Author: Ramachandra Shenoy
What is TDS?
Tax Deducted at Source (TDS) is a mechanism that has been introduced by the Income Tax Department as a concept to collect income tax at the point of its source. Under this, the person who is liable to make payment of a specified nature is required to deduct a certain percentage of income as tax before making the payment to the receiver and remit the same into the account of the Central Government. The payment includes salary, commission, professional fees, interest, rent, etc. The deductee would then be able to take credit of the tax amount deducted from the income received by submitting the relevant supporting documents such as Form 26AS or the TDS certificate issued by the person deducting tax.
Taxes shall be deducted at the rates specified in the relevant provisions of the Act or the First Schedule to the Finance Act. However, in case of payment to non-resident persons, the withholding tax rates specified under the Double Taxation Avoidance Agreements shall also be considered.
Covid-19 relief measures introduced by the CBDT in case of tax deducted at source:
To increase liquidity in the hands of an individual and battle coronavirus-induced financial distress, the government announced various relief measures on 13 May 2020. One of these was a reduction in the tax deducted at source (TDS) and tax collected at source (TCS) rates by 25 per cent on non-salaried payments. 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). However, there shall be no reduction in rates where tax is required to be deducted or collected at higher rate due to non-furnishing of PAN/Aadhaar. The revision benefit does not apply to non-residents.
Now, let’s have a look at the TDS/TCS Rates applicable for financial year 2020-21 as per Press Release issued by Ministry of Finance dated 13th May, 2020:
TDS Rate Chart for F.Y. 2020-21 (A.Y: 2021-22)
TCS Rate Chart for F.Y. 2020-21 (A.Y: 2021-22)
Note: In case of non-furnishing of PAN/Aadhaar by collectee, TCS will be charged at twice of the normal rate applicable or 5% {1% in case of sale of any goods (given in the last point) of the value exceeding 50 Lacs}, whichever is higher.