You all must be getting some communication from your vendors/suppliers/buyers etc. asking for declaration on whether you have filed your IT Return for the previous two financial years or whether your total TDS deducted exceeds Rs. 50,000/- in the previous two financial years.
All this is because there are major changes in TDS Provisions from 01st July’2021 onwards.
Let us see one major change in TDS provisions w.e.f 01st July’2021:
1) Introduction of Sec 206AB by Budget 2021:
Finance Act 2021 introduced section 206AB to the Income Tax Act.Section 206AB has major implications on existing TDS provisions and rates.
Section 206AB states that TDS on any payment otherthan on salaryis to be deducted at twice the rates in force or 5% whichever is higher in case the recipient or deductee has not filed the returns of income (ITR) for the previous two financial years for which the time limit for filing ITR has expired and the 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.
Therefore, if the deductee/recipient has not filed his ITR for previous two financial years and his total TDS and TCS deductedis more than Rs. 50,000/- in each of the 2 previous years then deductor needs to deduct TDS at:
higher of the following rates, namely:—
(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 per cent.
Hence, if you are deducting TDS of any person from 01st July 2021 and if that person has not filed his ITR for the last two financial years and his/her aggregate TDS and TCS is exceeding Rs. 50,000/- then you must deduct TDS at twice the normal rate or 5% whichever is higher.
For Ex: If you are deducting TDS U/s 194C then TDS will deducted at 5% if the deductee/payee has not filed ITR for last 2 financial years and their TDS and TCS exceeds Rs. 50,000/- in each FY. (twice of 2% = 4% or 5% whichever is higher i.e 5%)
Similarly, if you are deducting TDS U/s 194J then tds will be deducted at twice the rate i.e 20% (10%*2) or 5% whichever is higher which comes out to be 20%.
The idea of the government is to extract Tax at source from persons who are not filing their IT Returns.
Ques: How will we know whether the deductee/recipient of payment is filing their ITR for previous two financial years and their TDS exceeds Rs 50,000/- in both previous Financial years?
Ans: The Govt. has come up with a utility where every person can check if their deductee/payee is a specified person on whom higher rate of TDS is applicable.
If a person is a ‘specified person’ then higher rate as mentioned above shall be required to be deducted for such person.
You can also take a declaration or an undertaking from all the persons of which you are liable to deduct Tax in respect of the same but please note that a declaration or undertaking is no substitute for checking if the person is a specified person from the Govt. prescribed utility.
Ques: What if a specified person on whom higher rate is to be deducted does not have a PAN?
Ans: Income Tax Act prescribes TDS at 20% where PANis not available.
This new section clearly states that TDS will be deducted at rate prescribed in this section or 20% whichever is higher.
Ques: Whether similar provisions are available in case of Tax Collected at Source (TCS)?
Ans: Yes,budget 2021 has introduced similar provisions in TCS where higher rate of TCS is to be collected from ‘specified person’ who has not filed ITR of two previous financial years and total TDS and TCS exceeds Rs. 50,000/- vide section 206CCA.
Ques: ITR for which FY should be filed to determine whether higher TDS is to be deducted or not.
Ans: For FY 2021-22, ITRS for FYs 2019-20 and FY 2018-19 need to be checked. Therefore, if any person has filed ITRs for FY 2019-20 and FY 2018-19 then higher rate of TDS is not applicable on such person.
ITR for FY 20-21 will not be checked for this purpose as the time limit for filing such return has not expired yet.
Ques: If a person has not filed ITRs for preceding two Financial years, whether it is certain that TDS at higher rate will be deducted?
Ans: Section 206AB/206CCAprescribe two conditions for deduction of tax at higher rate. Along with filing ITR for previous two financial years, the total aggregate TDS and TCS of the deductee/payee/recipient of payment should also be Rs. 50,000/- or more in each of the two previous financial years.
Therefore, if the payee/deductee does not have total aggregate TDS and TCS of Rs. 50,000/- or more during each of the two previous financial years then TDS will not be deducted at higher rates even if such payee/deductee has not filed his ITR for previous two financial years.
Ques: Whether aggregate of TDS and TCS of Rs. 50,000/- is for the payment on which TDS rate is to be checked or is it total TDS and TCS of the payee/deductee during the FY on all amounts received by him?
Ans: Total TDS and TCS of the payee/deductee on aggregate of all amounts received by him during the FY is to be checked.Therefore, total TDS/TCS showing in form 26AS of the deductee for the financial year is to be considered for the purpose of this section.
TDS/TCS amount on thatparticular payment is not to be considered for determining higher rate of TDS on such payment.
Ques: What type of declaration can we take from the deductee/payee?
Ans: Sample Declaration can be as follows:
Sample format of Self-Declaration is mentioned below:
(On the letter-head of entity)
Dear XXXX (Deductor’s/Collector’s Name)
Sub: Declaration regarding filing of Income Tax Returns for past years
This letter is to inform you that Finance Act 2021 has introduced new provision w.e.f. 1st July 2021 vide section 206AB/206CCA under Income Tax Act 1961 for deducting/collecting TDS/TCS at higher rate for non-filing income tax return (ITR) which is otherwise required to be furnished under section 139 (1) of the Income Tax Act,1961.
In this regard, I/We_________________ , having PAN:___________ , hereby declare that I/We have duly filed our Income Tax Return for two previous years immediately preceding the previous year in which tax is required to be deducted/collected for which time limit for filing u/s 139(1) has expired and hence TDS/TCS should not be deducted/collected at a higher rate.
Details of ITR filling has been mentioned below
|Assessment Year||Acknowledgement Number||Date of Filing|
Further, we do hereby declare that what is stated above is true and correct to the best of my/our knowledge and belief. In case there is any tax liability, interest or penalty imposed on you or your organisation on account of this representation/declaration in future, I/we undertake to fully indemnify you/organisation for the same.
Name of Authorized Signatory with Designation & Signature
Once again please note that a declaration or undertaking is no substitute for checking if the person is a specified person from the Govt. prescribed utility.
Ques: Is there any person on whom the provisions of this section do not apply?
Ans: Yes, the provisions of this section do not apply to a non-resident who does not have a permanent establishment in India.
Ques: Are there any payments on which tax is deducted but higher rate as per this section are not applicable?
Ans: Yes, as mentioned earlier this section does not apply on payments of salary. Since there is no fixed rate for deduction of tax on salary.
Other than salary, this section is also not applicable on:
Ques: Where can Ifind the procedure for checking who is a specified person for the purpose of higher deduction of TDS?
Ans: The detailed procedureis given under Notification No. 01 of 2021 issued by CBDT Directorate of income tax(systems).
The detailed procedure is also available on the reporting portal of the IT Deptt.(https://report.insight.gov.in).
The output result will say if a person is a specified person for this section.
Specified Person u/s 206AB & 206CCA: The response options are Yes (PAN is a specified person as per section 206AB/206CCA as on date) or No (PAN is not a specified person as per section 206AB/206CCA as on date).
If response is yes, then higher rate needs to be deducted and if the answer is no then TDS will be deductible at normal rates.
(The author isa Chartered Accountant and can be contacted at [email protected] or Mobile: +91-9953199493)