Categories: TDS

Analysis of TDS & TCS under the Finance Bill

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Analysis of TDS & TCS under The Finance Bill

BRIEF INTRODUCTION

The Union Budget which was introduced within the Parliament, in February, proposed many key adjustments within the tax Act.
Especially, some of the positive amendments have been introduced within the TDS and TCS provisions of the said Act. In this article, we would be evaluating the modifications that are proposed within the TDS/ TCS provisions within the income tax Act.

TDS to be Deducted on Dividend Paid to a Business Trust

EXISTING PROVISIONS

AMENDMENT MADE TO THE SECTION

EFFECTIVE DATE

SECTION-194 PROVIDES FOR DEDUCTION OF TDS @ 10% ON PAYMENT OF DIVIDENDS BY AN INDIAN COMPANY WITHIN INDIA TO A RESIDENT INDIAN WHO IS AN INDIVIDUAL. HOWEVER, NO TDS BE DEDCUTED WHERE THE AMOUNT OF DIVIDEND DOES NOT EXCEED RS. 5,000.

IN CASE, OTHER THAN INDIVIDUAL, THERE IS NO THRESHOLD LIMIT. THUS, WHERE THE DIVIDEND IS PAID EVEN OF RS. 1, TDS IS TO BE DEDUCTED.

SECOND PROVISO OF SECTION-194 STATES THAT NO TDS IS REQUIRED WHERE THE DIVIDEND IS PAID TO INSURANCE COMPANIES OR INSURERS.

NO CHANGES HAVE BEEN PRESCRIBED IN THE RATES OF TDS OR THE THRESHOLD LIMIT.

IN ORDER TO PROVIDE RELIEF TO BUSINESS TRUSTS, AMENDMENT HAS BEEN PROPOSED TO SECOND PROVISO OF SECTION 194, THEREBY PROVIDING FOR NIL REQUIREMENT TO DEDUCT TDS WHERE DIVIDEND HAS BEEN PAID TO A BUSINESS TRUST, DEFINED IN CLAUSE (13A) OF SECTION 2.

REASONS FOR SUCH AN AMENDMENT BEING THAT THE INCOME OF BUSINESS TRUST IS EXEMPT FROM TAX BUT UNDER EARLIER PROVISIONS, TDS WAS REQUIRED TO BE DEDCUTED ON SUCH EXEMPTED INCOME.

EFFECTIVE RETROSPECTIVELY FROM 1-4-2020

TDS on Interest Payment by an Infrastructure Debt Fund

EXISTING PROVISIONS

AMENDMENT PROPOSED IN THE SECTION

EFFECTIVE FROM

SECTION- 194A (1) PROVIDES FOR TDS DEDUCTION @ 10% ON INTEREST OTHER THAN INTEREST ON SECURITIES.

SECTION 194A (3) PROVIDES FOR EXEMPTION FROM TDS DEDUCTION UNDER SECTION 194A.

CLAUSE (X) OF SUB-SECTION (3) EXEMPTS TDS REQUIREMENT ON INTEREST PAID BY INFRASTRUCTURE CAPITAL COMPANY OR INFRASTRUCTURE CAPITAL FUND OR A PUBLIC SECTOR COMPANY OR SCHEDULED BANK IN RELATION TO ZERO-COUPON BOND

AMENDMENT IN PROPOSED IN CLAUSE (X) OF SUB-SECTION (3) TO INCLUDE INFRASTRUCTURE DEBT FUND.

THE EFFECT OF THE AMENDMENT IS THAT THERE WILL BE NO REQUIREMENT OF TDS DEDUCTION ON PAYMENT OF INTEREST IN RELATION TO ZERO-COUPON BOND ISSUED BY INFRASTRUCTURE DEBT FUND

EFFECTIVE FROM 01-04-2021

HIGHER RATE OF TDS DEDUCTION IN CASE OF NON-FILERS OF ITR

TDS

EXISTING PROVISIONS

AMENDMENT PROPOSED IN THE SECTION

EFFECTIVE FROM

SUB-SECTION (1) OF SECTION 194-IB PROVIDES FOR ANY INDIVIDUAL OR HUF (OTHER THAN THOSE REFERRED IN SECTION-194I), PAYING A RESIDENT PERSON, RENT EXCEEDING RS. 50,000 PER MONTH, WILL BE REQUIRED TO DEDUCT TDS @ 5%. SUCH AMOUNT BE DEDUCTED AT THE TIME OF CREDITING RENT FOR THE PREVIOUS MONTH/YEAR

FURTHER, ACCORDING TO SUB-SECTION (4) OF THE SECTION, WHERE THE PAN OF THE PAYEE IS NOT AVAILABLE, TDS BE DEDUCTED UNDER SECTION 206AA @ 20%.

