Revised TDS rates w.e.f. 14th May 2020 and its impact with Practical case study. Whether Split of Invoice is required or not for May month.

To give more liquidity in the hands of assesses, union minister of finance and corporate Smt. Nirmala Sitaraman has announced 25% reduction in TDS/TCS rates on 13th May 2020.

Below are the key highlights of said announcement:

  • TDS rates for residents assesses other than salary will be reduced by 25% of the specified rates w e f 14th May 2020.
  • TCS rates will be reduced by 25% of the specified rates w e f 14th May 2020.
  • Period for revised rates will be from 14th May 2020 to 31st Mar 2021.
  • The TDS will be continued to be charged at original rates on all other sections as also to all payments made to non-residents
  • No Reduction in rate of TDS where the tax is required to be deducted at higher rate due to non-furnishing of PAN/ Aadhaar.
  • A press note released by govt with the list of sections with revised rates.

This press release can be accessed through following link: https://www.incometaxindia.gov.in/Lists/Press%20Releases/Attachments/834/Press-Release-Reduction-in-TDS-TCS-Rates-dated-14-05-2020.pdf

Intention behind the above announcement is to provide the immediate relief and more liquidity in the hands of assesses. For example, if a person (In individual capacity) is providing housekeeping services then as per the original TDS rates, his services are liable for 1% TDS deduction u/s 194 C whereas as per the revised rates the same will now liable for 0.75% deduction. So he will get more cash as payment in revised rate regime.  This is how liquidity is passed on to the assesses.

Practical case study :1 

“M/s Taxman handicrafts” is an exporter of handmade crafts. They takes services of individual job worker for their products. A Job worker who provided the services in the month of April and raised the bill on 12th May 2020 and submitted to the finance manager.

Finance manager will account this bill on 12th May and hence he will deduct TDS with old rate as specified.

Practical case study-II

Parth enterprises is an leading private sector company who deals in packet food and have manufacturing units all across India.

They hired SIS ltd to provide security guard services in all across the location. SIS limited have practice to raise the bill at the end of the month with the supportive documents such as attendance record, muster role, PF/ESI compliance documents of immediate previous month.

SIS ltd raised the bill for May month services on 31st May and submitted to the concerned dept., on 5th June 2020.

So while deducting the TDS on above said bill, finance manager decided to split the bill into two parts one is for the service period prior to 14th May and second is for the service period on or after 14th May 2020 upto 31st May 2020. Below are the basis of his understanding and decision:

1. Since service is actually rendered throughout the month hence it is logical to split the bill into two parts to deduct the TDS and to comply the low appropriately

2. If TDS will be deducted with revised rates on complete month billing then there will be immediate revenue loss to the dept.

Simultaneously few other employees opposed the above decision of bill splitting into two parts.

Hence, Management of Parth enterprises decided to take opinion of their legal consultant.

Consultant went through the invoice and related details and made below points and opinion on above matter:

1. Actual service is being rendered during the complete month but bill is raised on 31st May 2020.

2. Agreement with the security agency says, “ agency will raise the bill for services at the end of the month”. That mean this is the sufficient and appropriate evidence to conclude the service completion.

3. He referred the below text as mentioned in the press release ““Therefore, TDS on the amount paid or credited during the period from 14th May, 2020 to 31st March,2021 shall be deducted at the reduced rates specified in the table in para 1 above. Similarly, the tax on the amount received or debited during the period from 14th May, 2020 to 31st March, 2021 shall be collected at the reduced rates specified in the table in para 2 above”  ( Point 3 of press release dated 13th May 2020. Link is given above to access the complete PDF file.)

It is clearly mentioned “amount paid” or “credited” during the period from 14th May, 2020 to 31st March 2020. 

So based on the above facts, he mentioned that, in case of TDS we never go by the period of actual service. Law says, amount paid or credited whichever is earlier. In the above said case, neither amount paid nor credited on or before 14th May hence there is no requirement to split the bill.

Moreover, if we refer the general practice for accounting of these type of bills, then the same is accounted at the end of the month only.

So in case of any monthly service bill such as security services, housekeeping services, AMC etc., there is no requirement of split the bill into two categories and TDS can be deducted with revised rates as applicable.

Practical case study 3:

Ram & company has taken the services of advocate on 8th May 2020 for case hiring in High court.

Advocate forgot to raise the bill of above service during may month. Later in the month of June he raised the bill of above service in 8th May date and submitted to the Ram & company on 12th June 2020.

Ram & Company follow the month closing accounting policy, hence in above case they cannot account for the bill on 8th May 2020. They accounted the bill on 12th June.

So in this case TDS should be deducted with revised rates because neither credit nor payment happened before 14th May in the books of Ram & Company.

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