Shweta Agrawal
Introduction:
The Finance Bill 2021 has introduced following new sections in relation to Tax Deducted at source (TDS) and Tax Collected at source (TCS):
i) Section 194Q- TDS on purchase of goods
ii) Section 206AB: Higher rate of TDS for non filers of Income tax return
iii) Section 206CCA: Higher rate of TCS for non filers of Income tax return
iv) Section 194P: TDS in case of specified senior citizen
Out of the above 4 newly introduced sections, section 194Q, 206AB and 206CCA will have major impacts on the corporate entities. Section 194P majorly focuses on relief to senior citizens from filing of Income Tax return on satisfaction for certain specified conditions.
A) Section 194Q:
This section, applicable from 1st July, 2021, provides for deduction of tax at source on purchase of goods by the “buyer”, at the rate of 0.1%, at the time of credit of such sum to the account of the resident seller or at the time of payment thereof by any mode, whichever is earlier.
Further applicability of the section is explained below:
i) This section will apply to the buyer whose total sales, gross receipts or turnover from the business was more than Rs.10 crores in the previous financial year.
ii) Such buyer is required to deduct the TDS of each such seller from whom the aggregate purchase value exceeds Rs. 50 lacs during the year.
iii) TDS is to be deducted at 0.1% on the amount by which the aggregate purchase value is exceeding Rs. 50 lacs
Illustration : If purchases during the year of party A from party B is 55 lacs and turnover of party A in previous financial year is more than Rs. 10 crores then party A will have to deduct TDS of party B on Rs. 5 lacs (55-50) at the rate of 0.1%.
Interplay with section 206C(1H) relating to TCS:
There is similar section inserted by the Finance Bill 2020, Section 206 C(1H). Comparative summary of this section with section 194Q is tabulated below:
| Basis | Section 194Q | Section 206C(1H) |
| Onus of compliance | Buyer | Seller |
| Turnover limit to determine applicability | Previous year turnover/ gross receipts of Buyer exceeds 1 0cr | Previous year turnover/ gross receipts of Seller exceeds 10cr |
| Applicable from | 1st July, 2021 | 1st October 2020 |
| Threshold limit | Purchase in excess of 50 lacs from each seller during the year | Sale in excess of 50 lacs to each buyer during the year |
| When to deduct/ collect | Bill or payment whichever is earlier | At the time of receipt |
| Rate | 0.10% | 0.10% |
| Rate if PAN not available | 5% | 5% |
| Return Form | 26Q | 27EQ |
In case of transactions falling under both the sections- 194Q and 206C(1H), provisions of section 194Q will prevail.
Illustrative Situations for applicability of TDS and TCS:
| Situation | TDS/ TCS applicability |
| T/O in preceding FY Buyer >10 cr, seller<10cr | 194Q: Buyer to deduct TDS |
| T/O in preceding FY Buyer <10 cr, seller>10cr | 206C(1H): Seller to collect TCS |
| T/O in preceding FY Buyer >10 cr, seller>10cr | 194Q: Buyer to deduct TDS |
| T/O in preceding FY Buyer <10 cr, seller<10cr | Nothing applicable |
| Advance Paid by buyer on or after 1st July 2021 | 194Q will be applicable as trigger point for 1 94Q is earlier of payment or credit of such sum to the seller |
| Advance Paid by Buyer on or before 30th June 2021 | Seller need to collect TCS on such transaction u/s 206C(1H) as trigger point for deduction of TDS is payment or credit whichever is earlier. Thus TDS is u/s 194Q will not be applicable where payments are made before 30th June 2021. |
Certain important interpretations:
1) In case the buyer has not complied with section 194Q then the seller needs to collect TCS under section 206C(1H) on such transactions.
2) For the FY 20-21, aggregate value of purchase will be calculated from 1st April, 2021, even though the section is applicable from 1st July, 2021.
3) For the purpose of section 194Q, purchase will also include purchase of capital goods.
Implications of non compliances of section 194Q:
1) Section 40a(ia): In case of default u/s 194Q, 30% of such purchase amount on which tax is deductible will be disallowed under section 40a(ia).
2) Section 201(1A): In case of default in deduction of tax or in depositing the tax after deduction, the assess will be liable to pay simple interest
(i) at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible/collectible to the date on which such tax is deducted; and
(ii) at 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid
3) Section 271C: Penalty is levied under this section in case of failure to deduct tax at source, equivalent to the amount of tax which the person has failed to deduct or collect, which shall be imposed by the Joint Commissioner.
