Salaried excluded from TDS to avoid ‘tax burden’
Facing criticism for excluding the salaried class from reduced tax deducted at source (TDS) benefit, Finance Secretary Ajay Bhushan Pandey on Thursday clarified it was done to prevent ‘heavy tax burden’ at the end of the year because tax incidence remained the same.
To boost short-term liquidity for businesses, the government on Wednesday reduced TDS and tax collected at source (TCS) rates for nonsalaried payments by 25 per cent up to March 31, 2021. This is part of Prime Minister Narendra Modi’s ~ 20-trillion financial packages to fight the Covid-19 pandemic.
“The TDS on salary has not been reduced to prevent the salaried people from facing heavy tax burden at the end of the year — at the time of filing returns and paying the full quota of taxes for the year,” said Pandey, after the announcement of the second tranche of economic stimulus that mostly covered migrant labourers and farmers.
The reduced TDS rate will apply to the payment for contract, professional fees, interest, rent, dividend, commission, and brokerage for 2020-21 (from May 14 to March 31). In all, 23 items under TDS and 12 under TCS would get the benefit of a lower rate.
Besides, cash withdrawals over ~1 crore and foreign remittances have also been kept out of the purview of the TDS cut.
“Similarly, cash withdrawals and foreign remittances have also been kept out of the rate reduction ambit to promote digital transactions and restrict larger outflow of money,” clarified Pandey.
The government uses TDS or TCS as means to collect tax in order to minimise tax evasion by taxing income at the time it is generated rather than at a later date.
The reduction in TDS/TCS rates has been largely done to facilitate businesses get that much extra during an economically difficult period.
The move will help release liquidity worth ~50,000 crore, according to government estimates. Experts, however, feel its impact will be limited as tax incidence remained the same.
The lower TDS benefit will apply to interest on securities, dividend, bank savings accounts, with the rate coming down from 7.5 per cent (from 10 per cent).
Similarly, payments to professionals would also attract a lower TDS rate of 7.5 per cent.