Reduction in Rate of TDS and TCS Notified by Section 197B of Income Tax

Taxation and Other Laws (Relaxation and Amendment of Certain. Provisions) Act, 2020 (“Taxation Act”) has amended the Income Tax Act, 1961 and inserted a new section 197B to provide for lower deduction of tax (TDS) for a limited period beginning from 14th May 2020 and ending on 31st March 2021. This legislative amendment is introduced after announcement of reduced or lower rate of TDS and TCS for the FY 2020-21 (from 14.05.2020 to 31.03.2021) by the Finance Minister on 13.05.2020 and the subsequent reduction in the rate of TDS/TCS for various provisions notified by the CBDT vide its Press Release dated 13.05.2020. Similarly, section 206C(10A) is introduced in the Income Tax Act, 1961 to provide for the lower collection of tax (TCS) for a limited period beginning from 14th May 2020 and ending on 31st March 2021. The Taxation Act has included the aforesaid amendments in the Income Tax Act, 1961 with retrospective effect from 14th May 2020.

Earlier in May 2020, the government announced to lower the rate of TDS on payments to residents other than salary payments. There is no reduction in rate of TDS on salaried payments since TDS on salary payments is made at the prescribed income-tax rates and there is no reduction in income tax rates. The new rate of TDS is reduced to 75% of the prescribed rates of TDS.

Similarly, rates of TCS were also reduced to 75% of the prescribed rates of TCS.

The decision was taken to provide more funds at the disposal of the taxpayers for dealing with the economic situation arising out of COVID-19 pandemic.

On 13.05.2020, CBDT vide a Press Release announced the reduction of rate of TDS/TCS and also provided a list of new rates of TDS/TCS to be applicable from 14.05.2020 to 31.03.2021. However, no legislative amendment was carried out.

Now the Taxation Act has amended the provisions of Income Tax Act and inserted section 197B for lower deduction of tax or TDS and sub-section (10A) to section 206C for lower collection of tax (TCS).

Section 197B for lower deduction of tax (TDS) reads as under-

Lower deduction in certain cases for a limited period.

197B. In case the provisions of sections 193, 194, 194A, 194C, 194D, 194DA, 194EE, 194F, 194G, 194H, 194-I, 194-IA, 194-IB, 194-IC, 194J, 194K, 194LA, sub-section (1) of section 194LBA, clause (i) of section 194LBB, sub-section (1) of section 194LBC, sections 194M and 194-O require deduction of tax at source during the period commencing from the 14th day of May, 2020 to the 31st day of March, 2021, then notwithstanding anything contained in these sections the deduction of tax shall be made at the rate being the three-fourth of the rate specified in these sections.

Section 206C(10A) for lower deduction of tax (TDS) reads as under-

(10A) In case the provisions of sub-section (1) [except the goods referred at serial number (i) in the TABLE], (1C), (1F) or (1H) require collection of tax at source during the period commencing from the 14th day of May, 2020 to the 31st day of March, 2021, then, notwithstanding anything contained in these sub-sections the collection of tax shall be made at the rate being the three-fourth of the rate specified in these sub-sections.

New lower/reduced TDS Rate Chart for FY 2020-21 as per section 197B of the Income Tax Act from 14.05.2020 to 31.03.2021

