Changes in the TDS & TCS Provisions by the Finance Act – 2020


Changes in the TDS & TCS Provisions by the Finance Act – 2020

With every Finance Act, changes occur in the provision related to the Tax Deduction at Source (TDS) & Tax Collection at Source (TCS). Finance Act -2020 is no more exceptions. Here is a snapshot of few important changes done by FA-2020 in the TDS/TCS provisions:


1.      Large Credit co-operative societies are also liable for TDS on Interest:
Scope of TDS has been expanded by the FA – 2020. Now, Interest paid by certain large co-operative societies whose gross receipts exceed Rs. 50 crore during the preceding financial year will be subject to TDS @ 10%. However, interest will be liable for TDS only if the amount exceeds Rs. 40,000/- (Rs. 50,000 for senior citizens). It seems that the scope would slowly be extended to other co-operative societies as well in years to come.

2.      Reduction in TDS Rate of Fees for Technical Service:

There were litigations as to applicability of TDS on some of the technical service, whether it is a liable for TDS u/s 194C @ 2% or u/s 194J @ 10%.  The litigation has been put to rest by covering it specifically under section 194J. Further, the rate of TDS U/s 194J for in the case of fees for technical services (other than professional services) has been specified at 2% (so as to align it with the TDS rate u/s 194C) as against 10% for other payments


3.      Widening of the definition of ‘works’ u/s 194C: 
Presently, TDS is applicable u/s 194C if material is manufactured or supplied according to the requirements of a customer by using material purchased from such customers. However, the scope of TDS u/s 194C has been widened by including the transactions wherein the material is provided by the associates of assessee.

4.      Dividend Payment now liable for TDS:
The Dividend Distribution Tax (DDT) has been abolished & it has been totally made taxable in the hands of the recipient as other regular income. The dividend payment by the companies by the domestic company funds is now made liable for TDS us 194 @ 10%, subject to a threshold limit of Rs. 5,000/-.


5.      Impact of TDS on cash withdrawals widened if the person is not filing income Tax Return (Section 194N):
In the last year, section 194N was introduced so as to provide for TDS @ 2% on cash withdrawals from bank & post office if withdrawals amount exceeds Rs. 1 Cr. The provision is now amended so as to provide that, if the person withdrawing cash has not filed ITR for the last 3 years & submitted the same to the bank/post office then TDS will be required @ 2% for amount between Rs. 20 Lakh to Rs. 1 Crore & @ 5% for amount exceeding Rs. 1 Cr. The new provision is applicable from 01.07.2020.


6.      E-commerce transactions also liable for TDS:
To widen and deepen the tax net, now e-commerce operator will also be required to do TDS on all payments /credits to a e-commerce participants @ 1% in PAN/Aadhaar cases & 5% in non-PAN/Aadhaar cases. To provide ease of business, it is provided that that no TDS would be required in case of (a) small businessman carrying out business as an individual and HUF (b) who receives less than Rs. 5 Lakh and (c) furnishes PAN/Aadhaar.


7.      TDS on income from Mutual Fund:
A new section 194K is introduced in the Income Tax Act – 1961 so as to provide for TDS @ 10% on payment of any income in respect of units of a Mutual Fund. There is a threshold limit of Rs 5,000 & so income below this amount will not suffer TDS.


8.      TDS obligation totally delinked with Tax Audit Provision:
The limit for tax audit has been enhanced to Rs. 5 Crore for those classes of taxpayers who have minimum of 95% of receipts and payments transactions through any mode other than cash. TDS/TCS provisions contained in sections 194A, 194C, 194H, 194I, 194J, 206C etc fasten liability of TDS/TCS on certain categories of person, if the gross receipt or turnover from the business or profession carried on by them exceed the monetary limit specified in clause (a) or clause (b) of section 44AB.  In order to avoid the confusion to the taxpayers, all above sections requiring TDS / TCS compliances has been amended so to replace the reference to the monetary limit specified in clause (a) or clause (b) of section 44AB of the Act with Rs. 1 crore in case of the business or Rs. 50 Lakh in case of the profession, as the case may be.


9.      Tax Collection At Source (TCS) net Widening:
TCS net has been widened drastically by the FA-2020 by including following 3 additional categories of transactions within its fold:
a) Foreign remittance through Liberalized Remittance Scheme (LRS) of RBI if the remittance is exceeding Rs. 7 Lakh.
b)  Sale of overseas Tour Package. There is no threshold for such transactions.
c)  Sale of goods of any nature by a seller who is having a turnover exceeding Rs. 10 Crore if the receipt from any buyer is exceeding Rs. 50 Lakh.

All above TCS provisions are made applicable w.e.f. 01.10.2020.

Some of the important payments liable for TDS are summarized in a chart for the easy reference of the taxpayers:

Section Nature of Payment Applicable TDS Threshold Limit
192 Salary According to applicable Slab Rate, depending upon the old or new tax regime opted by the employee. According to Slab Rate
194A Interest Other Interest on Securities 10% 5,000/-.

[Rs, 40,000/- if the payer is a bank or a large credit co-operative society. Rs. 40,000/- will be replaced by Rs. 50,000 if the recipient is a senior citizens)
194C Payment to Contractor / Sub Contractor a)     1% for payment to Individual/ HUF

b)     2% for Others

30,000/- for Individual Contract / 1,00,000 in Aggregate
194H Commission / Brokerage 5% 15,000
194I Rent a)     10% for Payment of rent for Land & Building,

b)     2 % for  Payment of Rent for Plant & Machinery

194IA Payment on purchase of Immovable Property 1% 50,00,000
194J Payment for fees for Technical & Professional Services a)     10% for Payment of Professional Fees

b)     2 % for Payment of technical services

195 Payment to Non Residents As applicable tax rate depending upon the nature of payment.


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