Reduction in the rates of TDS & TCS from 2020 to 2021

As the world is going through major health risks due to the corona pandemic, it is also facing economic risks in parallel due to lockdown in many countries because of the corona pandemic. As the entire country has come to a standstill, it has affected the earnings of many people thus leaving them with concerns for their future.

Due to this panic, people are hesitant to spend the money left at their disposal thus affecting the economic cycle of the country. Thus to provide relief to taxpayers, CBDT has made an announcement of the reduction in rates of TDS & TCS by 25% for non-salaried specified payments made to residents. This will ensure more funds for disposal by taxpayers and to deal with the crisis during the pandemic situation.

In this accordance, where a company hired a professional for services worth Rs 10 lakh, the company would pay the fees after deducting the TDS at 10% which amount to Rs. 9 lakh. Thus after this announcement, the company will now deduct the TDS at 7.5% and pay Rs 9.25 lakh resulting in extra money in the hand of the professional for his / her perusal.

This announcement applies only for the payments to be made from 14th May 2020 to 31st March 2021 and where TDS is applicable. This reduced rate of TDS applies to all the payments as specified including dividend, interest, professional fees, contractual payments, commission & brokerage, rent for movable and immovable property, etc. The reduced rate of TDS shall not apply to payments of salary. The rate of TDS shall remain unchanged for any payments made to a non-resident. Any payment already made before the announcement shall not be eligible for the reduced rate of TDS. Also where the taxpayer does not furnish PAN/Aadhaar, the benefit of reduction in the rate of TDS shall not be applied while making the payment.

The reduced rate of TDS & TCS does not mean a reduced rate of income tax, meaning the tax liability of a taxpayer is deferred and not waived by the reduction in the rate of TDS & TCS. If the provision of advance tax is applicable then the assessee shall have to pay the deficit tax amount in the form of advance tax installments. However, an additional 15 days have been provided for the payment of 1st installment, making the due date to 30th June 2020, instead of 15th June 2020. The taxpayer will eventually have to pay off the tax liability no matter what. Thus this announcement of the reduction in the rate of TDS & TCS by 25% is to provide a time-being relief which acts as a breather in the phase of the financial crisis during the pandemic.

The CBDT press release has not mentioned the reduced rate of TCS for the following transactions:

  1. Sale of alcoholic liquor for human consumption
  2. Sale of an overseas tour package
  3. Any remittance out of India under Liberalized Remittance Scheme

Attached is the list of specified payments declared by CBDT where the reduced rate of TDS & TCS by 25% shall be applicable.

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