Finance Minister Nirmala Sitharaman on Wednesday announced reduction of the tax deducted at source for non-salaried income by 25 per cent of the existing rates along with tax collected at source. The reduced rates will be applicable starting Thursday and be valid till March 31, 2021.
"This would place more funds at the disposal of the taxpayers. We think this measure will release liquidity of Rs 50,000 crore for people who otherwise would have paid the tax," said Sitharaman.
This reduced rate of TDS (Tax deducted at source) and TCS (Tax collected at source) will be available for payment for contract, professional fees, interest, rent, dividend, commission and brokerage income.
Tax deduction at source is a means of collecting tax on income, dividends or asset sales, by requiring the payer to deduct tax due before paying the balance to the payee.
In India, under the Indian Income Tax Act of 1961, income tax must be deducted at source as per the provisions of the Income Tax Act, 1961. TDS is deducted for payments of salaries, interest payments by banks, commission payments, rent payments, consultation fees and professional fees.
However, individuals are not required to deduct TDS when they make rent payments or pay fees to professionals like lawyers and doctors.
TDS is an advance tax. It is tax that is to be deposited with the government periodically and the onus of the doing it on time lies with the deductor.
TCS, on the other hand, is the tax payable by a seller which he collects from the buyer at the time of sale. Section 206C of the Income-tax act governs the goods on which the seller has to collect tax from the purchasers.
Meanwhile, the government also extended the due date of all income tax returns for the financial year 2019-20 from 31 July 2020 and 31 October 2020 to 30 November 2020. The due date of tax audits from 30 September 2020 has been pushed to 31 October 2020.