pri Major Changes in TDS/TCS w.e.f. 1st July 2021 Major Changes in TDS/TCS w.e.f. 1st July 2021

1. Insertion of New Section 206AB

New section 206AB has been inserted by THE FINANCE ACT, 2021 NO. 13 OF 2021 Dated 28th march, 2021. The section is inserted w.e.f. 1st July, 2021.

Section 206AB “Special provision for deduction of tax at source for non-filers of income-tax return

  • Section is Applicable

1. If person require to deduct tax under any of provision of Chapter XVIIB Tax Deduction at Sources.

2. Transaction is done with Specified person. (Specified person means a person who have not filed his return of Income of immediately two preceding previous years, for which due date U/s 139(1) has expired.

For Eg. If tax is required to deduct for July 2021, Previous year 2021-22, so for relevant immediately 2 preceding previous years for which ITR filing required to be checked are 2018-19 and 2019-20 (AY 2019-20 and 2020-21 respectively). As the time limit for Preceding Previous Year 2020-21 is not expired

3. Aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years.

Let’s Understand Applicability of the section through this table:

 

 

Particular

Tax Deduction/ Collection in

Previous Year

 

ITR filing status

 

 

 

Is  section 206AB/ 206CCA  Applicable  ?

2019-20

Rs. 50000 Or More

2020-21

Rs. 50000 Or More

Case A No Yes Not filed for both year No
Case B Yes No Not filed for both year No
Case C Yes Yes Filed for both year No
Case D Yes Yes Not filed for both year Yes
Case E Yes Yes filed only for One relevant PY No
  • Section is Not Applicable:

1. If Specified Person is Non-Resident who does not have a permanent establishment in India.

2. The section has overriding effect on all provisions of Chapter XVIIB of the Income tax Act, 1961 Except the Followings:

S.No. Section Details
1. 192 TDS on Salary
2. 192A TDS on Premature withdrawal from EPF
3. 194B TDS on Lottery
4. 194BB TDS on Horse Riding
5. 194LBC TDS on Income in respect of investment in securitization trust
6. 194N TDS on cash withdrawal in excess of Rs. 1 crore
  • Applicable Tax rate :

Tax shall be deducted at Highest of the Followings:

(i) at twice the rate specified in the relevant provision of the Act

or

(ii) at twice the rate or rates in force;

or

(iii) at the rate of five percent.

If Section 206AA Is applicable to the Specified person than tax shall be deducted at higher of

1. Tax rate as per this Section

Or

2. Tax rate as per Section 206AA

2. Insertion of New Section 206CCA

This section also inserted by THE FINANCE ACT, 2021 NO. 13 OF 2021 Dated 28th march, 2021. The section come into force w.e.f. 1st July, 2021.

Section 206CCA “Special provision for collection of tax at source for non-filers of income-tax return

  • Section is Applicable When

1. If person require to deduct tax under any of provision of Chapter XVII-BB Collection at source.

2. Transaction is done with Specified person. (Specified person means a person who have not filed his return of Income of immediately two preceding previous years, for which due date U/s 139(1) has expired.

For Eg. If tax is required to deduct for July 2021, Previous year 2021-22, so for relevant immediately 2 preceding previous years for which ITR filing required to be checked are 2018-19 and 2019-20 (AY 2019-20 and 2020-21 respectively). As the time limit for filing of Previous Year 2020-21 is not expired.

3. Aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years.

Note :- One can refer above table for better understanding of applicability.

  • Section is Not Applicable :

1. If Specified person is Non-Resident who does not have a permanent establishment in India.

  • Applicable Tax rate :

Tax shall be deducted at Higher of the Followings:

(i) at twice the rate specified in the relevant provision of the Act;

Or

(ii) at the rate of five per cent.

If Section 206CC Is applicable to the Specified person, than tax shall be deducted at higher of

1. Tax rate as per this Section ;

Or

2. Tax rate as per Section 206CC

  • How to check that conditions of applicability of sections are fulfilled

No mechanism or procedure is been provided to determine the applicability of the sections. It will be difficult for the Deductor/Collector to check that person from whom TDS is required to be deducted or TCS is required to be Collected fulfils the conditions of the sections or not.

It might possible that verification link to check the status will be provided on the Income tax portal like verification link for section 194N is provided to check applicable rate of tax under section 194N.

