Changes in TDS Rate in Budget 2016

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In Budget 2016, FM announced an overhaul of Indias tax deducted at sources (TDS) system. Government hasreduced the rates of Tax Deducted at Source (TDS) on several deductions with a view to improve cash flow, especially of small tax payer.

Under the scheme of deduction of tax at source as provided in the Act, every person responsible for payment of any specified sum to any person is required to deduct tax at source at the prescribed rate and deposit it with the Central Government within specified time. However, no deduction is required to be made if the payments do not exceed prescribed threshold limit.

In order to rationalise the rates and base for TDS provisions, the existing threshold limit for deduction of tax at source and the rates of deduction of tax at source are proposed to be revised. Changes in TDS Rate in Budget 2016:

Sl. No. Section Nature of Payments Threshold Limit Rate of TDS
Existing Proposed Existing Proposed
1 192A Payment of accumulated balance of provident fund due to an employee 30,000 50,000 No Change No Change
2 194BB Winnings from a horse race 5,000 10,000 No Change No Change
3 194C Payment to contractors 75,000

Aggregate annual

limit

1,00,000

Aggregate annual

limit

No Change No Change
4 194D Insurance commission 20,000 15,000 10% (rate in force) 5%
5 194DA Payment towards a life insurance policy No Change No Change 2% 1%
6 194EE Payment towards a NSS deposit No Change No Change 20% 10%
7 194G Commission on sale of lottery tickets 1,000 15,000 10% 5%
8 194H Commission or brokerage 5,000 15,000 10% 5%
9 194LA Payment of compensation on acquisition of certain immovable property 2,00,000 2,50,000 No Change No Change

These amendments will take effect from 1st June, 2016. 

Section 194K (Income in respect of units) and Section 194L (Payment of compensation on Acquisition of capital asset) are proposed to be omitted with effect from 1st June, 2016

Notes:

  • Section 194LBB (Units of Investment Funds) to deducted TDS

(a) at the rate of 10% where the payee is a resident;

(b) at the rates in force, where the payee is a non-resident (not being a company) or a foreign company

w.e.f 1st June 2016 

  • Section 194LBC is proposed to be inserted where any income is payable to an investor, being a resident, in respect of an investment in a securitisation trust TDS is to be made @:

(a) 25% if the payee is an individual or a Hindu undivided family;

(b) 30% if the payee is any other person. 

  • It is proposed to amend Section 197 to include section 194LBB, 194LBC in the list of sections for which a certificate for deduction of tax at lower rate or no deduction of tax can be obtained e.f 1st June 2016 
  • It is proposed to amend the provisions of Section 197A for making the recipients of payments referred to in section 194-I (Rent) also eligible for filing self-declaration in Form no 15G/15H for non-deduction of tax at source in accordance with the provisions of section 197A e.f 1st June 2016 
  • It is proposed to amend Section 206AA so as to provide that the said section shall not apply to a nonresident, not being a company, or to a foreign company, in respect of- (a) Payment of interest on long term bond referred in section 194 LC; (b) Any other payment subject to condition as may be prescribed on w.e.f 1st June 2016. 
  • It is proposed to amend the Section 206C (TCS) to provide that the seller shall collect the tax at the rate of 1%:

(a) from the purchaser on sale of motor vehicle of the value exceeding Rs. 10 Lacs; and

(b) sale in cash of any goods (other than bullion and jewellery) or providing of any services (other than payments on which TDS is made) exceeding Rs. 2 Lacs

w.e.f 1st June 2016.

Source: Mr. Alok Patnia, founder of Taxmantra.com

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