New TDS Compliance under Section 206AB/206CCA/194Q

New Developments in T.D.S. Compliances

Some very interesting developments have taken in place in T.D.S. compliance procedures having far reaching effects. Now the Compliance procedures have gone a step further from deductee ‘PAN‘ to ‘Return Filing Compliances by the Deductee’ .In the Part-A we will discuss this new development and try to familiarise and inculcate skills required for this compliance and in Part-B we will take up the new areas of tax deduction included for compliance.

Part-A (Sec.206AB/206CCA)

a. 1^st of July,2021 will start a new era in T.D.S. compliance for the deductors. Henceforth ,the rate of deduction/Collection of tax will be will determined after considering one additional criteria of Filing of Return of Income by the Deductee apart from the existing criteria’s. Now Onwards the rate will be determined to be higher of the following for the purpose of Deduction/Collection of Tax at Source:

i. Tax Rate specified in the respective Section

ii. Notified rates

iii. Rate of 20% or the rates specified in (i) & (ii) above whichever is higher (Sec.-206AA/206CCA ) ;

iv. In cases where clause (iii) is not applicable and the deductee/collected cumulatively satisfies the following two criteria`s- than the rate of deduction /collection will be higher of (i),(ii) and, 5%:

Sl.No.	Criteria	Periodicity/Quantum
1	Return for two P.Y. have for which the due date of filing has expired	Not filed
2	T.D.S./T.C.S. in the two specified year	>50000/-

These two criteria`s have to be satisfied together for application of higher rate .Failure on any of the two criteria/Partial failure of any one of the criteria will also take the case out of the clutches of Sec.206AB.

b. i.Regarding the knowledge of filing of Returns by the deductee/Quantum of T.D.S./T.C.S. can be obtained from the ITD web site using a utility to be provided by Income Tax Department.

ii.But, to make the compliance process full proof and easy on the part of the Deductor/Collector it is better of obtain declaration from the Deductees/Collectes regarding non application of the provisions of Sec.206AB/206CCA to them alongwith copy of supporting documents. A specimen of the declaration to be obtained is enclosed in Annexure-‘A’ which may be utilised for the purpose.

Exceptions to the provisions of Sec.206AB: In the following cases higher rate of 5% will not be applicable:

Sl.No.	Sec.	Nature of Payment of Income
1	192	Salary
2	192A	Payment of accumulated Balance due to an employee in Provident Fund
3	194B	Winnings from Lotteries or crossword puzzle
4	194BB	Winning from horse race
5	194LBC	Income in respect of investment in Securitisation Trust
6	194N	Payment of certain amount in cash

Apart from the above payments to Non-resident not having any PE in India will also be out of the ambit of Sec.206AB/206CCA.

Illustrations

Sl.No.	Issue	Conclusion
1	A is making payment of interest to B. B has not filed his Return of Income for the A.Y.:2020-21 and Tax deducted/Collected in his case is Rs.75000/- for the A.Y.:2020-21 and A has also submitted Form 15G.	As Return of Income for only year   has    not   been   filed against the requirement of two years –higher rate of 5% is not attracted.
2	A is making payment of interest to B. B has not filed his Return of Income for the A.Y.:2019-20 and 2020- 21  and   Tax    deducted/Collected      in   his   case is Rs.45000/- and Rs.95000/- for the A.Y.:2019-20 and 2020-21 and A has also submitted Form 15G.	As T.D.S. in A.Y.:2019-20 is below   the specified threshold  of   Rs.50,000/– higher  rate    of   5%   is   not attracted.
3	A is making payment of interest to B. B has not filed his Return of Income for the A.Y.:2019-20 but filed the Return of Income for the A.Y.:2020-21 and Tax deducted/Collected in his case is Rs.45000/- and Rs.95,000/-respectively     for   the   two A.Y.  has submitted Form 15G.	As both the Return filing and T.D.S./T.C.S.             quantum criteria are only partially met –higher rate of 5% can not be applied.
4	A is making payment of interest to B. B has filed his Return of Income for the A.Y.:2019-20, 2020-21 but not filed the Return of Income for the A.Y.:2021-22 and Tax deducted/Collected in his case is Rs.75000/- ,Rs.45,000/- and Rs.90,000/- respectively for the different A.Y. and A has submitted Form 15G.	As B has filed the Return of Income for both the years for which due date of filing has    expired-higher    rate    of 5% can not be applied in his case .
5	A is making payment of interest to B. B has not filed his Return of Income for the A.Y.:2019-20, 2020-21 and Tax deducted/Collected in his case is Rs.75000/- ,Rs.45,000/- respectively for the different A.Y. and A has submitted Form 15G also	Higher rate of 5% will            be attracted as both the criteria`s are simultaneously satisfied.

Part-B

i.As discussed in Part-A in specific cases of application of Sec.20AB/206CCA higher rate of 5% will be applicable –particularly in cases where Declarations under Sec.197A are received and cases of Orders received under Sec.197.It will be interesting to see how the rates specified in the Order will be byepassed at the time of filing of Return of T.D.S. as it may fetch the certificate details while validation.

ii.So far Sale/Purchase transactions where brought within the ambit of Tax Collection at Source and the compliance responsibility was cast upon the Specified supplier for Sale transaction exceeding a specified threshold with Particular buyer in terms of Sec.206(1H) of the Act. Now the net has been widened and provisions on similar lines for T.D.S. have been inserted in the Form of Sec.194Q w.e.f 01.07.2021 where the compliance responsibility lied with the Buyer . Applicability of the both the Sections i.e. 194Q and 206(1H) are mutually exclusive .But applicability will start only from Sec.194Q and if the charge is not satisfied only than applicability of Charge under Sec.206C(1H) is to be examined.

