The government has reduced the rates of Tax Deducted at Source (TDS) on several deductions with a view to improve cash flow, especially of small tax payer.
According to the budget proposal for 2016-17, the TDS rate in respect of life insurance policies has been reduced from 2% to 1% and on insurance commission from 10% to 5%.
“To improve the cash flow position of small tax payers who get their funds blocked due to current TDS provision, I propose to rationalise TDS provisions for Income Tax,” finance minister Arun Jaitley said in his budget speech.
The TDS rate has been halved in case of National Savings Scheme to 10%, and on commission on sale of lottery tickets and other brokerages to 5%. The Budget also proposes to abolish TDS on income in respect of unit and payment of compensation on acquisition of capital assets.
As part of the rationalisation exercise, the limits for deduction of TDS has been raised.
In case of payment of accumulated balance due to an employee in EPF, the TDS limit is being raised from Rs -30,000 to Rs 50,000.
The limits for TDS deduction have also been raised in case of payments to contractors from Rs 75,000 to Rs 1 lakh, commission or brokerages (from Rs 5,000 to Rs 15,000), commission on lottery ticket (from Rs 1,000 to Rs 15,000) and on acquisition of immovable property (from Rs 2 lakh to Rs 2.5 lakh).
However, in case of insurance commission the threshold or TDS deduction has been reduced from Rs 20,000 to ` Rs 15,000.