Revenue secretary Ajay Bhushan Pandey today clarified that the 25 per cent reduction in rate of tax deducted at source (TDS) will not apply to salaries as the TDS rate on salaries is arrived at on the basis of an employee's tax slab after accounting for tax saving investments and expenses.
The government has decided to reduce the rates of Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) by 25 per cent of their existing rates as part of the stimulus package. The move will release Rs 50,000 crore of additional liquidity for businesses.
According to the announcement made by the finance minister, payment for contract, professional fees, interest, rent, dividend, commission, brokerage, etc. will be eligible for this reduced rate of TDS. This reduction comes into effect immediately and will be applicable for the remaining part of the 2020-21, that is from 14 May 2020 to 31 March, 2021.
The reduction in rates will apply on 23 TDS items and 11 TCS items, according to a circular issued by the Central Board of Direct Taxes (CBDT). These include TDS on interest on securities, dividends, insurance commission, rent on immovable properties, commission, prize on sale of lottery tickets etc.
The reduction in rates of TCS is applicable on motor vehicle over Rs 10 lakh, minerals, be it coal, lignite or iron ore, forest produce, grant of license of parking space, mining and quarrying and toll plaza, etc.
The CBDT also clarified that there will 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 per cent due to non-furnishing of PAN/Aadhaar, it will be deducted at the rate of 20 per cent and not 15 per cent.
TDS is like an advance tax paid by the receiver of payments like rent, commission, professional fees, salary and interest etc. TDS is collected by the person making such payments on behalf of the receivers and then submitted to the government. TDS is charged as a percentage of the total payment and it varies between 10 per cent and 20 per cent.
On the other hand, tax collected at source (TCS) is an additional amount collected as tax by a seller of specified goods from the buyer at the time of sale over and above the sale amount and is paid to the government. TCS is levied on sales of goods like jewellery, motor vehicles, coal lignite, bullion, etc.