The cut in tax deduction at source for specified payments including interest, rent, dividends and brokerage income will run through March 31, 2021, the end of India's 2020-2021 fiscal year, Finance Minister Nirmala Sitharaman said Wednesday.
Along with the at-source rate reduction, tax collections at source for receipts corresponding with the specified payments will also fall 25% and run through the end of March 2021, the minister said.
She also said cash-starved microenterprises and small and medium-size businesses will get 30 billion rupees in collateral-free loans. Also unveiled were plans to enroll nonbanking financial companies in a 300 billion-rupee liquidity program and further extend the deadline for filing all 2019-2020 income tax returns by five months to Nov. 30.
The measures are part of a pandemic relief package worth 20 trillion rupees — about 10% of India's gross domestic product — announced Tuesday by Prime Minister Narendra Modi.
"Essentially, this is to spur growth and to build a very self-reliant India, and that's why this whole initiative is called Atma-Nirbhar Bharat Abhiyan," Sitharaman said at a news conference, using a Hindi phrase that translates to "self-reliant India campaign."
The minister on March 24 had announced an extension for income tax filings until the end of June. In addition, the government said tax audit dates have been extended to Oct. 31 from Sept. 30, and that it will extend the deadline for making payments under the so-called Vivad se Vishwas program to Dec. 31. The program was introduced in the 2020-2021 budget for taxpayers to settle income tax disputes with India's tax authorities.
The lowering of withholding-tax rates won't reduce the overall tax liability of income earners, who will eventually have to pay full rates via India's advance income tax, said Gouri Puri, a partner with Shardul Amarchand Mangaldas & Co., a law and consulting firm near New Delhi.
"The reduction of withholding-tax rates will, however, provide more liquidity in taxpayers' hands," she told Law360.
Sitharaman told reporters that further announcements in the coming days will focus on measures to help industries hardest hit by the loss of business activity due to India's pandemic lockdown, though she declined to answer questions about how these plans will be paid for.
Modi's government also said it would immediately issue all pending refunds to charitable trusts and independent businesses. That follows an April 8 announcement that pending corporate and individual income tax refunds of up to 500,000 rupees each would be expedited to provide economic relief to an estimated 1.4 million taxpayers during the pandemic.
--Editing by Neil Cohen.
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