HOWEVER, THE AMOUNT OF DEDUCTION SHALL NOT EXCEED THE RENT PAYABLE

AMENDMENT WAS PROVIDED FOR SUB-SECTION (4) OF SECTION 194-IB , IN ORDER TO PROVIDE FOR A NEW SECTION 206AB ALONG WITH SECTION 206AA.

SECTION- 206AB HAS BEEN INSERTED BY THIS FINANCE BILL FOR PRESCRIBING SPECIAL RATE OF TDS IN CASE THE PAYEE IS A NON-FILER OF INCOME TAX RETURN. SUCH AN INSERTION WILL IMPACT THE TAXPAYERS, SINCE THE SAME WILL CAUSE UNDUE COMPLIANCE BURDEN.

EFFECTIVE FROM 01^ST JULY, 2021

Deduction In case of Senior Citizens with age of 75 Years Or More

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 within the kind of pension and/or interest from specified bank. Eligible individual has to file a declaration with the desired bank within the form and manner as prescribed and also the specified bank will deduct TDS of such individual, after allowing for the deduction that have been provided under Chapter VI-A and also the rebate being provided under section 87A.
If the above conditions are fulfilled, such specified grownup isn’t required to file a tax return for that previous year.
Section 139 of the tax Act requires that each person being an individual whose total income during the previous year exceeds the most amount not chargeable to taxation shall file his/her ITR on or before maturity date of filing ITR.
But the filing of ITR may be a difficult job for senior citizens. Therefore, with a view to producing relaxation to senior citizens from the requirement of filing ITR, a replacement section 194P is proposed to be inserted within the taxation Act. Section- 194P shall be applicable only in the case of specified senior citizens, as provided in the act.
According to Section 194P, the required old person shall not be required to file ITR if TDS has been already deducted under section 194P.

SPECIFIED SENIOR CITIZEN

A specified grownup may be a senior citizen: –

Who is resident in India,
Whose age is 75 years or more at any time during the relevant fiscal year &
Who has only pension income or interest income from the identical bank from which he’s receiving his pension income &
The bank may be a specified (notified) bank for this purpose &
He shall furnish a declaration to his bank during a prescribed format giving details of his income for the year and also the eligible deductions

TDS DEDUCTION UNDER SECTION 194P

Once the declaration is furnished by the desired golden ager to the bank, the bank will compute the income of such old person on the idea of declaration after giving effect to deductions eligible under Chapter VI-A associated with 80C/80CCC/80D/80G etc. and allowing rebate under section 87A of the Act and deduct TDS capable tax computed on such income supported the tax rates operative.

BENEFIT IN REAL TERMS

This section won’t reduce the burden of senior citizens in any manner. At present, they’re computing their income and submitting their details to a tax consultant for filing their ITR. to notice further, the majority the incomes like pension income and interest income are going to be now pre-filled within the ITR on the taxation Portal as stated by the minister of finance. Also, the golden ager will need to move to his bank and furnish a written declaration of his income which he was previously providing to his tax consultant. it’ll not reduce any sought of burden in any manner. it might be better if the Hon’ble FM would be more generous to senior citizens in the type of tax rebates.
This section is effective from 01-04-2021.

TDS ON PURCHASE OF GOODS

The Government had earlier introduced section 206C(1H) which provided for collection of tax at source (TCS) @ 0.1% (without PAN 1%) on receipt of consideration against sale of products exceeding Rs. 50 Lakhs by a seller who was having turnover quite Rs. 10 crores within the preceding year.
Now, the govt. has extended the scope of TDS levy by inserting a replacement section 194Q which provides for TDS on levy of TDS @ 0.1% on a buying deal transaction exceeding Rs. 50 Lakhs during a year.
However, the responsibility to deduct TDS under this section is only on those persons whose turnover is exceeding Rs. 10 crores. This limit has been prescribed to scale back the compliance burden on small taxpayers
Section 194Q could be applicable on any individual who is a buyer of products whose turnover or sales during immediately preceding yr exceeds Rs. 10 Crores. The section provides that if such buyer makes a purchase from any resident (seller) during the year valuable or aggregate value exceeding Rs. 50 Lakhs, then such buyer shall deduct TDS @ 0.1% (5% if PAN isn’t provided) at the time of credit to the account of seller or at the time of payment, whichever is earlier

