The government’s move to reduce the rates of tax deduction at source (TDS) and tax collection at source (TCS) by 25% is set to benefit investors and professionals. While this doesn’t bring down the tax liability of taxpayers, it leaves more money in their hands during the course of the financial year. Whatever is the tax liability, the individual will need to pay it every quarter (those liable for advance tax), or while filing the return.
For instance, for an individual who has an FD with a bank, the bank deducts 10% TDS every year on the income that the depositor earns by way of interest. If the depositor earns, say, ₹15,000 by way of interest every year, the bank would deduct ₹1,500, and deposit it with the government. Now, banks will deduct ₹1,125. “This way, the lower TDS and TCS will leave more money in the hands of the individuals," said Naveen Wadhwa, a chartered accountant with taxmann.com.
Usually, the payee deducts TDS or TCS on behalf of the receiver and deposits it with the government. TDS and TCS are ways that help the government to bring more people into the tax net, prevent tax avoidance.
The lower rates of TDS and TCS will also help those who usually get tax refunds, because if the TDS or TCS deducted is higher than the tax liability of the assessee, they will have to wait until their tax returns are filed and the tax department has processed it. However, Wadhwa cautioned that taxpayers will need to ensure they pay up the tax liability, if any, on time. “Otherwise, when filing returns, they will need to pay interest on the tax outstanding," he added.
Depositors are just one example. The biggest beneficiary of this provision are professionals, such as chartered accountants, architects, doctors, lawyers, engineers and freelancers, who have their own practice or consultancy. When they receive payment for their service, the payee deducts 10% from the remuneration. Now, the payees will deduct 7.5%. Similarly, tenants who pay a monthly rent of over ₹50,000 need to deduct TDS from the payment. There’s 10% TDS on dividends or when a salaried person makes a withdrawal from employees’ provident fund without completing five years of continuous service.