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The Finance Minister had announced a 25 per cent cut in the prevailing rates of tax deduction at source (TDS) and tax collected at source (TCS) for certain specified payments (excluding salaries) and receipts. This deduction shall be applicable for the remaining part of FY21, starting Thursday (May 14).
Payments for contracts, professional fees, interest, rent, dividend, commission, brokerage, etc., shall be eligible for this reduced rate of TDS. Clarity is awaited on the specified receipts for which the 25 per cent cut in TCS rates shall apply.
What does it mean for taxpayers?
For taxpayers who are self-employed, the reduced rate of TDS/TCS can mean higher income on hand. Take for instance, those earning income in the form of fee for professional and technical services and royalty income, such as Chartered Accountants and other technical consultants, will now have more income in hand.
The salaried class and pensioners, however, do not have such a relief for their salary or pension income. However, if they earn other forms of income such as rent and interest on fixed deposits, TDS on such incomes will now be deducted at 7.5 per cent only, compared to 10 per cent earlier, for payments starting Thursday.
However, taxpayers have to note that, juxtaposed to a regular cut in tax rates, the cut in TDS/TCS rates, is nothing but a temporary relief in cash flows. This is because, the cut in TDS rates, does not alter your ultimate tax liability.
Thus, any deficit in tax liability, due to reduced rate of TDS/TCS, should be payable through advance-tax instalments.
The first instalment for advance tax for FY21 is due on June 15, 2020, by when you are required to pay up to 15 per cent of your tax liability for FY21. Failure to pay such an amount can attract interest at the rate of 1 per cent per month each under section 234 B and 234 C.
In this context, CA Naveen Wadhwa, DGM - R&D, Taxmann.com, brings to notice, a recent ordinance, promulgated on March 31, 2020. The ordinance provided an additional window of 15 days for payment of the first instalment of advance tax.
“During this additional window, the rate of interest shall be 0.75 per cent per month, thereafter, interest shall be levied at the rate of 1 per cent per month,” he clarifies.
If you are not liable to pay advance tax, you may then see higher self assessment tax outgo when filing your return, if you fall in a tax slab which is higher than the TDS rate.
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