EY Tax Alert CBDT provides guidance on reduction in withholding tax rates for residents announced by Finance Minister
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14 May 2020
EY Tax Alert
CBDT provides guidance on
reduction in withholding tax
rates for residents
announced by Finance
Minister
Tax Alerts cover significant Executive summary
tax news, developments and
changes in legislation that In the present, unprecedented and difficult times, due to the global pandemic COVID-
19, the Hon’ble Prime Minister announced, on 12 May 2020, that the Government of
affect Indian businesses. They India (GOI) is rolling out an INR20trillion economic stimulus package (equivalent to 10%
act as technical summaries to of India’s Gross Domestic Product) under the theme of ”Self-Reliant India Movement”
to provide relief to various sectors and drive the country towards self-reliance. The
keep you on top of the latest tax details of the package are to be announced in various tranches by the Finance Minister
issues. For more information, (FM).
please contact your EY advisor. In the first tranche of 15 measures announced by the FM on 13 May 2020, the FM
announced direct tax relief measures by way of reduction in withholding tax rates for
residents, expeditious release of refunds for non-corporates and deferment of dates
for certain compliances [1].
The Central Board of Direct Taxes (CBDT) provided further guidance on reduction in
withholding tax rates for residents through a press release dated 13 May 2020 (Press
release). This Tax Alert discusses the Press Release and key considerations for
taxpayers.
[1] Refer our Flash News dated 13 May 2020 “Government of India announces first tranche of COVID-19
direct tax relief measures under “Self-Reliant India Movement” announced by Prime Minister”► There is no reduction in TCS rate @ 5% for
Object of reduction in payment to Authorised Dealers in excess of
withholding tax rates INR0.7m towards Liberalised Remittance Scheme
of Reserve Bank of India and payment to seller for
overseas tour program package which shall come
The Press Release clarifies that in order to provide more into effect from 1 October 2020. Please also refer
funds at the disposal of taxpayers for dealing with the Table 2 in Annexure C.
economic situation arising out of the COVID-19
pandemic, the rates for withholding/deduction of tax at
source (TDS) for the specified non-salaried payments No reduction in TDS/TCS rates
made to residents and collection of tax at source (TCS)
for specified receipts have been reduced by 25% for the in absence of PAN[3]/Aadhar
period from 14 May 2020 to 31 March 2021.
The Income Tax Act (ITA) requires TDS/TCS at a higher
rate wherever the payee/payer does not furnish his
Specified non-salaried payments PAN or Aadhar. The Press Release clarifies that there
to residents qualifying for shall be no reduction in TDS/TCS rate where tax is
required to be deducted/collected at a higher rate due
reduced TDS rates to non-furnishing of PAN/Aadhar. For example, if
higher rate of TDS due to non-furnishing of
PAN/Aadhar is 20%, it shall continue to be deducted at
The table providing details of non-salaried payments to 20% and not at reduced rate of 15%.
residents qualifying for reduced TDS rates till 31 March
2021, as clarified in the Press Release, is at Table 1 in
Annexure A. Cases of lower TDS/TCS
The following key points emerging from the guidance The ITA permits payee/payers to obtain lower TDS/TCS
may be noted: certificates (LDC) from the Tax Authority, in which case
► The reduced TDS rates will apply for amounts paid or the payer/payee can apply such lower rates. The Press
credited during the period from 14 May 2020 to 31 Release is silent on the impact of reduction of TDS/TCS
March 2021. rates wherever such LDCs are available. However, we
believe that the payers/payees can consider the
reduced rates as announced by the Press Release or
► There are certain payments like payment of
the rate as per LDC, whichever is lower. In the absence
accumulated balance due to an employee from
of any clarity in the Press Release, it may not be
Employees’ Provident Fund Scheme, 1952
appropriate to consider LDC rate to have reduced by
(statutory PF), cash withdrawals in excess of
25%.
INR10m [2] from banks or post offices, winnings from
lotteries, games, horse races etc., to which the
reduced rates shall not apply. Please refer Table 2 in
Annexure A.
Legislative amendments
► There is also no reduction in TDS rates on payments
The Press Release clarifies that legislative amendments
to non-residents. Please refer table at Annexure B
with regard to the announcements on TDS/TCS rate
for a list of such payments and applicable TDS rates
reduction shall be proposed in due course. However, we
which remain unchanged.
believe, considering the extraordinary unprecedented
circumstances, as also the object to provide liquidity to
Specified receipts qualifying for taxpayers, the payers/payees may apply the reduced
rates as per the Press Release without waiting for the
reduced TCS rates legislative amendments which, most likely, will be
retroactive covering the period from 14 May 2020
onwards.
The table providing details of receipts qualifying for
reduced TCS rates till 31 March 2021, as clarified in the
Press Release, is at Table 1 in Annexure C.
The following key points emerging from the guidance
may be noted:
► The reduced TCS rates will apply for amounts
received or debited during the period from 14 May
2020 to 31 March 2021.
