TDS is the second-largest component of total direct tax collection after advance tax, and accounted for nearly 38% of FY19 collections.
As much as Rs 50,000 crore of liquid cash would be available to taxpayers after the government announced a 25% cut in the rate of tax deducted/collected at source (TDS/TCS). However, the measure is not applicable to salaried taxpayers, finance minister Nirmala Sitharaman said on Wednesday.
“Payment for contract, professional fees, interest, rent, dividend, commission, brokerage, etc shall be eligible for this reduced rate of TDS. This reduction shall be applicable for the remaining part of the FY 2020-21 i.e. from May 14 to March 31, 2021,” the finance ministry presentation said.
The government uses withholding tax like TDS/TCS to ensure regular flow of tax revenue to its coffers. TDS is the second-largest component of total direct tax collection after advance tax, and accounted for nearly 38% of FY19 collections.
A taxpayer is required to deduct 1% or 2% of total payment as TDS to a contractor for services rendered with rates contingent on certain factors. Similarly, the e-commerce platforms are mandated to collect a 1% TCS from vendors selling on their platforms.
In other direct tax-related measures, the finance minister said all pending refunds to charitable trusts and non-corporate businesses and professions including proprietorship, partnership, limited liability partnerships (LLPs) and co-operatives would be issued immediately.
“The reduction in the rate for withholding taxes and TCS is indeed welcome. It will provide additional liquidity in the hands of individuals and will therefore spur demand. While this reduction by 25% of the current rate is welcome, there is a need to issue expeditiously lower rate certificates where applied for by the taxpayers,” Dinesh Kanabar, CEO, Dhruva Advisors, said.
Further, the validity of the concessional version of the dispute resolution-cum amnesty scheme (Vivad Se Vishwas) for income tax matters, announced in the Budget, has been further extended by three months to December, 31 this year. The scheme is meant for 4.83 lakh cases for which appeals are pending at various levels. Tax arrears to the tune of about Rs. 9.32 lakh crore are locked up in these appeals as on November 31, 2019.
Additionally, assessments of income-tax returns which were to be time-barred in September 30 this year would now be valid till December 31, and those getting barred on March 31, 2021 will be extended to September 30, 2021, the finance minister said. Income-tax department is time-bound to initiate assessments under various sections and can’t undertake the exercise after the mandatory period expires.
“The extended due dates for assessments will ensure fair and just disposal of cases which could otherwise have been hurried and may have had an adverse impact on taxpayers,” Sandeep Jhunjhunwala, director at Nangia Andersen LLP, said.
The compliance burden of filing income-tax returns has been eased with extension given to due dates for all returns for FY2019-20. Those returns falling due on July 31 and October 31 can be filed till November 30. Similarly, the due date for tax audit ― applicable to taxpayer with business income exceeding Rs 1 crore annually – has been extended by a month to October 31.