prpri New rules in TDS/TCS, effective from July 01, 2021 New rules in TDS/TCS, effective from July 01, 2021

All you need to know about the new rules in TDS/TCS, effective from July 01, 2021

The FINANCE ACT 2021 has introduced two new changes in rules relating to Tax deducted at source (TDS) or Tax collected at source (TCS).

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

https://report.insight.gov.in/reporting-webapp/portal/homePage.

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.

The author can be reached at sharathtt4@gmail.com

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44 Comments

  1. ANUPAM says:

    sir,
    as per Section 194Q buyer charge tds on the considrstion of bill with gst or whithout gst or basic amount off bill , pls give me example

    1. Sharath T Thomas says:

      When the purchase is made and TDS is liable to be deducted u/s 194Q, the TDS would be charged on the amount credited without including GST.

      However, in case of advance payment, the tax would be deducted on the whole amount as it is not possible to identify that payment with the GST component of the amount to be invoiced in the future.

  2. Sachin Sharma says:

    Hello sir, i hope you and your family is gud ?
    I have one question regarding tcs suppose we are charging tcs in invoices but by mistake 2 to 3 invoices are raised without charging tcs. after two months i recognise that mistake, so there is any type of problem if yes then what that type of problem ? can i raise tcs debit not for the same in current month. There is any mandate that tcs will deposit in same month. Plz guide

    1. Sharaththomas says:

      If TCS is mandate to be collected on the transaction, then you should have.
      If you have missed,then you have to deposit TCS in the succeeding month with interest for delay. You may talk to the other party about this (they will have to pay the TCS amount which Anyway they would if you had collected at the time of transaction). You can tell them that they can claim the refund while filing ITR.

      Other option is you can also ignore but this will be found out at the time of audit. So do one thing – Talk to your Auditor, ask for their opinion on what to do in this case.

  3. Sachin Sharma says:

    Hello sir this side sachin, I want to know one thing how to determine the exemption limit , with gst component or without gst components , suppose one bill amount is 19 lakh with gst and another bill amount is 22 lakh with gst before 30.06.2021 and one purchase is done on 1.07.2021 for rs 17 lakh with gst & gst rate is 18% , now how to calculate exemption limit on which amount gst component or without or on which amounts we deduct tds

    1. Sharaththomas says:

      Hello Sachin,

      When the purchase is made and TDS is liable to be deducted u/s 194Q, the TDS would be charged on the amount credited without including GST.
      However, in case of advance payment, the tax would be deducted on the whole amount as it is not possible to identify that payment with the GST component of the amount to be invoiced in the future.

      And, TDS liability arises only on transactions after 1st July 2021. Whatever transactions made till 30th June, will be considered only for calculating the threshold limit.

      Coming to your question, The Exemption limit will be determined considering the amount without GST.

  4. SANAT JAIN says:

    my turn over in the previous fin yr. is above 10 cr. As per new tds rules I am supposed to deduct tds for purchase above 50 lakh, But my sellers are not allowing me to deduct tds. They say that you deposit the tds after the end of month & before the time frame produce the challan & we will transffer the amount in your account.Are they justified in doing that. When the liability & penalty provision is on buyer ,why they shouldn’t follow the rules. Is their any rule/provision under which they can be held liable/penalised.He is also collecting TCS from me. His turnover is also above 10 cr.

    1. Sharaththomas says:

      Hi Sanat,

      I understand your situation. This is probably because the supplier doesn’t trust the buyer to deduct TDS and file the returns. There are few persons who wouldn’t follow the compliance, I have experienced in the case of GST where the supplier charges GST but doesn’t pay the output tax to the government, and in the end, the buyer who wants to claim the input tax credit faces the issue.

      And you said the seller is also collecting the TCS. Well, this provision doesn’t exclude the seller from collecting TCS if their turnover exceeds 10 crore and their transactions during the year exceed 50 lakhs from a person. However, if there is both TDS and TCS applicable in a transaction, then the act says we must deduct TDS in such cases subject to provisions of this act (no need for TCS).

      You can go ahead and deduct TDS against the supplier because you are liable to, and if they don’t agree then you could find another supplier. Alternatively, if you want to stick with this supplier, you could come to terms with them and agree to what they suggested you.

