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What is TDS & TCS ?

 

Taxes Collected or Deducted at Source (TCS & TDS)

What is TDS ?

Tax Deducted at Source (TDS) is a system introduced by Income Tax Department, where person responsible for making specified payments such as salary, commission, professional fees, interest, rent, etc. is liable to deduct a certain percentage of tax before making payment in full to the receiver of the payment.
 
To avoid cases of tax evasion, The Income Tax Act has made provision to collect tax at source on accrual of income. Cases included in the scheme are, generally, those where income can be computed at the time of accrual of income. Under this scheme, persons responsible for making payment of income covered by the scheme are responsible to deduct tax at source and deposit the same to the government’s treasury within the time stipulated time. The recipient of income though he gets only the net amount (After deduction of tax at source) is liable to tax on the gross amount and the amount deducted at source is adjusted against his final tax liability.
 
TDS and TCS provisions are made applicable to various transactions in order to keep a tab on the transactions in the economy and to ensure tax compliance.

 

When any amount on which TDS is deductible is being paid or payable to a non-resident then TDS is deductible under section 195 and not under the respective TDS section.

What is TCS ?

TCSis a concept where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the Government.
Tax Collected at Source (TCS) is income tax collected in India payable by the seller who collects in turn from the buyer and it is provided under section 206C of Income Tax Act, 1961 at the sale of some goods which are specified in Section 206C (1).TCS

When any goods are sold which are taxable at source, it is the responsibility of the seller to collect TCS from the buyer and deposit the collected tax in the government treasury within the time stipulated time. The buyer must pay a fixed percentage, in addition to the actual price of the goods purchased. The TCS collected from the buyer is adjusted to the buyer’s final tax liability.
Let’s take an example to understand the concept of TCS:
Sudhir purchases jewellery from M.P. Jewellers of Rs. 2,00,000. Here, as per the provisions of TCS Sudhir would be liable to pay Rs. 2,02,000 to M.P. Jewellers ( Rs. 2,00,000 for jewellery and Rs. 2,000 as TCS at the rate of 1%).

Recent Announcement made in respect of 25% reduced in TDS and TCS

Finance Minister Nirmala Sitharaman on Wednesday (i.e. 13th May, 2020) announced a 25% reduced in the existing rates of various taxes collected or deducted at source (TCS or TDS) by individuals and businesses on behalf of the government at the time of transactions. The move is expected to give a liquidity support of ₹50,000 crore to people and businesses.

Due to the Corona Virus epidemic in the country, on 12 May, PM Narendra Modiaddressed the country and launched Aatm Nirbhar Bharat Abhiyan 2020(Self-reliant India Campaign 2020) for the citizens of the entire country.TDS rate Reducation due to COVID 19

Sitharaman said that the decision to cut TDS and TCSwill be effective from 14 May 2020till 31 March 2021. “It shall apply to all payments for contract, professional fees, interest payments, rent, dividend, commission and brokerage” as explained.
This measure, will release nearly ₹50,000 crore in the hands of the people who otherwise would have paid these amounts.
The minister also extended the due date for Income Tax Return filings from 31st July,2020 to 30 November, 2020 and Tax Audit from 30 September, 2020 to 31 October,2020.
•  The reduction will apply to all payments for contracts, interest, rent, professional fees, dividend, commission or brokerage the remaining part of the ongoing financial year.
  • The date for making payment without additional amount under the “Vivad Se Vishwas” scheme will be extended to 31 December, 2020.
Reducing TDS and TCS rates is not for battling COVID-19 but infusing liquidity in market after things are regularize.
With less deduction of TDS people will have more money in hand rather than waiting for 1 year or so for claiming refund after filing ITR. Further this will also increase our Purchasing power and demand.
 

Thus this decision is for increasing liquidity position in the hand of taxpayers.

