June 9, 2020

New reduced TDS Rate for Fy 2020-21 | Impact On The Tax Liability

To minimise the burden of the taxpayers and increase liquidity in hands of recipients, a press release has been released by the CBDT to reduce the TDS ( Tax Deduction at Source) & TCS ( Tax Collection at Source) rates. The TCS and TDS Rate for Fy 2020-21 is reduced by 25% for the non-salaried defined payments made to residents for the period of 14th May, 2020 to March 31st, 2021.

The Hon’ble Finance Minister Nirmala Sitharaman has announced the reduction in the rates of TDS & TCS as a part of the stimulus of 20 Lakh crore economic package amidst the lockdown situation in India.

The rates of TDS & TCS have been reduced by following the relief measures under the Atma Nirbhar Bharat Abhiyan announced to face pandemic COVID-19. To provide more liquidity for the business enterprises and individuals this initiative has been taken to overcome the adverse situation of the covid-19 pandemic.

Due to the nationwide lockdown for Covid-19 pandemic, liquidity flow and the business activities were jeopardized.

In this inconvenient situation, taxpayers are worried with the huge penalties and due tax payments. Thus, the tax rates associated with the TDS & TCS for this financial year have been reduced to provide some relief to the individual taxpayers.

It will be beneficial for both the deductor and the deductee in order to restore the cash flow and stabilize the economic condition in India.

As per the guidelines of the press release, here’s the details of the reduced tax rates of Tax Deduction Source (TDS) & Tax Collection Source (TCS) on non-salaried payments:

TDS levied on bank’s fixed deposit interest will be deducted at the rate of 7.5% instead of earlier rate of 10%.

Alongside, the rent crossing the amount of Rs 50,000/month TDS will be charged at the rate of 3.75% reduced from the earlier rate of 5%. In case any delay in tax deduction or short- Deduction the rate of 1% is levied on the fixed chargeable amount.

1. New TDS rate for Fy 2020-21

Transactions entered on or after May 14th 2020 will be subjected to the TDS & TCS at reduced rates for financial year 2020-21.

Sl.No	Type of Payment	Income TaxSection	Early TDS rate (Till May13th 2020)	ReducedTDS rate(From May 14th2020 to 31st March, 2021)
1	Interest levied on securities	Section(193)	10%	7.5%
2	Dividends accumulated from mutual fund investments, shares.	Section (194)	10%	7.5%
3	Interest received apart from the security i.e Interest on Fixed deposit	Section(194A)	10%	7.5%
4	Commission based on Insurance	Section(194D)	5%	3.75%
5	Payment accumulated from Life insurance policy	Section(194DA)	5%	3.75%
6	Payments associated with repurchase of units by the UTI & Mutual funds	Section(194F)	20%	15%
7	Commission based on Lotteries, prizes on games	Section(194G)	5%	3.75%
8	Brokerage or commission	Section(194H)	5%	3.75%
9	Payment levied on Sub-contractor & contractor	Section(194C)	1% – for payments made to Individual/HUF2% – For payment made to others	0.75% for payments made to Individual/HUF1.5% – for others
10	Payment for purchase of immovable property	Section(194-IA)	1%	0.75%
11	Payment levied on rent of immovable propoerty by Individual or HUF(Crossing Rs50,000/month)	Section(194-IB)	5%	3.75%
12	Fees paid to Professional & Technical Service (FTS),Royalties etc.	Section(194J)	2% for certain royalties, , FTS, Call centre etc. 10% for Others	1.5% for certain royalties FTS, Call centre etc. 7.5% for Others
13	Payment of dividend by Mutual Funds	194K	10%	7.5%
14	Payment based on the deposit under national saving scheme	Section(194EE)	10%	7.5%
15	Payment of Income by Business Trust	Section 194LBA(1)	10%	7.5%
16	Payment of Income by Investment Funds	194LBB(1)	10%	7.5%
17	Income by securitisation trust	194LBC(1)	25%- for payment made to Individuals/HUF30%- For payment made to others	18.75%- for payment made to Individuals/HUF22.5%- For payment made to others
18	Joint Development Agreements Payment	Section(194-IC)	10%	7.5%
19	Compensation payment on acquisition of immovable property	Section(194LA)	10%	7.5%
20	Rent for immovable property	Section194-I(b)	10%	7.5%
21	Rent for Plant & Machinery	Section194-I(a)	2%	1.5%
22	Payment to commission, brokerage etc. by Individuals or HUF	194M	5%	3.75%
23	Cash withdrawal over Rs 20Lakh or more than 1crore	Section(194N)	2%	2% (NO REDUCTION)
24	TDS levied on e-commerce participants	Section(194-O)	1%(w.e.f. 01.10.2020)	0.75%

2. TCS reduced rates for Fy 2020-21

As per the press release, the TCS rates will be reduced by 25% on the items such as sales of scrap materials, timbers, tendu leaves, forest products and on mineral resources- coal, ignite etc.

Sl.No	Income Tax ActSection	Type of Payment	Early TCS rate (May13th 2020)	ReducedTCS rate(May 14th2020)
1	Section 206C(1)	On the basis of sales-
		Timber Supply	2.5%	1.875%
		Tendu Leaves	5%	3.75%
		Scrap materials	1%	0.75%
		Any other Forest products not being Timber/Tendu Leaves	2.5%	1.875%
		Mineral being Coal coal or lignite or Iron Ore	1%	0.75%
2	Section 206C(1C)	Grant on the leases, license etc- Parking space	2%	1.5%
		Toll plaza	2%	1.5%
		Mining & Quarrying	2%	1.5%
3	Section 206C(1F)	Sales of Motor vehicles over Rs10Lakh	1%	0.75%
4	Section 206C(1H)	Sales of other goods	1%(w.e.f. 1st October, 2020)	0.75%

3. No reduction of TDS & TCS rates non-furnishing PAN Card or Adhar Card for financial year 2020-21

As per the directives, no reduction of TDS & TCS rates, where tax is deductible at a higher rates or same rate because of non-furnishing PAN Card or Adhar Card.

As per section 206AA of the Income Tax Act, if any person fails to furnish its PAN or Aadhar Number then TDS on its payment will be deducted at the rate of 20% or applicable TDS rate, whichever is high.

Therefore, even after issuance of a press release, in case of non-furnishing of PAN, TDS will be deducted at the rate of 20% not at the reduced rate of 15%.

4. Interest, Penalties & Execution For Non-payment In Compliance With TDS & TCS

4.1 Reduce rate of Interest for non deduction or non deposit of TDS during 20th March 2020 to 29th June 2020

Non Deduction of TDS: For non-deduction of TDS, interest @ 1% per month will be charged for the period starting from the date on which tax was deductible till the date tax is actually deducted.

Non-deposition of TDS: For non-deposition of TDS on time, interest @ 1.5% per month will be charged from date of deduction of TDS till date of payment of TDS. Part of the month is taken as the whole month.

Interest rate of 1.5% has been reduced to 0.75% for due dates falling between 20th March, 2020 to 29th June, 2020. However, if the sum remains unpaid after 30th June, then interest @ 1.5% will be charged.

4.2 No Penalty for delay filling of TDS return for the period 20th March 2020 to 30th June 2020

Under the section 234E, penalty of Rs 200/ day is charged for delay in filing of TDS return. However, all the penalty provisions has been dispensed for the period of 20th March, 2020 to 30th June, 2020. Therefore, no late fee for Quarter-4 of FY 2019-20 will be charged if TDS return is filed by 30th June, 2020.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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