Applicability -A Buyer fulfilling the following criteria`s has to deduct tax at Source :

i.Turnover of the Buyer in the immediately preceding year >50.00 lakhs

ii.Total Credits to the account of Seller during the year >50.00 lakhs during the year

Time of Deduction & Rate of Deduction: Deduction is to be done at the time of Credit/Payment which ever is earlier even if the same is credited to Suspense account or any other accounting account of similar nature having a different nomenclature. Deduction has to be @ 0.1% of the amount credited/Paid in excess of Rs.50.00 lakhs during the year.

Exemptions:

i.Tax is deductible under any other provisions of the Act;

ii.Tax is collectible under the provisions other than that of Sec.206C (1H).

Issues

Sellers who where so far Collecting Tax At Source will not be required to collect source in cases where the Turnover of Buyer is >10.00 crores –in such cases buyers have to give an undertaking to the Sellers in this regard requesting them not to collect tax at source and start deducting tax at source on credits/payments made to the suppliers account.Similarly buyers whose turnover does not exceed Rs.10.00 crores have to inform the suppliers regarding continuation of collection of tax at source. A specimen of the declaration to be furniished to the Sellers is enclosed in Annexure-‘B’ which may be utilised for the purpose.

Illustration

Sl.No.	Issue	Conclusion
1	A Purchased Goods from ‘B’ worth Rs.19.00 lakhs till June,2021 and thereafter  he made  further purchases of Rs.43 lakhs and  his turnover during the  F.Y.:2020-21 was 11.00 crores	A will have to deduct Tax on Purchases in excess of Rs.50.00 lakhs i.e. Rs.12 lakhs @ 0.1% amounting to Rs.1200/- and inform the supplier regarding applicability of Sec.194Q and consequent non     applicability of Sec.206C(1H) of the Act.
2	A Purchased Goods from ‘B’ worth Rs.53.00 lakhs till June,2021 and thereafter he made further purchases of Rs.43 lakhs and his turnover during the F.Y.:2020-21 was 11.00 crores	A will have to deduct tax on Rsw.43 lakhs as excess over Rs.50 lakhs in June Quarter was already subjected to T.C.S.
3	A Purchased Goods from ‘B’ worth Rs.53.00 lakhs till June,2021 and thereafter he made further purchases of Rs.43 lakhs and his turnover during the F.Y.:2020-21 was 9.00 crores but in the current year his turnover has already exceed Rs.10.00 Crores	The Criteria has to be examined with reference to the immediately preceding previous year which is not fulfilled in this case.Hence 194Q will not be applicable in this case and TCS Provisions of Sec.206C(1H) will continue to apply till the end of this year and thereafter provisions of Sec.194Q will apply.

Annexure-‘A’

DECLARATION FOR NON APPLICABILITY OF HIGHER RATE OF TAX IN TERMS OF Section 206AB/206CCA OF INCOME TAX ACT, 1961

Name of the Supplier
Address of the Supplier

Sub.:Non Applicability of the Provisions of Sec.206AB/206CCA for PAN:  Dear Sir,

In terms of the requirements of the provisions of Sec.2066AB/206CCA we hereby confirm that :

i.We have filed the Return of Income for the A.Y.:2019-20 and A.Y.:2020-21-Copy of ITR-V is enclosed herewith for your records and reference;*

ii.We have not filed the Return of Income for the A.Y.s` as detailed hereunder and T.D.S. deducted /T.C.S. collected for the years is as under: *

A.Y.	Return Filing Status	T.D.S./T.C.S.
2019-20
2020-21

Copy of 26AS for the period and copy of ITR-V for the year for which Return of Income is filed is enclosed herewith for your records and reference;

We hope this will serve the purpose and you will apply the normal rate as specified in Sec.206C(1H) in our case.

Thanking you.

Yours faithfully

*Strike out whichever is not applicable.

Annexure-‘B’

DECLARATION FOR NON APPLICABILITY OF TCS IN TERMS OF Section 206C(1H) OF THE I.T.ACT, 1961 CONSEQUENT TO APPLICABILITY OF SECTION 194Q OF THE ACT

Name of the Supplier
Address of the Supplier

Sub.:  Applicability of the Provisions of Sec.194Q of the I.T. Act,1961 for PAN:

Dear Sir,

We have to inform you that our turnover during the F.Y.:2019-20 exceeded Rs.10.00 crores as required under Sec.194Q of the Act.Hence , in terms of the provisions of the Section henceforth we will be deducting Tax @0.1% on the supplies effected by you/payments made by us whichever will be earlier.Further, you are requested not to collect tax at source on the supplies made to us/payments effected by us from 01.07.2021.Copy of the relevant part of the audited financials depicting turnover in excess of Rs.10.00 crores for the immediately preceding previous year is enclosed for your records and reference.

We hope this will serve the purpose and you will apply the normal rate as specified in Sec.206C(1H) in our case.

Thanking you.

Yours faithfully