HIGHER RATE OF TDS U/S 194Q

Section 206AA of the taxation Act provides that where the deductee fails to furnish his PAN to deductor, the deductor shall deduct TDS at the upper of the subsequent rates: –
- At the rate per the relevant provision of this Act; or
- At the rate in force; or
- 20%
First Proviso to section 206AA (1) prescribes rate of fifty rather than 20% just in case deduction is created u/s 194-O.
Another proviso is proposed to be inserted after first proviso which states that where TDS is required to be deducted u/s 194Q and PAN of the deductee isn’t available, TDS shall be deducted @ 5% rather than 20%. The amendment is effective from 01-07-2021.

CASES UNDER SECTION 194Q

In the following two cases, TDS isn’t required to be deducted u/s 194Q: –
- Transactions where TDS is applicable under the other provisions of the Act
- Transactions where TCS is applicable under section 206C aside from transactions to which section 206C(1H) applies.
This means that if TDS/TCS is required to comply under the other provision of this Act, then TDS shall not be deductible under section 194Q. But there’s one exception to the current.
If any transaction is responsible for TCS under section 206C(1H) and also TDS under this section, then on such transaction, only TDS shall be deducted under this section.
Moreover, CBDT has been provided with the requisite powers, in order to issue guidelines in respect of removing of difficulty in providing for the effect of the newly inserted provisions.
Every guideline issued by CBDT shall be laid before each house of parliament and shall be binding on tax authorities and also the person prone to deduct tax.
It should even be noted that if PAN of the vendor isn’t available, TDS shall be deducted @ 5%. In order to provide for the same, second proviso has been inserted under sub-section (1) of section 206AA.
The above section is applicable w.e.f. 01st July, 2021.

AMENDMENT TO SECTION 196D

Section 196D of the Act provides for deduction of tax on income derived by FIIs from securities as brought up in clause (a) of sub-section (1) of section 115AD of the Act. Such deduction is formed @ 20%.
To rationalize the availability by allowing the advantage of agreements u/s 90 or 90A of the Act while deducting TDS on payments to FIIs, a proviso is proposed to be inserted in section 196D (1).
The proposed amendment provides that just in case of a payee (FIIs) to whom an agreement referred u/s 90(1) or 90A (1) applies and such payee has furnished the tax residency certificate observed in section 90(4)/ 90(4A) of the Act, then the tax shall be deducted at the rate of 20% or rates provided in such agreement, whichever is lower.
The above-mentioned amendment shall be effective from 1st April 2021.

SECTION 206AB AND 206CCA

sections-206ab-and-206-cca

Section 206AB and 206CCA, effective from national holiday, 2021, primarily requires for deduction (TDS) and collection (TCS) of tax respectively at a higher rate* for the required person.

A specified person could be a person

Who has not filed tax returns for two assessment years relevant to the previous years immediately before the previous year during which tax is required to be deducted/ collected?
The date to file such return of income, as prescribed under Section 139(1), has expired
The aggregate amount of tax deducted at source (TDS) amounts to Rs. 50,000 or more, for each of the previous 2 years.

