Experts pointed out the move will only help taxpayers temporarily, as the tax liability remained the same and the date for advance tax has not been extended.
Boosting short-term liquidity for businesses, Finance Minister Nirmala Sitharaman on Wednesday reduced the TDS (tax deduction at source) and TCS (tax collection at source) rates for non-salaried payments by 25 per cent up to March 31, 2021, and extended key deadlines related to return filing.
The move will help release liquidity worth Rs 50,000 crore, according to government estimates.
Experts, however, feel that its impact will be limited as tax incidence remained the same.
The first instalment of advance tax falls due on June 15.
The announcement is part of Prime Minister Narendra Modi’s Rs 20-trillion financial package to fight the economic impact of the Covid-19 pandemic.
Sitharaman said TDS for non-salaried specified payments and TCS for specified receipts will reduce by 25 per cent of their existing rates to provide more money in the hands of taxpayers.
The reduced TDS rate will apply to the payment for contract, professional fees, interest, rent, dividend, commission, and brokerage for the remaining part of FY21, that is, from May 14 to March 31.
Easing the compliance burden, the government extended the due date for filing income tax return for the financial year 2019-20 from July 31 to November 30.
Similarly, the tax audit deadline has been extended from September 30 to October 31.
However, experts pointed out the move will only help taxpayers temporarily, as the tax liability remained the same and the date for advance tax has not been extended.
Besides, taxpayers will need to re-work their advance tax liability to be deposited on June 15 – the first instalment.
Naveen Wadhwa, DGM, Taxmann, said the reduction in the rate of TDS/TCS will help self-employed, professionals, and senior citizens earning interest income or rental income.
“However, it should be noted that the relaxation in the rate of TDS/TCS will not have any impact on the ultimate tax liability of a taxpayer.
“Thus, any deficit in tax liability, due to the reduced rate of TDS/TCS, should be payable through advance-tax instalments.
“Any short-fall in the deposit of advance-tax will attract interest under Section 234B and 234C,” he said.
Archit Gupta, founder and CEO, ClearTax, said taxpayers will have to exercise caution at the time of payment of self-assessment tax and compute it accurately.
“Ultimately, they will pay tax at the rates applicable to them; there’s no reduction in tax rates, but only a short-term reduction in the deduction of tax at source,” he said.
The finance minister extended the last date of the flagship tax dispute resolution scheme – Vivad Se Vishwas – from June 30 to December 31 to allow more entities to participate in the scheme.
Daksha Baxi, head, International Taxation, Cyril Amarchand Mangaldas, said this will make it possible for litigation-ridden taxpayers to consider their options with greater clarity. This will likely enable more taxpayers to take advantage of the scheme.
The government also announced expediting refunds due to all charitable organisations and other non-corporate taxpayers.
Sitharaman said the income tax department has already cleared refunds worth over Rs 18,000 crore, where the refund due was up to Rs 5 lakh.
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