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New Reduced TDS Rates for F.Y. 2020-2021 and their Impact on Tax Liability

By gkkedia Dt. July 6th, 2020

  • Honourable CM Nirmala Sitharaman as a stimulus to 20 lakh crore economic package , has announced on 14th may 2020 reduction in rates of tax deduction at source (TDS) and tax collected at source.
  • TDS rates other than salary has been reduced by 25% of specified period for remaining period of f.y. 2020-21.
  • Apart from the below mentioned list of sections , all other TDS and TCS sections will attract original rates .

 
The CBDT vide Press Release dated May 13, 2020, issued a revised rate of Tax Deduction at Source (“TDS”) for the following Non-Salaried specified payments made to residents has been reduced by 25% for the period from May 14, 2020, to March 31, 2021.

S.No. Section of the Income-Tax Act Nature of Payment Existing Rate of TDS Reduced rate from 14/05/20 to 31/03/21
1. 193 Interest on Securities 10% 7.5%
2. 194 Dividend 10% 7.5%
3. 194A Interest other than interest on securities 10% 7.5%
4. 194C Payment of Contractors and sub-contractors 1% (individual/HUF) 0.75% (individual/ HUF
5. 194D Insurance Commission 5% 3.75%
6. 194DA Payment in respect of life insurance policy 5% 3.75%
7. 194EE Payments of deposits under National Savings Scheme 10% 7.5%
8. 194F Payments on account of repurchase of Units by Mutual Funds or UTI 20% 15%
9. 194G Commission, prize etc., on sale of lottery tickets 5% 3.75%
10. 194H Commission or brokerage 5% 3.75%
11. 194-I(a) Rent for plant and machinery 2% 1.5%
12. 194-I(b) Rent for immovable Property 10% 7.5%
13. 194-IA Payment for acquisition of immovable Property 1% 0.75%
14. 194-IB Payment of rent by individual or HUF 5% 3.75%
15. 194-IC Payment for Joint Development Agreements 10% 7.5%
16. 194J Fee for Professional or Technical Services (FTS), Royalty, etc. 2% (FTS, certain royalties,
call centre) 10% others
1.5% (FTS, certain royalties, call centre) 7.5% others
17. 194K Payment of dividend by Mutual Funds 10% 7.5%
18. 194LA Payment of Compensation on acquisition of immovable Property 10% 7.5%
19. 194LBA (1) Payment of income by Business trust 10% 7.5%
20. 194LBB (i) Payment of income by Investment fund 10% 7.5%
21. 194LBC (1) Income by securitisation trust 25% (Individual/HUF) and 30% (Others) 18.75% (Individual/HUF) and 22.5% others.
22. 194M Payment to commission, brokerage etc. by Individual and HUF 5% 7.5%
23. 194O TDS on e-commerce participants N.A. N.A.

 

Therefore, TDS on the amount paid or credited during the period from May 14, 2020, to March 31, 2021, shall be deducted at the reduced rates specified in the table in para 1 above. Similarly, the tax on the amount received or debited during the period from May 14, 2020, to March 31, 2021, shall be collected at the reduced rates specified in the table in para 2 above.

It is further stated that there shall be no reduction in rates of TDS or TCS, where the tax is required to be deducted or collected at higher rate due to non-furnishing of PAN/Aadhaar. For example, if the tax is required to be deducted at 20% under section 206AA of the Income-tax Act due to non-furnishing of PAN/Aadhaar, it shall be deducted at the rate of 20% and not at the rate of 15%.

IMPACT ON TAX LIABILITY:

  • With a view to minimise the burden on taxpayers and to increase liquidity in the hands of taxpayers , TDS rates have been reduced by CBDT.This initiative has been taken so as to overcome the situation of pandemic named COVID -19.
  • It will be beneficial for both the deductor and deductee as they will have more cash flow which in result is helpful in stabilizing economy.
  • Taxpayers shall have to self-assess their final tax liability after taking into consideration, income from all sources and thereafter reducing any TDS or advance tax already paid. Thus, lower TDS rates may simply mean that individuals shall be left with more disposable income to consume during the financial year.
  • Further, in cases where due to losses or lower profit margins, total amount deducted as TDS is more than actual tax liability, lower rates of TDS would result in lesser amount being locked in tax refunds claimed.
  • However, in cases where actual tax liability is more than TDS deducted on revenues, reduction in rates of TDS may eventually result in requirement to pay higher amount as advance tax/ self-assessment tax later.

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