TDS cut on select financial products

The budget announced changes to the amount of tax deducted at source (TDS) for small taxpayers, non-residents without permanent account number (PAN) and the purchase of luxury cars. TDS is a means of indirect tax collection and is managed by the Central Board of Direct Taxes. Incomes such as salary, lotteries, interest from banks and payment of rent attract TDS, where a percentage of the amount is withheld at the source. Here is a look at the changes announced in the budget to the TDS levied on select goods and services.

Financial instruments
Changes have been proposed on TDS applicable on life insurance policies, National Savings Scheme (NSS) deposits and income relating to commissions or brokerage. At present, if you get an amount from a life insurance policy (including bonus) exceeds Rs.1 lakh during a financial year, you have to pay 2% as TDS. This has now been reduced to 1%.

The threshold for TDS on insurance commission has also been reduced from Rs.20,000 to Rs.15,000 and TDS on the same has been reduced from 10% to 5% of the amount.

Similarly, TDS on deposits under NSS has been reduced from 20% to 10% if the amount exceeds Rs.2,500. For agents who earn income from commission or brokerage, TDS of 10% is applicable if the amount exceeds Rs.5,000. This TDS has been reduced to 5% while the threshold limit has be increased to Rs.15,000 in a financial year.

Non-residents without PAN
Non-residents without PAN currently have to pay a higher rate of tax deducted at source. The Union budget has proposed to amend section 206AA of the income-tax Act wherein upon furnishing of alternative documents, the higher rate will not apply.

"Foreign investors were facing undue hardship of obtaining PAN to avoid highest tax withholding on income sourced from India under section 206AA. And In order to promote ease of doing business in India and bring simplicity to the compliance requirement, the budget has provided that instead of PAN, foreign tax registration would be sufficient. This step shall bring an end to the unnecessary hardship faced by foreign companies investing in India's growth story and shall promote business sentiment," said Rakesh Nangia, chartered accountant and managing partner, Nangia & Co, a chartered accountancy firm.

Luxury cars
The government has decided to impose TDS at of 1% on the purchase of luxury cars costing more than Rs.10 lakh, and also on the purchase of goods and services by cash exceeding Rs.2 lakh. "Tax collection at source shall serve the dual purpose of enabling the government to widen the tax base by having information on people who incur such expenses and at the same time mobilising revenue in advance," said Nangia.

Other products
The TDS on lottery tickets has been to reduce to 5%. The budget also proposed to increase the threshold limit where TDS will be applicable from Rs.1,000-15,000.

Besides this, the threshold limit on payment of accumulated balance due to an employee in EPF, winnings from horse race, payments to contractors, payment of compensation on acquisition of certain immovable property where TDS will be applicable has also been increased.

In arrangement with HT Syndication | MINT