
The TDS rates vary from 1 to 25 per cent for different segments such as interest in securities, dividend, repurchase of units by mutual funds, payment for acquisition of immovable property, fee for professional or technical services or royalty, income by securitisation trust, TDS on e-commerce participants. This will now stand reduced between 0.75 and 18.75 per cent.
The necessary legislative amendments in this regard shall be proposed in due course, government sources said.