ACCOUNTING & TAXATION
Impact of reduction in TDS/TCS Rate
As we all know that the government has recently decreased tax deduction at source (TDS) and tax collection at source (TCS) rates for interest, dividend, professionals, rent payments and other non-salaried payments by 25 per cent with effect from May 14, 2020 for the current financial year. The tax deduction at source (TDS) and tax collection at source (TCS) rates have been similarly cut for certain other specified payments as well.
This cut rate by 25% applicable only for the period 14-5-2020 to 31-03-2021 on non-salaried classes of taxpayer. Is this move really helpful for the taxpayer?
Yes, the move really helpful for the taxpayer due to receiving more fund/liquidity from the tax deductor at the time of receiving money after TDS which helps him/her to deal in this pandemic situation
The table below is TDS/TCS rate notified for the period from 14-05-2020 to 31-03-2021
| Nature of Payment | New Rate from 14/05/2020 to 31/03/2021 | Old Rate |
| 192 – Salaries | Slab Rates | Slab Rates |
| 193 – Interest on securities | 7.5% | 10% |
| 194 – Dividend other than the dividend as referred to in Section 115-O | 7.5% | 10% |
| 194A – Interest other than interest on securities – Others | 7.5% | 10% |
| 194C- Payment to Contractor – Single Transaction | Individual: 0.75% Company: 1.5% | Individual: 1% Company: 2% |
| 194D – Insurance Commission | 3.75% | 5% |
| 194DA Payment in respect of life insurance policy | 3.75% | 5% |
| 194EE – Payments out of deposits under National Savings Scheme | 7.5% | 10% |
| 194F – Repurchase Units by MFs | 15% | 20% |
| 194G – Commission – Lottery | 3.75% | 5% |
| 194H – Commission / Brokerage | 3.75% | 5% |
| 194I – Rent – Land and Building – furniture – fittings | 7.5% | 10% |
| 194I – Rent – Plant / Machinery / equipment | 1.75% | 2% |
| 194IA -Transfer of certain immovable property other than agriculture land | 0.75% | 1% |
| 194IB – Rent – Land or building or both | 3.75% | 5% |
| 194IC – Payment of Monetary consideration under Joint development agreement | 7.5% | 10% |
| 194J – Professional Fees for technical services | 1.5% (FTS, certain royalties, call centre) 7.5% (others) | 2% (FTS, certain royalties, call centre) 10% (others) |
| 194J – Professional Fees in all other cases | 3.75% | 5% |
| 194K- Payment of any income in respect of Units of Mutual fund as per section 10(23D) or Units of administrator or from a specified company | 7.5% | 10% |
| 194LA – TDS on compensation for compulsory acquisition of immovable Property | 7.5% | 10% |
| 194 LBA (1)- Business trust shall deduct tax while distributing, any interest received or receivable by it from a SPV or any income received from renting or leasing or letting out any real estate asset owned directly by it, to its unit holders. | 7.5% | 10% |
| 194LB – Income by way of interest from infrastructure debt fund (non-resident) | 7.5% | 10% |
| 194LBB – Income in respect of investment in Securitisation trust. | 3.75% | 5% |
| 194LBC- Income in respect of investment made in a securitisation trust | 18.75% (Individual/HUF) 22.5% (Others) | 25% (Individual/HUF) 30% (Others) |
| 194M – Payment to commission, brokerage etc. by Individual and HUF. | 3.75% | 5% |
| 194O- TDS on e-commerce participants | 0.75% | 1% (w.e.f 1.10.2020) |
| 206C – a)Sale of Tendu Leaves | 3.75% | 5% |
| 206C – b) Timber obtained under a forest lease | 1.875% | 2.5% |
| 206C – c) timber obtained by any other mode | 1.875% | 2.5% |
| 206C – d) Any other forest produce not being timber/tendu leaves | 1.875% | 2.5% |
| 206C – e) scrap | 0.75% | 1% |
| 206C – f) Minerals, being coal or lignite or iron ore | 0.75% | 1% |
| 206C(1C) Grant of license, lease, etc. of (a) Parking lot | 1.5% | 2% |
| (b) Toll Plaza | 1.5% | 2% |
| © Mining and quarrying | 1.5% | 2% |
| 206C(1F) Sale of motor vehicle above 10 lakhs | 0.75% | 1% |
| 206C(1H) Sale of any other goods | 0.075% | 0.1% (w.e.f 1.10.2020) |
However, reduction in rates does not mean reduction in the tax liability of the receivers of these payments/incomes. An individual has to pay tax on the entire payment as per the income tax slab rate applicable to him/her. Therefore, a lower TDS/TCS may simply mean that the receiver has to compensate for the same by paying higher self-assessment tax later.
Let’s discuss below in situation.
Situation-1 Where taxpayer comes in higher tax liability
Suppose, the taxpayer earns professional income/rental income/ interest income which falls 30% tax slab. The rate of TDS earlier was 10% which has been reduced to 7.5% then it means receiver will get more amount i.e. (2.5% extra) in his/her pocket the taxpayer later on have to pay 22.5 % tax along with interest on advance tax which will resultant have to pay more self-assessment tax at the time of filling income tax return along with interest on advance tax . Hence, Advance tax liability would be keep in mind while assessing the tax liability Now, the taxpayer would have to timely pay Advance tax liability to avoid higher interest cost u/s 234B and 234C later. Also, have to file return of income within the due date to avoid interest u/s 234A consequences
Situation -2 where taxpayer comes in Lower Tax liability
This move would definitely help that type of taxpayer having lower tax or nil tax liability at the end of the financial year due to claiming various deductions and exemptions. Such people would normally claim a refund for TDS/TCS already deducted/collected due to coming either lower tax liability or no tax liability. Consequently, a lower rate of TDS would help them.
A Ministry of Finance already stated, “No reduction in rates of TDS or TCS due to non-furnishing PAN / Aadhar where the tax is required to be deducted and collected at higher rates. Suppose, if the tax is required to be deducted at 20 per cent under section 206AA if the Income-tax Act due to non-furnishing of PAN/Aadhaar, it shall be deducted at the rate of 20 per cent instead of reduced rate. So, if you have not provided PAN or Aadhaar to the deductor, lower rates will not be applicable to you.
The benefit of lower TDS and TCS rate can be availed by resident individuals and is not available to non-resident Indian (NRI) taxpayers.
“Reduction in rates of TDS/TCS by 25% is a positive step which objects to provide more liquidity in hands of receivers.