  5. sai says:

    Sir, purchased a car on 01.07.2021 worth Rs.14.99 lakhs in my wifes name who is unemployed (Home-maker). Now, should we pay 1% tax or 5% tax, please clarify because she is not supposed to file any IT returns for the previous years at all as she is unemployed.

    TIA

      1. sai says:

        Yes sir, it is for personal use only. The car show room people are insisting on filing one form where it is asking for previous year IT filing details. if we do not fill the form, then we have to pay 5%, then only they will give the car documents.

        is it a good idea to submit form 15G in this case or any other relevant form, please suggest a solution sir.

        Thanks in advance.

  6. RAJAN says:

    dear sir,
    if we have a just start new compny as month of JUNE -2021 with partnership,
    IF OUR JUNE 2021 MOTH TURNOVER CROSS RS 10 CRORE , SO CAN WE MADE TCS OF OUR PARTIES

        1. rajan says:

          sir,
          some party said they diduct , 5% tds on consideration of month , bcoz of our new compny so it is true ?????

          and what is final percentages of tds ????
          if our new compny start from 1-6-21 and and its not any privious year so,
          , i think its (0.1%) tds .

        2. RAJAN says:

          sir,
          our some buyer said they diduct tds on consideration of 5% bcoz of our new compny,

          they can diduct tds @5%????

          and what is true percentages of tds ????

          as pre under
          Section 206AB (for TDS) and 206CCA (for TCS) in the Income-Tax Act, 1961.

          1. Sharath T Thomas says:

            Sir, if the buyer is liable to deduct TDS u/s 194Q then they will deduct. The rate of TDS will be 0.1%, but if you don’t have a PAN number then TDS rate will be 5%

  7. PRANJIVAN Devji Vedant says:

    We are Sr.Citizen Couple 80+ & We Are getting irregular Rent from Builder Rs.20350/- Per month so how T.D.S. He should Deduct & How to get back T.D.S. Amount Back from I.T.cell

    1. Sharaththomas says:

      Hi Sir,

      Since your tenant is running a business, he is liable to deduct TDS @ 10% on the rent amount if the total rent exceeds Rs 2,40,000/- for the entire year.

      And when the TDS amount is deducted, it will be deposited to the Government and that amount will be available as a credit against your PAN number. You can get a refund of the TDS amount when you file your Income-Tax Return. You can also check your TDS credit balance in Form 26AS from the income tax portal.

      I am working as a Tax and Finance consultant. If you need help with any o. Tf this, you can reach out to me at sharathtt4@gmail.com

      Thanks!

    1. Sharaththomas says:

      There has been clarification on this which was issued on 30th June 2021, vide Circular No. 13 of 2021, which states –

      “When the purchase is made and TDS is liable to be deducted u/s 194Q, the TDS would be charged on the amount credited without including GST. However, in case of advance payment, the tax would be deducted on the whole amount as it is not possible to identify that payment with the GST component of the amount to be invoiced in the future.”

  8. AMMU says:

    Sir,

    kindly clarify that, we did not crossed the turnover of 5 cr for last 3 financial years and we have purchasing the goods worth 50 – 80 L in the same financial year from one vendor.

    so TDS And TCS will be applicable for us on purchase ?

    1. Sharaththomas says:

      To attract TDS u/s 194Q, a buyer is required to have a turnover of 10 crores or more during the financial year immediately preceding the financial year in which the purchase of goods is carried out. So in your case, TDS not applicable.

      However, TCS u/s 206C(1H) is the seller’s responsibility. If the seller is liable to collect tax then he would be taking care of it.

  9. Sachin Sharma says:

    Hello sir
    I had purchased before 30.06.2021 and bill is due in month of July , when i remitted the payment to the party so i can liable to deduct tds or not.

    1. Sharaththomas says:

      Hey Sachin, you should go through the other comments in this article. A similar question had been answered here.

      Anyway, in short, no TDS liability on purchase or payment made before 30th June 2021. So in your case, TDS 194Q does not apply even if the payment is made after 1st July 2021.

