The Great Lockdown | Volume 1 | Issue 4
FM announces liquidity measures to improve in hand money
The sudden suspension of economic activities had disrupted the demand-supply balance. Companies are struggling to manage their cash requirement considering the lockdown has reduced business activities to a minimum. Liquidity crisis is further aggravated as lenders’ trust filter are now leaving out more borrowers than before.
Keeping in view the dire situation, INR 20L crore package was announced by Prime Minister on 12th May, 2020. Corporates and individuals will hug the liquidity measures infused by the Government until uncertainty reduces. In this article, we have highlighted the reforms pertaining to TDS/TCS and PF with an aim to provide more liquidity in hands of businesses and people.
What’s the Deal?
Statutory EPF contribution of both employer and employee reduced to 10% each from 12% which is expected to provide liquidity support of INR 6,750 crore.
- Period: May-July, 2020
- Expected reach: ~430L fund subscribers and 6.5L employers
Three-months extended EPF support (expected to be INR 2500 crore) for businesses and workers under PMGKP (extension to our issue 1, volume 1: click here for details)
TDS for non-salaried payments and TCS for specified receipts to be reduced by 25% of existing rates till the end of FY 2021.
- Period: 14th May, 2020–31st March, 2021
- Expected liquidity release: INR 50,000 crore
All pending refunds to charitable trusts, non-corporate business and professions including partnerships, proprietary, LLP and co-operatives to be issued immediately.
The Caveats…
Public undertakings will continue to deduct and contribute EPF @ 12%.
Relaxation under TDS and TCS will not cover payments made before 14th May 2020.
Lower TDS and TCS rates will be applicable on payments for contracts, professional fees, interest, rent, dividend, commission, and brokerage.
No reduction in rate of TDS or TCS, where the tax is required to be deducted or collected at higher rate due to non-furnishing of PAN/Aadhaar.
Is it a real benefit?
While reforms will support liquidity in short run, lower TDS/TCS and EPF deductions will attract higher taxable income. Therefore, a lower PF contribution and TDS rate may simply mean that the receiver has to compensate for the same by paying higher self-assessment tax later.
