Why is tax deducted or collected at source (TDS and TCS)
Often when you earn any income, you don’t get it in full – the payer deducts a part of it as TDS. Similarly, when you make some payment or transfer sometimes (like sending more than Rs 7 Lakhs abroad in a financial year), TCS is to be paid.
TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) is the process through which tax is charged and collected at the source of income or payment. Once deducted or collected, it has to be deposited with the government within a stipulated time, typically by the end of the following month. The purpose of TDS and TCS is to ensure a regular flow of revenue to the government and check tax evasion by building up a trail at the source of payment itself.
The rate of TDS ranges between 1% and 30% depending on the source of income, while the rate of TCS ranges between 0.10% and 5%. These rates also vary depending on whether or not the recipient of the income has furnished PAN or Aadhaar numbers to the deductor.
Considering the impact of Covid on finances of people, a few months back the government has reduced rates of TDS and TCS valid till 31 March 2021.
Be a little more cautious – recession is here, officially
Officially, the term recession applies only when a country witnesses its economy contract for two consecutive quarters, compared to the same period in the previous year. With the latest official GDP data release on Friday last week for the July to September quarter, this requirement is now fulfilled. For the first time in several decades, the Indian economy has entered the infamous recession territory.
The Indian economy contracted by 7.5% in the quarter, after witnessing a massive 23.9% fall in the April to June quarter. As the lockdown was lifted and economic activities have started coming back to normalcy, it is being expected that the ongoing quarter will see growth coming back, even though marginally. Whether there is a full recovery in the Indian economy will depend on factors like how much the spread of the Covid-19 is kept under check, as well as the availability of the Covid-19 vaccines in India.
Difference between calendar year, financial year (FY) and assessment year (AY)
Finally, the last month of the year 2020 is here and I am sure many along with me would be desperately waiting for this year to end. We are also hopeful that the New Year 2021 brings an end of Covid. However, though Calendar Year i.e. January to December 2020 is going to end soon, the financial year will end three months later on 31 March 2021.
As per various reports the concept of financial year i.e. 1 April to 31 March was introduced by The East India Company for a few reasons. First is that April 1 coincided with the Hindu festival of Vaisakha that is the Hindi New Year; second reason was that last three months of calendar year – October, November and December – have major festivals like Navratra and Diwali, followed by Christmas in December. Therefore business activities remain high and thus not an appropriate time to concentrate on closure of the books of account. Hence, it is a very Indian kind of thing.
Assessment Year is merely the financial year (FY) that follows the FY for which income tax assessment is being done. Hence, your income tax filing and assessment is being done in AY 2020-21 for the FY 2019-20. Got confused? Well, that was the aim of those who made so many ‘years’ in India 😉