TDS Rates before and  after Announcement are given below :

TDS Section
Threshold Limit (Rs.)
(i.e. no TDS upto below mentioned amount)
 
TDS Rate (%) upto13th May, 2020
 
TDS Rate (%) from 14th May, 2020 till 31st March, 2021
 
Applicable on Resident /Non Resident
 
Section 192 Payment of Salary
 
Slab Rate
Slab Rate
Same on both
Section 192A: Payment of accumulated balance of provident fund which is taxable in the hands of an employee
 
50,000/-
10 / 10.40* (not applicable on foreign companies)
10 / 10.40* (not applicable on foreign companies)
10 % Resident
10.40%  Non Resident
 
*including health and education cess @ 4%
Section 193: Interest on securities
 
 
10
7.5
Only Resident
Section 194: Dividend
5,000/- (w.e.f. 01/04/2020)
10
7.5
Only Resident
Section 194A:
(a) Interest other than interest on securities
(b) Banks / Co-operative society engaged in business of banking / Post Office
 
(c ) Senior citizen
The interest amount should be earned from the following:
-Deposits with banks;
-Deposits with post offices
-Fixed deposit schemes
-Recurring deposit schemes
 
 
5,000/-
 
 
 
 
40,000/-
 
 
 
 
 
 
 
50,000/-
 
10
 
 
 
 
10
 
 
 
 
 
 
 
10
 
7.5
 
 
 
 
7.5
 
 
 
 
 
 
 
7.5
 
Only Resident
 
 
 
 
Only Resident
 
 
 
 
 
 
 
Only Resident
Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort
10,000/-
30 / 31.2*
30 / 31.20*
30% on Resident
31.2% on Non Resident
*including health and education cess @ 4%
Section 194BB: Income by way of winnings from horse races
10,000/-
30 / 31.2*
30 / 31.2*
30% on Resident
31.2% on Non Resident
*including health and education cess @ 4%
Section 194C: Payment to contractor / sub-contractor
 
Rs 30,000/- per contract or Rs.1,00,000/-  aggregate amount during the year
1 for Individual/HUF
2  for Others
0.75 for Individual/HUF
1.5  for Others
Resident only
Section 194D: Insurance commission
15,000/-
5
3.75
Resident Only
Section 194DA: Payment in respect of life insurance policy w.e.f. 01/09/2019, the tax shall be deducted on the amount of income comprised in insurance pay-out
1,00,000/-
5
3.75
Resident Only
Section 194EE: Payment in respect of deposit under National Savings scheme
2,500/-
10 /10.40* (Not applicable on foreign companies)
7.5 /10.40* (Not applicable on foreign companies)
10%/7.5% for Resident
10.40% for Non Resident
*including health and education cess @ 4%
Section 194F: Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India
20 /20.80* (Not applicable on foreign companies)
15 /20.80* (Not applicable on foreign companies)
20%/15% for Resident
20.80% for Non Resident
 
*including health and education cess @ 4%
Section 194G: Commission, etc., on sale of lottery tickets
15,000/-
5 /5.2*
3.75 /5.2*
5%/3.75% for Resident
5.2% for Non Resident
 
*including health and education cess @ 4%
Section 194H: Commission or brokerage
15,000/-
5
3.75
Resident only
Section 194I: Rent
(a) Plant and Machinery
(b)  Land or building or furniture or fitting
 
2,40,000/-
 
 
2,40,000/-
 
2
 
10
 
1.5
 
7.5
 
Resident only
 
Resident only
Section 194-IA: Payment on transfer of certain immovable property other than agricultural land
50,00,000/-
1
0.75
Resident only
Section 194-IB: Payment of rent by individual or HUF not liable to tax audit
 50, 000/- (per month or part of the month)
5
3.75
Resident only
Section 194-IC: Payment of monetary consideration under Joint Development Agreements
10
7.5
Resident only
Section 194J: Payment for fees for Technical services, Professional services or royalty etc.
30,000/-
10
7.5
Resident only
Section 194K: Payment of any income in respect of
a) Units of a Mutual Fund as per Section 10(23D)
b) Units from the administrator
c) Units from specified company
(This Section is inserted by Finance Act, 2020 which is applicable from 01/04/2020)
 
10
7.5
Resident only
Section 194LA: Payment of compensation on acquisition of certain immovable property
2,50,000/-
10
7.5
Resident only
Section 194M: Payment of commission (not being insurance commission), brokerage, contractual fee, professional fee to a resident person by an Individual or a HUF who are not liable to deduct TDS under section 194C, 194H, or 194J.
Tax shall be deducted under section 194M with effect from 1/09/2019.
 