      TDS deduction u/s 194Q is applicable only on purchases or payments made after 1st July.

      Note: However, for the Threshold limit, you have to consider purchases or payments made for the entire financial year 2021-22. So, if a person being buyer has already credited or paid 50 lakh rupees or more up to 30th June 2021 to a seller, the TDS under section 194Q shall apply on all credit or payment to such seller, on or after 1st July 2021.

    1. Sharaththomas says:

      Hey Ratheesh,

      For 194Q, the normal TDS payment dates and return filing dates will apply.
      i.e., TDS payment will have to be deposited on or before the 7th of the succeeding month. AND TDS returns have to be filed by the 31st of the month succeeding the Quarter (except for the Jan-Mar quarter, for which the last date for TDS return filing would be 31st May).

  10. UDAY SANIL says:

    sir,
    Whether buyer has to deduct the TDS @ 0.1% after exceeding the purchase value or payment made of Rs. 50 Lacs? or
    Buyer has to deduct the TDS on each & every payments made to seller after 1.07.2021 ?

    Thanks

    1. Sharaththomas says:

      Hi Uday,

      Subject to the provisions of Section 194Q, TDS shall be deducted by the buyer @ 0.1% on the “value exceeding the 50 lakhs limit” (i.e., the remaining amount of purchase after 50 lakhs). For example, If you purchase goods worth Rs. 60 lakhs on 05-07-2021, then you have to deduct TDS @0.1% of Rs. 1000 (60,00,000 minus 50,00,000 = 10,00,000).

      And as the buyer exceeds the threshold limit, he is liable to deduct TDS on every purchase or payment, made on or after 1st July 2021. For example, You have purchased goods worth Rs. 55 lakhs on 30-06-2021 & 45 lakhs on 01-07-2021, then you are liable to deduct TDS @0.1% of Rs. 4500, on purchases of Rs. 45 lakhs. Because you have crossed the threshold limit for the year, now you will start deducting TDS on every future purchase or payment (on or after 1st July).

      If in the 1st example cited, Suppose you purchase goods worth Rs. 60 lakhs on 05-07-2021, then you have to deduct TDS @0.1% of Rs. 1000. And subsequently, you purchase goods worth 25 lakhs on 25-07-2021, then you will deduct TDS directly on the 25 lakhs value, i.e., TDS of 2500.

      NOTE:
      1) Purchases or payments made between 1st April – 30th June 2021 will be considered only for determining the threshold limit of Rs 50 lakhs for the FY 2021-22, NO TDS to be deducted for the said period.
      2) TDS is liable to be deducted u/s 194Q on all purchases booked or paid, on or after 1st July 2021, subject to provisions u/s 194Q (Provision u/s 194Q – if the turnover of the buyer in the immediately preceding FY exceeds 10 crores and purchase value of goods in an FY exceeds 50 lakhs).

    1. Sharaththomas says:

      Oops!!
      No worries, there are various other articles on this subject published by various authors on taxguru and other platforms. You can refer to their articles as well. 🙂

  11. Sharaththomas says:

    Hey Guys,
    Thanks for reading my article. In addition, I would like to add/amend the GST part i.e., the GST inclusion while deducting TDS u/s 194Q.

    There has been clarification on this which was issued on 30th June 2021, vide Circular No. 13 of 2021, which states –

    “When the purchase is made and TDS is liable to be deducted u/s 194Q, the TDS would be charged on the amount credited without including GST. However, in case of advance payment, the tax would be deducted on the whole amount as it is not possible to identify that payment with the GST component of the amount to be invoiced in the future.”

  12. Ram says:

    This refers to my query posted earlier today, about applicability of TDS on payments made on or after 01.07.2021 for purchases made on or before 30.06.2021.

    I re-read the above article and now my inference is that

    TDS IS NOT APPLICABLE on payments made on or after 01.07.2021, for purchases made on or before 30.06.2021,

    SINCE

    TCS was effected by the seller u/s 206 C (1H) on all such purchases on or before 30.06.2021,

    and the TDS provision as per sec 194-Q excludes transactions on which TDS or TCS were done as per other sections.

    I hope I am correct.

