All you need to know about the new rules in TDS/TCS, effective from July 01, 2021
A. Higher TDS/TCS rate for non-filer of income-tax returns.
Until now, a higher TDS rate was deducted only for those who didn’t have PAN. But from July 1st, a higher rate would be deducted if you have not filed IT returns in the last two previous years under the newly inserted Section 206AB (for TDS) and 206CCA (for TCS) in the Income-Tax Act, 1961.
Note: Previous year means Financial year as per the Income-tax act. Since the new provisions come into effect from July 1, the returns and compliance of previous years FY 2018-19 and FY 2019-20 will be considered. FY 2020-21 won’t be included since the due date for filing the tax return for the said previous year is not expired yet.
Who is covered in this Section?
Persons covered are defined under the term “Specified persons”. And for the purpose of this section, Specified persons are those who have not filed their Income-tax return within the due date under Section 139(1), for both of the two financial years AND if the aggregate of TDS/TCS amount exceeds Rs 50,000 in each of these two years.
And the specified person list will be updated only once at the start of the financial year, so one needn’t check for compliance frequently. This feature will be made available only to Tax Deductors with a valid TAN Number and not to all taxpayers.
What would be the new rate?
The new rate will be higher of the following rates:
> twice the tax rate specified under the relevant provision of the Act; OR
> twice the rate or rates in force; OR
> rate of 5%.
Section 206AB will NOT be applicable in the following TDS cases:
> TDS on Salary u/s 192;
> PF withdrawal u/s 192A;
> Winning from the card game, crossword, lottery, puzzle or any other games and horse race u/s 194B or 194BB;
> Cash withdrawal over Rs 1 crore u/s 194N;
> Income against investment in the securitization trust u/s 194LBC;
> Non-Resident, who does not have a Permanent Establishment in India.
Note: “Permanent Establishment“– a fixed place of business through which the business of the enterprise is wholly or partly carried on.
How to verify if a person is a Specified person as per Section 206AB and 206CCA?
Income Tax Department has released a new feature for this “Compliance Check for Section 206AB and 206CCA”. You can log in to the Reporting portal of the income tax department, provided the link here
For any further assistance, Tax Deductors & Collectors can refer to Quick Reference Guide on Compliance Check for Section 206AB & 206CCA and Frequently Asked Questions (FAQ) available under the “Resources” section of Reporting Portal.
B. Insertion of new section 194Q – TDS on Purchase of Goods.
Until now, TDS was applicable on payment for Services received but from July 1st onwards, with the insertion of Section 194Q, TDS has to be deducted at source on purchase of goods also.
When is this Section applicable?
If the buyer of goods makes a purchase exceeding Rs 50 lakhs during the year and if the buyer’s turnover or sales or gross receipts exceeds Rs 10 crores for the financial year preceding the financial year in which the transaction takes place.
Note: TDS has to be charged at the time of payment or credit to the account of the seller, whichever is earlier.
What will be the rate of TDS?
0.1% will be deducted on the purchase value exceeding 50 lakhs. (In case, PAN is not furnished, then 5% has to be deducted).
Note: TDS is charged on the Total value minus the 50 lakhs amount. (i.e., Total value – 50 lakhs = on the Balance amount). TDS will be charged on the total value (inclusive of GST), unlike TDS on services in which TDS was charged on the amount before GST/Service tax.
Does this section apply to a Seller?
Sellers are covered under Section 206C(1H) of the Income Tax Act, 1961 which points out that if the seller crosses the turnover of more than Rs 10 crores in the previous financial year and exceeds the sale transaction of Rs 50 lakhs during the year, then a TCS rate of 0.1% has to be collected from the buyer on the consideration received. But this provision was made effective from 1st October 2020.
Note: 1% TCS has to be collected if PAN is not furnished.
What happens when the buyer and seller qualify for the limit on a transaction?
In cases where the buyer qualifies the limit u/s 194Q and where the seller u/s 206C(1H), then Section 194Q will prevail over 206C(1H) i.e., TDS has to be deducted and TCS can be ignored in such cases.
Will the threshold purchase limit of 50 lakhs apply from 1st July or from the beginning of this financial year?
For the purpose of the threshold limit, one has to consider the purchases made during April-June, 2021 also, i.e., the whole financial year. But the TDS liability will arise on the purchase amount booked or paid on or after 1st July 2021, in excess of Rs 50 lakhs.
However, the provision of this Section shall not apply to transactions where some different TDS section or TCS is already applicable.
If the buyer FAILS to deduct the TDS u/s 194Q then 30% of the purchase amount on which TDS was supposed to be deducted SHALL BE DISALLOWED.
For example, if your company turnover exceeds 10 crore rupees during the year 2020-21 and you have made a purchase of Rs 55 lakhs in this financial year, then you have to deduct TDS of 0.1% on 5 lakhs (i.e., 55lakhs less 50 lakhs). And in case you miss out on the TDS deduction, an amount of 30% i.e., (30% on 5 lakhs = 1.5 lakhs) will be disallowed expense.
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