50,00,000/-
5
3.75
Resident only
Section 194N:
(a) Filed the returns of income for all of the three assessment years relevant to the three previous years and cash withdrawals exceeding 1 cr
(b) Not Filed the returns of income for all of the three assessment years relevant to the three previous years: (This provision is applicable w.e.f. 01 July, 2020)
– Cash withdrawals from 20 Lakhs to 1 Cr
 
 
 
 
 
 
 
 
 
2
 
 
 
 
 
 
2
(w.e.f  01st July, 2020)
 
 
 
2
 
 
 
 
 
 
2 (w.e.f  01st July, 2020)
 
 
 
Resident only
 
 
 
 
 
 
Resident only
Section 194O: Applicable for E-Commerce operator for sale of goods or provision of service facilitated by it through its digital or electronic facility or platform.
(In case the E-commerce participant does not furnish PAN or Aadhar Number to the e-commerce operator, TDS shall be deducted at the rate of 5% under section 206AA of the Act)
(This Section is inserted by Finance Act, 2020 which is applicable from 01/10/2020)
 
1*
0.75
Resident only
*Rate of tax as per Finance Act, 2020. But as per announcement made by finance minister this rate will be taken as 0.75% till 31st March, 2021.

Note: TDS in case of remaining sections are applicable as usual with the similar rates as applicable on it.

TDS Rates before and  after Announcement are given above is available in PDF 

 

TCS Rates before and  after Announcement are given below :
 
TCS Section
Threshold Limit (Rs.)
(i.e. no TCS upto below mentioned amount)
 
TCS Rate (%) upto 13th May, 2020
 
TCS Rate (%) from 14th May, 2020 till 31st March, 2021
 
Remark
206C(1) Sale of Following:
(a) Alcoholic Liquor for Human Consumption
 
(b) Tendu Leaves
 
(c)Timber obtained under a forest lease
 
(d)Timber obtained by any mode other than under a forest lease
 
(e) Any other forest produce not being timber or tendu leaves
 
(f) Scrap
 
(g) Minerals, being coal or lignite or iron ore
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1
 
 
 
5
 
 
2.5
 
 
 
2.5
 
 
 
 
2.5
 
 
 
 
1
 
1
 
 
 
.75
 
 
 
3.75
 
 
1.875
 
 
 
1.875
 
 
 
 
1.875
 
 
 
 
.75
 
.75
Note: When all the mentioned goods are utilized for the purpose of manufacturing, processing, or producing things, the taxes are not payable. If the same goods are utilized for trading purposes then tax is payable. The tax payable is collected by the seller at the point of sale.
206C(1C)Grant of lease or license of the following
(a) Parking lot
 
(b) Toll Plaza
 
(c) Mining and quarrying (other than mining and quarrying of mineral oil, petroleum and natural gas)
 
 
 
 
 
 
 
 
2
 
2
 
2
 
 
 
1.5
 
1.5
 
1.5
Explanation1.For the purposes of this sub-section, “mining and quarrying” shall not include mining and quarrying of mineral oil.
 2. For the purposes of Explanation 1, “mineral oil” includes petroleum and natural gas.
 
206C(1F) Sale of the motor vehicle whether payment is received by cheque or by any other mode
10,00,000/-
1
.75
 
206C(1G)(a)TCS on foreign remittance through Liberalised Remittance Scheme (LRS)
(This Section is inserted by Finance Act, 2020 which is proposed to be applicable from 01/10/2020)
7,00,000/-
0.5%: Where
remittance is a repayment of loan obtained for the
purpose of
pursuing any
education.
5% In any other
case.
(10% for non PAN or Aadhaar cases)
(W.e.f. 01/10/2020)
 
0.5%: Where
remittance is a repayment of loan obtained for the
purpose of
pursuing any
education.
5% In any other
case.
(10% for non PAN or Aadhaar cases)
(W.e.f. 01/10/2020)
 
oThis Section will not apply: -If the buyer is liable to deduct TDS under any other provisions and has deducted.
o
o-If a buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by CG.
 
For more details refer  Note 1 below
206C(1G)(b)
TCS on selling of overseas tour package
(This Section is inserted by Finance Act, 2020 which is proposed to be applicable from 01/10/2020)
 
5%
(10% for non PAN or Aadhaar cases)
(W.e.f. 01/10/2020)
 
5%
(10% for non PAN or Aadhaar cases)
(W.e.f. 01/10/2020)
 
oThis Section will not apply:
o– If the buyer is liable to deduct TDS under any other provisions and has deducted.
– If a buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by CG.
 
