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Direct Taxation and EPF related Measures as a part of Fiscal Stimulus

PM Modi addressed the nation on Covid-19 crisis and the ongoing lockdown situation five days before the termination date of Lockdown 3.0. He announced an extension of lockdown. He also announced a Rs. 20 Lakh Crore fiscal stimulus for businesses and people at large and said that the details regarding the same will follow soon.

A day after MP Modi’s speech, Finance Minister Nirmala Sitharaman addressed a press conference to provide further details on the fiscal stimulus package. The package has come with reforms in many areas such as Income Tax, EPF, benefits for MSMEs and poorer section of the country. In this article we will focus on Income Tax and EPF related changes.

Income Tax related Measures:

Reduction in TDS/TCS Rates:
  • In order to provide more funds at the disposal of the taxpayers, the rate of Tax Deduction at Source (TDS) for non-salaried specified payments made to residents and rates of Tax Collected at Source (TCS) for the specified receipts shall be reduced by 25% of the existing rates.
  • Payment for Contract, Professional fees, interest, rent, dividend, commission, brokerage, etc. shall be eligible for this reduced rate of TDS.
  • This reduction shall be applicable for the remaining part of the FY 2020-21.
  • This measure will release liquidity of Rs. 50,000 Crore.

TDS Rates Applicable from 14/05/2020 to 31/03/2021

Section Nature of Payment Existing Rate Reduced Rate
193 Interest on Securities 10% 7.5%
194 Dividend 10% 7.5%
194A Interest other than interest on securities 10% 7.5%
194C Payment of Contractors and sub-contractors Individual/HUF 1% 0.75%
Others 2% 1.5%
194D Insurance Commission 5% 3.75%
194DA Payment in respect of life insurance policy 5% 3.75%
194EE Payments in respect of deposits under National Savings Scheme 10% 7.5%
194F Commission, prize etc., on sale of lottery tickets 5% 3.75%
194G Payments on account of re-purchase of Units by Mutual Funds or UTI 20% 15%
194H Commission or brokerage 5% 3.75%
194-I(a) Rent for plant and machinery 2% 1.5%
194-I(b) Rent for immovable property 10% 7.5%
194-IA Payment for acquisition of immovable property 1% 0.75%
194-IB Payment of rent by individual or HUF 5% 3.75%
194-IC Payment for Joint Development Agreements 10% 7.5%
194J Fee for Professional or Technical Services (FTS), Royalty, etc. FTS, certain royalties, call centre 2% 1.5%
Others 10% 7.5%
194K Payment of dividend by Mutual Funds 10% 7.5%
194LA Payment of Compensation on acquisition of immovable property 10% 7.5%
194LBA(1) Payment of income by Business trust 10% 7.5%
194LBB(i) Payment of income by In- vestment fund 10% 7.5%
194LBC(1) Income by securitization trust Individual/HUF 25%% 18.75%
Others 30% 22.5%
194M Payment to commission, brokerage etc. by Individual and HUF 5% 3.75%
194-O TDS on e-commerce participants 1% (w.e.f. 1.10.2020) 0.75%

TCS Rates Applicable from 14/05/2020 to 31/03/2021

Section Nature of Payment Existing Rate Reduced Rate
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 timber/tendu leaves 2.5% 1.875%
(e) Scrap 1% 0.75%
(f) Minerals, being coal or lignite or iron ore 1% 0.75%
206C(1C) Grant of license, lease, etc. of…
(a) Parking lot 1% 1.5%
(b) Toll Plaza 1% 1.5%
(c) Mining and quarrying 1% 1.5%
206C(1F) Sale of motor vehicle above 10 lakhs 1% 0.75%
206C(1H) Sale of any other goods 0.1% (w.e.f 01.10.2020) 0.75%

Note: It is further stated that there shall be no reduction in rates of TDS or TCS, where the tax is required to be deducted or collected at higher rate due to non-furnishing of PAN/Aadhaar. For example, if the tax is required to be deducted at 20% under section 206AA of the Income-tax Act due to non-furnishing of PAN/Aadhaar, it shall be deducted at the rate of 20% and not at the rate of 15%.

Extension in Income Tax Return Filing Due Date:

Old Date Extended Date
31st July 2020 30th November 2020
31st October 2020
30th September 2020 (Audit Report) 31st October 2020
Other Direct Tax Measures:
  • All pending refunds to charitable trusts and non-corporate businesses & professions including proprietorship, partnership, LLP, and Co-operative shall be issued immediately.
  • Date of Assessment getting barred on 30th September 2020 extended to 31st December 2020 and those getting barred on 31st March 2021 will be extended to 30th September 2021.
  • Period of Vivad se Viswas Scheme for making payment without additional amount will be extended to 31st December 2020.

Relief to Members of EPF Scheme:

2500 Crore EPF Support for Business & Workers for 3 More Months for Eligible Establishments:
  • Under Pradhan Mantri Garib Kalyan package (PMGKP), payment of 12% of employer and 12% employee contribution was made into EPF accounts of eligible establishments.
  • Eligible establishment means an establishment employing less than 100 workers.
  • This was provided earlier for salary months of March, April and May 2020.
  • This support will be extended by another 3 months to salary months of June, July and August 2020.
  • This will provide liquidity relief of Rs. 2500 Cr. to 3.67 lakh establishments and for 72.22 lakh employees.
  • Five crore workers registered under Employee Provident Fund EPF to get non-refundable advance of 75% of the amount or three months of the wages, whichever is lower, from their accounts.
Rs. 6750 Crore Liquidity Support For establishments other than Eligible Establishments:
  • For employees who do not qualify for above PMGKP scheme of 24% EPF support will be benefited by reduction in the statutory PF contribution rate for both employers and employees.
  • The purpose is to provide more take home salary to employees and also to give relief to employers in payment of Provident Fund Dues.
  • Therefore, statutory PF contribution of both employer and employee will be reduced to 10% each from existing 12% each for all establishments covered by EPFO for next 3 months.
  • CPSEs and State PSUs will however continue to contribute 12% as employer contribution.
  • This will provide relief to about 6.5 lakh establishments covered under EPFO and about 4.3 crore such employees.
  • This will provide liquidity of Rs. 6750 Crore to employers and employees over 3 months.
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