In order to contain the economic fall-out due to Covid 19 and improve liquidity situation, the Finance Minister Nirmala Sitharaman on May 13, 2020 reduced the rate of TDS and TCS by 25%. TDS and TCS is the tax deducted and collected at the source of income so that the steady flow of revenue is ascertained for the government and also aids in checking evasion of taxes.
Nonetheless, the move will not benefit all of the taxpayer categories. Below are the details:
1. Not provided valid PAN, Aadhaar to the entity or person deducting TDS, lower rates will not apply to you:
In the case of TDS deduction, the rate depends on whether the person of whom the tax is to be deducted has furnished his valid PAN or Aadhaar to the deductor. And when these ID types are not submitted, TDS rate is 20% or higher. And post the announcement by the FM on TDS, TCS rate cut, the CBDT made a clarification that this rate cut on TDS, TCS shall not be applicable where tax is to be collected at a higher rate due to non-submission of valid PAN or Aadhaar.
Simply implying that in a case when you have not furnished a valid aadhaar or PAN to the deductor, TDS, TCS rates shall not be reduced for you.
2. Benefit only for Resident taxpayers; NRIs not given the privilege
This benefit of TDS, TCS rate cut is available only to resident Indians and non-resident Indian (NRI) taxpayers cannot avail it.
3. Salaried class taxpayers not given the advantage:
The benefit of lower TDS is not being extended to salaried class taxpayers even though TDS is deducted on salary income based on the income tax slab rate of the concerned. So, for salaried class TDS will continue to be levied at the same rate as in the earlier regime.
The TDS rate varies depending on the income source can be between 1%-30% while TCS is charged between 0.1%-5%. The rate cut in TDS, TCS became applicable from May 14, 2020 and this relief shall be extended until March 31, 2021.
Payments that shall be eligible for lower rate include the payment in lieu of contract, interest, rent, professional fees, commission, brokerage and dividend.