For more details refer  Note 2  below
206C(1H)
TCS on sale of any goods [except goods on which TCS applicable as per Section 206C (1), 206C (1F) and 206C (1G)]
(This Section is inserted by Finance Act, 2020 which is proposed to be applicable from 01/10/2020)
 
50,00,000/-
 
(Seller whose turnover / gross receipts exceeds Rs. 10 crore during the financial year immediately preceding the financial year, shall be liable to collect TCS)
0.10%
(1% for non PAN or Aadhaar cases)
(W.e.f. 01/10/2020)
 
0.075%
(1% for non PAN or Aadhaar cases)
(W.e.f. 01/10/2020)
 
oThis Section will not apply:
o– the buyer is liable to deduct TDS under any other provisions of the Act like Alcoholic Liquor for Human Consumption, Scrap, Minerals etc. and has deducted such amount.
o– the buyer is the Central/State Govt., an embassy, a High Commission, Legation, Consulate, the trade representative of foreign state, local authority.
o– any class of person notified by the Central Govt. in the official gazette for the purpose subjects to such condition as specified in that notification.
 
For more details refer  Note 3 below
 

NOTE: TCS Rates before and  after Announcement are given above is available in PDF 

 
 

1. Section 206C(1G)(a) – TCS on foreign remittance through Liberalised Remittance Scheme (LRS):

·An authorised dealer receiving an amount or an aggregate of amounts of seven lakh rupees or more in a financial year for remittance out of India under the LRS of RBI, shall be liable to collect TCS, if he receives sum in excess of said amount from a buyer being a person remitting such amount out of India, at the rate of 5%.
·In non-PAN/Aadhaar cases the rate shall be 10%.
·This section will not be applicable in following cases:
If the buyer is liable to deduct TDS under any other provisions and has deducted.
If a buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by CG.
 
·authorised dealer” is proposed to be defined to mean a person authorised by the Reserve Bank of India under sub-section (1) of section 10 of Foreign Exchange Management Act, 1999 to deal in foreign exchange or foreign security.
Some more in depth clarification on this section to avoid doubts at the time of actual implementation:
·TCS shall be applicable on amount in excess of ₹ 7 lakhs in a financial year and not on the total amount.
·Please note that in cases where the amount is remitted for the purpose of pursuing education through a loan obtained from any financial institute, rate of TCS shall be 0.5% on amount exceeding ₹ 7 lakhs.
·The GST will continue to apply on currency conversion and on Remittance Service Charge. The same will not be applied on the tax collection.

2. Section 206C(1G)(b) – TCS on selling of overseas tour package:

·A seller of an overseas tour program package who receives any amount from any buyer, being a person who purchases such package, shall be liable to collect TCS at the rate of 5%.
·In non-PAN/ Aadhaar cases the rate shall be 10%.
·There is no monetary limit for this transaction, irrespective of any amount TCS must be collected by seller of that package
·This section will not be applicable in following cases:
If the buyer is liable to deduct TDS under any other provisions and has deducted.
If a buyer is CG, SG, an embassy, a high commission, a legation, a commission, a consulate, the trade representation of a foreign state, a local authority or any other person as notified by CG.
 
· “Overseas tour program package” is proposed to be defined to mean any tour package which offers visit to a country or countries or territory or territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expense of similar nature or in relation thereto.

3. Section 206C(1H) – TCS on sale of any goods [except goods on which TCS applicable as per Section 206C(1), 206C (1F) and 206C (1G)]:

·A seller of goods is liable to collect TCS at the rate of 0.075% on consideration received from a buyer in a previous year in excess of fifty lakh rupees.
·Export of goods is not covered under TCS on sale of goods
·In non-PAN/ Aadhaar cases the rate shall be 1%.
·Only those sellers whose total sales, gross receipts or turnover from the business carried on by it exceed ten crore rupees during the financial year immediately preceding the financial year, shall be liable to collect such TCS.
·No such TCS is to be collected, if the seller is liable to collect TCS under other provision of section 206C such as Section 206C (1), 206C (1F) and 206C (1G) or the buyer is liable to deduct TDS under any provision of the Act and has deducted such amount.
·The above provision would not apply where:
 
the buyer is liable to deduct TDS under any other provisions of the Act like Alcoholic Liquor for Human Consumption, Scrap, Minerals etc. and has deducted such amount.
the buyer is the Central/State Govt., an embassy, a High Commission, Legation, Consulate, the trade representative of foreign state, local authority.

 

any class of person notified by the Central Govt. in the official gazette for the purpose subjects to such condition as specified in that notification.
 

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