[2] With effect from 1 July 2020, stricter norms apply in case of
[3] Permanent Account Number
persons who have defaulted in filing of income tax returns for three
successive years. TDS @ 2% will apply for cash withdrawals
exceeding INR2m and @ 5% for cash withdrawals exceeding INR10m.Comments The Press Release provides more specific details for guidance of taxpayers on the reduction of TDS/TCS rates. The measure may provide liquidity to taxpayers to deploy the funds in their business to meet more urgent needs. As per the FM’s announcement, the measure is likely to release liquidity of INR0.5trillion in the economy. It may be noted that TDS/TCS is only a provisional collection of tax and the taxpayer will need to pay shortfall, if any, by way of advance tax or self- assessment tax along with interest, if applicable.
Annexure A
Table 1 - Specified non-salaried payments to residents qualifying for reduced TDS rates till 31 March 2021 as
clarified in the Press Release
S. Section Nature of Payment Existing Rate Reduced rate with
no. Of TDS effect from 14 May
2020 till 31 March
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 subcontractors 1% (individual/ 0.75%(individual/HUF)
HUF) 1.5% (others)
2% (others)
5. 194D Insurance commission 5% 3.75%
6. 194DA Payment in respect of life insurance policy 5% 3.75%
7. 194EE Payments in respect of deposits under 10% 7.5%
National Savings Scheme
8. 194F Payments on account of re-purchase of units 20% 15%
by mutual funds or UTI
9. 194G Commission, prize etc., on sale of lottery 5% 3.75%
tickets
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 1% 0.75%
property
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 2% (FTS, certain 1.5% (FTS,
(FTS), royalty, etc. royalties, call certain royalties, call
centre) centre)
10% (others) 7.5% (others)
17. 194K Payment of dividend by mutual funds 10% 7.5%
18. 194LA Payment of compensation on acquisition of 10% 7.5%
immovable property
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% 18.75%
(individual/ HUF) (individual/ HUF)
30% (Others) 22.5% (Others)
22. 194M Payment to commission, brokerage etc. by 5% 3.75%
individual and HUF
23. 194- O TDS on e-commerce participants 1% (w.e.f. 0.75%
1 October2020)
Table 2 - Payments not qualifying for reduced TDS rates till 31 March 2021
S. no.
Section Nature of payment TDS rate
1 192A Payment of accumulated balance of provident fund from 10%
Employees’ Provident Fund Scheme 1952 which is taxable in
the hands of an employee
2 194B Income by way of winnings from lotteries, crossword puzzles, 30%
card games and other games of any sort
3 194BB Income by way of winnings from horse races 30%
4 194N TDS on cash withdrawal in excess of specified limits 2%/5%Annexure B
Payments to non-residents not qualifying for reduced TDS rates till 31 March 2021
S. no.
Section Particulars TDS rate[4]
1 194E Payment to non-resident sportsmen/sports association 20%
2 194LB Payment of interest on infrastructure debt fund 5%
3 194LBA (2) Payment of interest and dividend income by business trust 5%/10%
4 194LBA (3) Payment of other income by business trust Rates in
force
5 194LBB(ii) Payment of income by alternative investment fund Rates in
force
6 194LBC(2) Payment of income by securitisation trust Rates in
force
7 194LC Payment of interest by an Indian company or a business trust 5%/4%[5]
in respect of money borrowed in foreign currency
8 194LD Payment of interest on rupee denominated bond of an Indian 5%
company or government securities to a foreign portfolio
investor
9 195 Payment of any other sum chargeable to tax Rates in
force
10 196B Income from units (including long-term capital gain on 10%
transfer of such units) to an offshore fund
11 196C Income from foreign currency bonds or Global Depository 10%
Receipts (GDR) of an Indian company (including long-term
capital gain on transfer of such bonds or GDR)
12 196D Income of foreign institutional investors from securities (not 20%
capital gain arising from such securities)
[4] To be increased by applicable surcharge and cess
[5] In case where interest is payable in respect of long-term bond or rupee denominated bond listed on recognized stock exchange located in
International Financial Services Centre (IFSC)Annexure C
Table 1 - Specified receipts qualifying for reduced TCS rates till 31 March 2021 as clarified in the Press Release
S. Section Nature of receipts Existing rate of Reduced
no. TCS rate with effect from
14 May 2020
till 31 March 2021
1. 206C (1) Sale of
(a) Tendu leaves 5% 3.75%
(b) Timber obtained under a forest lease 2.5% 1.875%
(c) Timber obtained by any other mode 2.5% 1.875%
(d) Any other forest produce not being 2.5% 1.875%
timber/tendu leaves
(e) Scrap 1% 0.75%
(f) Minerals, being coal or lignite or iron ore 1% 0.75%
2. 206C Grant of license, lease, etc. of 2% 1.5%
(1C) (a) Parking lot
(b) Toll plaza 2% 1.5%
(c) Mining and quarrying 2% 1.5%
3. 206C(1F) Sale of motor vehicle above INR 10 lakhs 1% 0.75%
4. 206C(1H) Sale of any other good 0.1% (w.e.f 0.075%*
1 October 2020)
*The Press Release erroneously mentions 0.75% which may get rectified.
Table 2 - Receipts not qualifying for reduced TCS rates till 31 March 2021
S.No.
Section Particulars TCS rate
1 206C (1) Sale of alcoholic liquor for human consumption 1%
2 206C (1G) Remittance out of India under liberalized remittance scheme 5%/0.5% [6]
(LRS) or sale of an overseas tour programme package
[6] For remittance out of education loan borrowed from specified financial institution for pursuing educationErnst & Young LLP
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