TDS rate cut to leave professionals, equity investors with cash

MUMBAI: The government’s move to reduce the rates of tax deduction at source (TDS) and tax collection at source (TCS) by 25% will benefit investors and professionals by putting more cash in their hands. While this doesn’t bring down the tax liability of taxpayers, it leaves more money with them during the course of the financial year. Indivduals will still have to pay their tax liability -- every quarter, or annually. The reduction in TDS/TCS is expected to boost cash flows by ~50,000 crore, the finance minister said on Wednesday while announcing the move as part of an economic package aimed at reviving an economy roiled by the Covid-19 pandemic and the lockdown enforced to combat it.

Usually, the payee deducts TDS or TCS on behalf of the receiver and deposits it with the government. TDS and TCS are methods that help the government to bring more people into the tax net and prevent tax avoidance. For instance, in the case of an individual who has a fixed deposit with a bank, the bank deducts 10% TDS every year on the income that the depositor earns by way of interest.