S.No.	Section	Nature of Payment	Existing Rate of TDS	Reduced rate from 14/05/2020 to 31/03/2021
1.	193	Interest on Securities	10%	7.5%
2.	194	Dividend	10%	7.5%
3.	194A	Interest other than interest on securities	10%	7.5%
4.	194C	Payment of Contractors and sub-contractors	1% (individual/HUF) 2% (others)	0.75% (individual/HUF) 1.5% (others)
5.	194D	Insurance Commission	5%	3.75%
6.	194DA	Payment in respect of life insurance policy	5%	3.75%
7.	194EE	194EE Payments in respect of deposits under National Savings Scheme	10%	7.5%
8.	194F	Payments on account of re-purchase of Units by Mutual Funds or UTI	20%	15%
9.	194G	Commission, prize etc., on sale of lottery tickets	5%	3.75%
10.	194H	Commission or brokerage	5%	3.75%
11.	194-I(a)	Rent for plant and machinery	2%	1.5%
12.	194-I(b)	Rent for immovable property	10%	7.5%
13.	194-IA	Payment for acquisition of immovable property	1%	0.75%
14.	194-IB	Payment of rent by individual or HUF	5%	3.75%
15.	194-IC	Payment for Joint Development Agreements	10%	7.5%
16.	194J	Fee for Professional or Technical Services (FTS), Royalty, etc.	2% (FTS, certain royalties, call centre) 10% (others)	1.5% (FTS, certain royalties, call centre) 7.5% (others)
17.	194K	Payment of dividend by Mutual Funds	10%	7.5%
18.	194LA	194LA Payment of Compensation on acquisition of immovable property	10%	7.5%
19.	194LBA(1)	Payment of income by Business trust	10%	7.5%
20.	194LBB(i)	Payment of income by Investment fund	10%	7.5%
21.	194LBC(1)	Income by securitisation trust	25% (Individual/HUF) 30% (Others)	18.75% (Individual/HUF) 22.5% (Others)
22.	194M	Payment to commission, brokerage etc. by Individual and HUF	5%	3.75%
23.	194-O	TDS on e-commerce participants	1% (w.e.f. 1.10.2020)	0.75%

New lower/reduced TCS Rate Chart for FY 2020-21 as per section 206C(10A) of the Income Tax Act from 14.05.2020 to 31.03.2021

S.No.	Section	Nature of Receipts	Existing Rate of TCS	Reduced rate from 14/05/2020 to 31/03/2021
1.	206C(1)	Sale of
		(ii) Tendu Leaves	5%	3.75%
		(iii) Timber obtained under a forest lease	2.5%	1.875%
		(iv) Timber obtained by any other mode	2.5%	1.875%
		(v) Any other forest produce not being timber/tendu leaves	2.5%	1.875%
		(vi) Scrap	1%	0.75%
		(vii) Minerals, being coal or lignite or iron ore	1%	0.75%
2.	206C(1C)	Grant of license, lease, etc. of
		(i) Parking lot	2%	1.5%
		(ii) Toll Plaza	2%	1.5%
		(iii) Mining and quarrying	2%	1.5%
3.	206C(1F)	Sale of motor vehicle above 10 lakhs	1%	0.75%
4.	206C(1H)	Sale of any other goods	0.1% (w.e.f 01.10.2020)	0.075%

Notes:

1. There is no reduction in the rate of TDS under section 194N regarding TDS on Cash WIthdrawal as introduced by the Finance (No. 2) Act, 2019 and as amended by the Finance Act, 2020.

 

2. There is no reduction in the rate of TCS under section 206C(1G) regarding TCS on Overseas Tour Package as introduced by the Finance Act, 2020.

It was clarified by the CBDT in the aforesaid press release that there shall be no reduction in rates of TDS or TCS, where the tax is required to be deducted or collected at higher rate due to non-furnishing of PAN/Aadhaar. For example, if the tax is required to be deducted at 20% under section 206AA of the Income-tax Act due to non-furnishing of PAN/Aadhaar, it shall be deducted at the rate of 20% and not at the rate of 15%.

One should note that even though there is a reduction in the rate of TDS/TCS there is no reduction in the final rates of income-tax. As a result, a person may have to pay a higher amount of advance tax or self-assessment tax due to reduction in deduction of tax.

Further Readings:

New reduced TDS Rate Chart for FY 2020-21 and Income Tax Relief Measures

Amended Section 194N-TDS on Cash Withdrawals from 2020-21

Changes in TDS and TCS Provisions in Union Budget 2020

Changes in TDS Rates and Provisions in Union Budget 2019

Changes in TCS Provisions from FY 2020-21 after enactment of Finance Act, 2020

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