As an option to this the Deductor/Collector of the tax can obtain a Declaration from the Specified persons or take ITR acknowledgment to confirm ITR is been filed. And Deduct/collect tax accordingly.

3. Amendment in Rule 31A of the Income Tax Rules And tax and TDS Forms

  • Substituted clause (x) of the Rule 31A ibid to reads as under:

‘(x) furnish particulars of amount paid or credited on which tax was not deducted or deducted at lower rate in view of the Notification issued under sub-section (5) of section 194A or in view of exemption provided under clause (x) of sub-section (3) of section 194A.’

  • Inserted the following clauses after clause (xiii) of the Rule 31A :

“(xiv) furnish particulars of amount paid or credited on which tax was not deducted in view of clause (d) of the second proviso to section 194 or in view of the notification issued under clause (e) of the second proviso to section 194;

(xv) furnish particular of amount paid or credited on which tax was not deducted in view of proviso to sub-section (1A) or in view of sub-section (2) of section 196D.;

(xvi) furnish particulars of amount paid or credited on which tax was not deducted in view of sub-section (5) of section 194Q with effect from 1st day of July,2021.”

  • Amendment in Form 26Q :

New reason code inserted for mentioning Reason for non-deduction/lower deduction/Higher Deduction/Threshold/Transporter etc. in Form 26Q to make form in-line with the new provisions.

  • Amendment in Form 27Q :

New reason code inserted for mentioning Reason for non-deduction/lower deduction/Grossing up/Higher Deduction.in Form 27Q to make form in-line with the new provisions.

  • Amendment in Form 27EQ :

New reason code inserted for mentioning Reason for non-collection/lower collection/or collection at higher rate. in Form 27Q to make form in-line with the new provisions.

****

Disclaimer: This article is solely for educational purpose and cannot be construed as legal and professional opinion. It is based on the interpretation of the author and are not binding on any tax authority. Author is not responsible for any loss occurred to any person acting or refraining from acting as a result of any material in this article.

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Company: Salvi & Associates
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I am a practicing chartered accountant. Holding Certificate of "Course on Goods and Service Tax" organized by ICAI. Having 2+ years post qualification experience in GST, Income Tax, and auditing. You can reach out to me on 9171144773 (Whatsapp) or mail at caharshalisalvi@gmail.com. For regular View Full Profile

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8 Comments

  1. subrahmanyam says:

    Dear Sirs,
    I any transporter providing declaration that he has not having more than 10 vehicles , tds is not deductible till 30.06.2021. What are the effects with effect from 1.7.2021 any changes please clarify

  2. GANDHI MOHAN BHARATI says:

    The present Dispensation of Officers seem to be not all concerned on the difficulties of common man and seem to come out with more and more amendments to complicate the already confusing Income Tax Act. The Department in now slowy being turned into a fearsome one from the earlier friendly one. No one jnows what is correct and what is not. One cannot now do anything without an Advocate, CA and othe professionals & even then is likely to face an innocuous Section or sub section hiding somewhere.

  3. CA Rinkalkumar Dangi says:

    As per the section 206AB if both condition together satisfied than TDS at higher rate ..as layman if TDS of any person deducted more than 50000/- than 99% of them will file the return to get refund..so this second condition has not much relavnace.

  4. Shakuntala N Lalchandani says:

    This is my view
    As the new rule is starting from 1st July 2021, it should be applicable from Current Year i.e F.Y 2021-22 so that it becomes easier for both i.e. for collector as well as the payee. Collection of backdated tax is not correct & advisable.

  5. ANKIT GOYAL says:

    As per my View
    1.In her Example for immediately two preceding previous years, for which due date U/s 139(1) has expired For july 2021 We will look for IT Return of FY 2018-19 & 2019-20 & not of FY 20-21 ( As due date is yet to expire).
    2. As per table return filing of any FY is enough but as per reading of law its mandatory required for both the year

  6. ANKIT GOYAL says:

    As per my View
    1.In ur Example for immediately two preceding previous years, for which due date U/s 139(1) has expired For july 2021 We will look for IT Return of FY 2018-19 & 2019-20 & not of FY 20-21 ( As due date is yet to expire).
    2. As per table return filing of any FY is enough but as per reading of law its required for both the year.

  7. Shashikant Goyal says:

    At one side the department says senior citizens without business income need not file returns. Further the department doesn’t have the capacity to process returns if the whole 130 cr population start filing returns. Then this is a regressive step to indirectly say, file your ROI.

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