As part of the highly anticipated announcement, Union Finance Minister Nirmala Sitharaman earlier today made a key tax concession as part of the COVID-19 package to revive the economy. Of the six reforms that the minister spoke about, one was to cut the Tax Deducted at Source (TDS) rates by 25 per cent for non-salaried section.
To whom does TDS deduction apply:
TDS deduction applies to professionals, gig economy workers, contract employees, and independent service providers. It does not apply to salaried employees on a Company’s payroll.
Things to know
1. This change will come into effect immediately, which is from 14 May 2020.
2. The new TDS deduction is likely to benefit contractual employees and non-salaried employees.
3. Payment for contract, professional fees, interest, rent, dividend, commission, brokerage etc. will be eligible under this reduced rate of TDS.
4. This reduction will be applicable until 31 March 2021.
What is the monetary impact?
Prior to this change, TDS was a 10 per cent deduction at the source that the payee would reduce from the payment made, and file the same with the tax department.
The receiver would have to claim the refund while filing the return at the end of the year.
With this change, the TDS applicable has been reduced by 25%, meaning the applicable TDS rate is 7.5%, as against 10% earlier.
If for a professional consultation you had raised an invoice of Rs 1,00,000; under the earlier rules, you would receive only Rs. 90,000 from the payee, with Rs. 10,000 deducted as TDS and filed on your behalf.
However, now you will receive Rs. 92,500 from the payee, thereby increasing immediate income in your hand.
This move, according to this Minister, is likely to infuse almost Rs 50,000 crore liquidity into the economy.
(Edited by Vinayak Hegde)