The Finance Act 2021 has introduced two new changes in rules relating to TDS (Tax deducted at source) or TCS (Tax collected at source).
A. Higher TDS/TCS rate for non-filer of IT returns
Till now, a higher TDS rate was deducted only for those who did not have PAN. But from July 1st, a higher rate would be deducted if you have not filed IT returns in the last 2 previous years under the newly inserted Section 206AB (for TDS) & 206CCA (for TCS) in the IT Act, 1961.
Note: Previous year means financial year according to the Income-tax act. Since the new provisions come into effect from July 1, the returns and compliance of previous years Financial Year 2018-19 and Financial Year 2019-20 will be considered. Financial Year 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?
The Persons who covered are defined under the term “Specified persons”. Specified persons are those who have not filed their IT 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 INR 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 should not 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 of TDS/TCS will be higher of the following rates:
- Twice the tax rate mentioned under the relevant provision of the Act; OR
- Rates in force or Twice the rate; OR
- Rate of 5%.
Section 206AB will NOT be applicable in these TDS cases:
- TDS on Salary under section 192;
- PF withdrawal under section s 192A;
- Winning amount from the card game, crossword, lottery or any other games and horse race under section 194B or 194BB;
- Cash withdrawal over INR 1 crore under section 194N;
- Under section 194LBC- Income against investment in the securitization trust;
- Non-Resident, does not have a Permanent Establishment in India.
How to verify if a person is a Specified person or not according to the Section 206AB and 206CCA?
IT Department has released a new feature for this “Compliance Check for Section 206AB & 206CCA”. You can sign in to the Reporting portal of the income tax department through this link- 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. Tax deducted at source on Purchase of Goods- Insertion of new section 194Q
Till now, TDS was applicable on payment for Services received but from July 1st onwards, through the insertion of Section 194Q, TDS has to be deducted at source on purchase of goods too.
When will this Section applicable?
If the buyer of goods makes a purchase exceeding INR 50 lacs during the year and if the buyer’s turnover or sales or gross receipts exceeds INR 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 seller’s account, 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 INR 50 lacs amount. (Total value – 50 lacs = on the Balance amount). Tax deducted at source 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 INR 10 crores in the previous financial year and exceeds the sale transaction of INR 50 lacs 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 October 01, 2020.
Note: 1% TCS has to be collected if PAN is not furnished.
If the buyer & seller qualify for the limit on a transaction?
In cases where the buyer qualifies the limit under section 194Q and where the seller under section 206C (1H), then Section 194Q will prevail over 206C (1H) i.e., TDS has to be deducted and TCS can be ignored in these kind of cases.
Will the threshold purchase limit of INR 50 lacs 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 INR 50 lacs.
But, 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 under section 194Q then 30% of the purchase amount on which TDS was supposed to be deducted shall be disallowed.
For example, if your company’s turnover exceeds INR 10 crore rupees during the year 2020-21 and you have made a purchase of INR 55 lacs in this financial year, then you have to deduct TDS of 0.1% on INR 5 lacs (i.e., 55lacs less INR 50 lacs). And in case you miss out on the TDS deduction, an amount of 30% i.e., (30% on INR 5 lacs = INR 1.5 lacs) will be disallowed expense.