The reduced TDS and TCS rate will be for specific payments such as payment for a contract, professional fees, interest, rent etc.
Finance Minister Nirmala Sitharaman in her press conference today proposed several steps to infuse liquidity in the system and provide more funds at the disposal of individuals and companies. Among several measures, Rs 50,000 crore of liquidity is being introduced by reducing the TDS and TCS rates for certain payments by non-individuals.
The FM said that the rates of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collection at Source (TCS) for the specified receipts will be reduced by 25 per cent of the existing rates.
As it is for specific payments, payment for a contract, professional fees, interest, rent, dividend, commission and brokerage income will be eligible for the reduced rate.
This reduction shall be applicable for the remaining part of the financial year 2020-21, starting May 14th, 2020 till March 31, 2021.
“The reduction of TDS and TCS rates on non-salaried payments by 25 per cent will set free additional cash in the hands of vendors, overall increasing liquidity in the economy. This relief could be enjoyed by all businesses and would play a pivotal role in increasing cash flows as the beneficial rates would be available till the end of the current financial year. This coupled with the release of pending refunds to all non-corporate tax payers would fast track the revival of business and enterprises,” says Sandeep Jhunjhunwala, Director, Nangia Andersen LLP.
The revival of demand-led consumption may still remain. “Reduction in rates of TDS/TCS by 25% from 14.05.2020 to 31.03.2021 is a positive step which aims to provide more liquidity in hands of receivers. However, the moot question remains the fact that whether a business will be as usual for such contractors/professionals/agents etc.? In case the revival across sectors is not seen as being planned/projected, the relief by way of this reduction will be minuscule,” says Sumit Batra, a tax expert.