    1. Sharaththomas says:

      Hey Ram,

      Not necessarily. But it could be the reason if TCS u/s 206C(1H) was collected for that transaction.
      However, concerning the TDS liability, you can also refer to the guidelines mentioned under Sub-section 3 of Section 194Q, issued vide Circular No. 13 of 2021. It has been clarified that TDS as per 194Q is not applicable for purchases made or payments made before 1st July 2021. If either of the two events had happened before 1st July 2021, that transaction would not be subjected to the provisions of section 194Q of the Act.

      So as already mentioned in my previous comment, you wouldn’t have to worry too much about the TDS liability u/s 194Q for the earlier purchases made to a seller (i.e., for April-June). Those purchases won’t attract TDS u/s 194Q.

  13. Ram says:

    Sir, Thanks for your useful and informative article above.

    I work for a firm trading in chemicals and based on your comment added above, I have a query.

    Average value of my employer firm’s purchases from one company is in excess of Rs.50 lacs per month and credit of 2 months is allowed.

    We have paid more than Rs.50 lacs during Apr-Jun 2021 and our payments in July and August will also be in excess of Rs.50 lacs every month (I am giving the background, I understand that the limit of Rs.50 lacs per year as per the IT section). However payments WILL BE TOWARDS PAST PURCHASES, i.e. May purchases will be paid in July and June purchases will be paid in August.

    My query is, whether we have to effect TDS on our payments ONLY TOWARDS PURCHASES MADE FROM 1.7.2021 or EVEN TOWARDS PURCHASES MADE ON 30.6.2021 AND BEFORE?

    Thanks

    1. Sharaththomas says:

      Hey Ram,
      Thanks for your feedback 🙂

      Coming to your query – Please note that under sub-section 3 of Section 194Q (Guidelines under section 194Q of the Income-tax Act, 1961 – issued on 30th June 2021), it has been clarified that the provision of this sub-section shall not apply to any sum credited or paid before 1st July 2021. Meaning, if any purchases made or payments made before 1st July 2021, that transaction would not be subjected to the provisions of Section 194Q.
      “Therefore, in your case, the purchases made until 30th June do not attract 194Q TDS.” 

      I hope this clarifies. Thanks!

      1. Ram says:

        Sir,
        Thanks for your response.

        My query is about purchases made on or before 30.06.2021, for which payments are made on or after 01.07.2021, since seller has allowed credit of 2 months.

        1. Sharaththomas says:

          Yes, Ram. That’s what I am talking about too. TDS liability u/s 194Q is not applicable for purchases made before 30-06-2021 and if payments made against those purchases are after 1st July 2021.
          TDS deduction u/s 194Q is applicable only on purchases or payments made after 1st July.

          Note: However, for the Threshold limit, you have to consider purchases or payments made for the entire financial year 2021-22. So, therefore, if a person being buyer has already credited or paid 50 lakh rupees or more up to 30th June 2021 to a seller, the TDS under section 194Q shall apply on all credit or payment, on or after 1st July 2021, to such seller.

    1. Sharaththomas says:

      Hey Dhyan, I didn’t understand your query.
      But if you are asking if this provision applies to payment or purchase of goods – It is clarified that the provisions apply on payment or credit whichever is earlier, so if any advance is paid by the buyer to the seller, then the TDS will apply to the advance payment made.

  14. Sharaththomas says:

    I would like to add another example:

    Suppose, there was a purchase made of Rs 60 Lakhs during the Apr-Jun 2021 period and another purchase of Rs 30 Lakhs on 5th July 2021.
    Then, in this case, we are liable to deduct TDS at 0.1% on Rs 30 lakhs = Rs 3000/-.

    Reason: As mentioned in my article, though this Provision is applicable from 1st July, purchases made during the Apr-Jun period are also considered to see if 194Q is applicable. However, the TDS will be charged only on the purchase amount booked or paid after 1st July. Hence, in the given example, the 60 lakh purchase was considered only for the applicability of 194Q and here the 194Q is applicable because (60+30) exceeds the Rs 50 lakh threshold limit, and therefore, TDS has been deducted on 30 lakhs purchased after 1st July 2021.

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