Due to this ongoing pandemic of covid-19, Government of India on 13th may 2020 announced reduction in TDS and TCS rate by 25% of existing rates.
As per government’s estimation this measure will release Liquidity of Rs. 50,000 crores.
This reduction in rates shall be applicable from 14th may 2020 to 31st March 2021.
Payment for contract, professional fees, interest, rent, etc. shall be eligible for this reduced rate of TDS.
Note: Salaried employees are not covered and accordingly, their TDS will be deducted as per normal provisions.
This step was taken to provide immediate working capital or liquidity to the persons but it doesn’t mean that final tax liability of an assessee at the time of filing ITR will get reduce.
For Example:
Mr. A is professional service provider, having turnover during the year Rs. 10 Lakhs.
TDS under normal rate @ 10% is Rs. 1 Lakh
TDS at reduced rate will be @7.5% is Rs. 75,000/-
But on or before filing of his income tax return Mr. A has to pay Self-Assessment Tax u/s 140A of Income-tax Act, 1961. As his tax credit is reduced with the reduction in TDS rate which leads to increase in tax liability, to be paid in the form of Self-assessment tax.
Crux:
So, it can be said that the purpose of reduction in tax rate is to provide liquidity during the year to the assesses because of financial crisis emerged in the Covid 19 situation and not to reduce the revenue of the government.