Audit procedures:
a) Reconciliation of sales and purchases with Form 26 AS:
Before introduction of sections 194Q and 206C(1H), sale and purchases of goods were out of the purview of TDS/ TCS. However, now Form 26 AS can be an additional audit evidence to verify/ confirm the significant revenue and purchase of goods transactions.
b) Implications in tax audit:
Under clause 34a of the Form 3CD, where auditor is required to comment on overall TDS/ TCS compliances by the assesse, detailed reconciliation may have to be given for these newly added sections.
c) Implication on calculation of Income tax provision and interest thereon, if any:
Non compliances with these sections results into disallowances, interest and penalty as described in above paragraphs. Auditors need to diligently consider the same for creation of provision for taxes in the books of account and also for the calculation of Income Tax liability and its consequent impacts in deferred taxes.
B) Section 206AB and 206CCA
Section 206AB and 206CCA, effective from July 1, 2021, primarily requires for deduction (TDS) and collection (TCS) of tax respectively at higher rate* for the specified person.
Specified person is a person
i) Who has not filed Income tax return for 2 assessment years relevant to the previous years immediately prior to the previous year in which tax is required to be deducted/ collected
ii) The due date to file such return of income, as prescribed under Section 139(1), has expired
iii) The aggregate amount of tax deducted and collected at source is Rs. 50,000 or more in each of these 2 previous years.
*Higher rate of deduction:
| 206AB | 206CCA |
| Tax will be deducted at higher of the following three rates:
1) Twice the rate specified in the relevant 2) Twice the rate or rates in force; or 3) 5% |
Tax will be collected at higher of the two rates:
1) Twice the rate specified in the relevant provision of the Act 2) 5% |
| In addition if the deductee has not furnished his PAN to the deductor, the tax shall be deducted at the rates provided in this section or in section 206AA, whichever is higher Rates prescribed in 206AA:
Higher of: i) Rate specified in the relevant provision; ii) Rate or rates in force; or iii) 20%. Conclusion: In case deductee has neither furnished his PAN nor filed ITR for preceeding two year as required in section 206AB, tax will be dedcuted at higher of: 1) Twice the rate specified in the relevant provision of the Act 2) Twice the rate or rates in force; or 3) 20%. |
In addition, when the collectee fails to furnish his PAN to the collector, the tax shall be collected at the rates provided in this section or in section 206CC, whichever is higher
Rates prescribed in 206CC: Higher of: i) Twice the rate specified in Section 206C; ii) 5%. Conclusion: In case collectee has neither furnished his PAN nor filed ITR for preceeding two year as required in section 206CCA, Tax will be collected at higher of: 1) Twice the rate specified in Section 206C; 2) 5%. |
Exception to these sections:
Section 206AB will not be applicable if TDS is deductible under following sections
(a) Section 192: TDS on Salary;
(b) Section 192A: TDS on withdrawal from EPF;
(c) Section 194B: TDS on winning from lotteries, crossword puzzles, etc.
(d) Section 194BB: TDS on winning from racehorses;
(e) Section 194LBC: TDS on income in respect of investment in Securitization Trust;
(f) Section 194N: TDS on cash withdrawal.
Further, this section will not be applicable to non resident who does not have a permanent establishment in India
Certain important interpretations:
1) As mentioned above, definition of specified person includes those person who has not filed the ITR for both the applicable assessment years. Hence if the person has filed return for even one of the two applicable assessment years, provision of this section would not apply.
2) This section does not give any exception of the persons who are not required to file ITR. Hence, this section will be applicable if the person has not filed ITR for the relevant applicable two assessment years, even though he may not be liable to file the ITR under the provisions of Income Tax Act, 1961.
Audit procedures:
Auditors will need to verify the declarations taken by the Deductor from its deductee to ascertain the TDS/ TCS rate in compliance with section 206AB and 206CCA.
C) Section 194 P:
This section is effective from 1st July, 2021 and is applicable to an Indian resident having age of 75 or more years and receives income only in the form of pension and/or interest from specified bank. Eligible individual needs to file a declaration with the specified bank in the form and manner as prescribed and the specified bank will deduct TDS of such individual after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A.
If above conditions are fulfilled, such specified senior citizen is not required to file an income tax return for that previous year.