NEW SECTION 206AB/ 206CCA

HIGH RATE OF TDS ON NON-FILERS OF ITR UNDER SECTION 206AB	HIGH RATE OF TCS ON NON-FILERS OF ITR UNDER SECTION 206CCA
APPLIES WHERE THE DEDUCTEE FAILS TO FURNISH TO FURNISH THEIR ITR FOR 2 FINANCIAL YEARS, IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH THE TDS IS REQUIRED TO BE DEDUCTED.	APPLIES WHERE THE DEDUCTEE FAILS TO FURNISH TO FURNISH THEIR ITR FOR 2 FINANCIAL YEARS, IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH THE TCS IS REQUIRED TO BE COLLECTED.
SPECIFIED PERSON – A PERSON IS SAID TO BE A SPECIFIED PERSON, WHERE ALL THE FOLLOWING CONDITIONS ARE FULFILLED – A PERSON WHO DID NOT FILE THEIR INCOME TAX RETURN IN RELATION TO THE 2 FINANCIAL YEARS, IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH TAX IS REQUIRED TO BE COLLECTED. ALSO, THE PRESCRIBED TIME LIMIT FOR FILING A RETURN OF INCOME UNDER SECTION 139(1) HAS BEEN EXPIRED. THE AGGREGATE AMOUNT OF TDS/TCS TO BE DEDUCTED/COLLECTED, IS RS. 50,000 OR MORE IN EACH OF THE PREVIOUS 2 FINANCIAL YEARS. IT EXCLUDES A NON-RESIDENT, NOT HAVING A PERMANENT ESTABLISHMENT IN INDIA.
EXEMPTED WHERE THE INCOME IS REQUIRED TO BE DEDUCTED UNDER THE FOLLOWING SECTIONS – · SECTION 192 · SECTION 192A · SECTION 194B, 194BB HOWEVER, THIS EXEMPTION SHALL NOT BE AVAILABLE TO A NON-RESIDENT, NOT HAVING A PERMANENT ESTABLISHMENT IN INDIA.	EXEMPTED WHERE INCOME IS RECEIVED BY ANY NON-RESIDENT NOT HAVING A PERMANENT ESTABLISHMENT IN INDIA
RATE WOULD BE HIGHER OF – · AT TWICE THE RATE, BEING SPECIFIED IN RESPECTIVE PROVISION. · AT TWICE THE RATE OR RATES THAT ARE THERE IN FORCE. AT THE RATE OF 5%.	RATE WOULD BE HIGHER OF – · AT TWICE THE RATE, BEING SPECIFIED IN THE RESPECTIVE PROVISION. AT THE RATE OF 5%.
ALSO, WHERE THE DEDUCTEE FAILS TO FURNISH HIS PAN TO THE DEDUCTOR, TDS BE DEDUCTED @ PROVIDED IN THIS SECTION OR IN SECTION 206AA, HIGHER OF THE RATES RATE UNDER SECTION 206AA: HIGHER OF: I) RATE BEING SPECIFIED IN THE RESPCETIVE PROVISION; II) RATE OR RATES THAT ARE THERE IN FORCE; OR III) 20%. CONCLUSION: WHERE THE DEDUCTEE FAILS TO FURNISH HIS PAN AS WELL AS ITR FOR 2 CONSECUTIVE PREVIOUS YEARS, TDS BE DEDCUTED AT HIGHER OF: 1) TWICE THE RATE, BEING SPECIFIED IN THE RESPECTIVE PROVISION OF THE ACT 2) TWICE THE RATE OR RATES THAT ARE THERE IN FORCE; OR 3) 20%.	ALSO, WHERE THE COLLECTEE FAILS TO FURNISH HIS PAN TO THE COLLECTOR, TCS COLLECTED AT THE RATES PROVIDED IN THIS SECTION OR IN SECTION 206CC, HIGHER OF THE RATES RATES UNDER SECTION 206CC: HIGHER OF: I) TWICE THE RATE, BEING SPECIFIED IN SECTION 206C; II) 5%. CONCLUSION: WHERE THE COLLECTEE FAILS TO FURNISH HIS PAN AS WELL AS ITR FOR 2 CONSECUTIVE PREVIOUS YEARS, TCS BE COLLECTED AT HIGHER OF: 1) TWICE THE RATE, BEING SPECIFIED IN SECTION 206C; 2) 5%.
IN CASE, THE PROVISION OF SECTION 206AA IS ALSO APPLICABLE TO SPECIFIED PERSON APART FROM THIS SECTION, TDS BE DEDUCTED AT THE RATE HIGHER OF RATES DETERMINED U/S 206AA & 206AB.	WHERE THE PROVISION OF SECTION 206CC IS ALSO APPLICABLE TO A SPECIFIED PERSON, APART FROM THIS SECTION, TCS BE COLLECTED AT THE RATE HIGHER OF RATES DETERMINED U/S 206CC & 206CCA
THE SECTIONS SHALL BE EFFECTIVE FROM 1^ST JULY, 2021.

IMPORTANT INTERPRETATIONS

As mentioned above, the definition of a specified person includes those who have not filed the ITR for both the applicable assessment years. Hence if the person has filed a return for even one among the 2 applicable assessment years, provision of this section wouldn’t apply.
This section doesn’t give any exception to the persons who don’t seem to be required to file ITR. Hence, this section is going to be applicable if the person has not filed ITR for the relevant applicable two assessment years, although he might not be prone to file the ITR under the provisions of tax Act, 1961.

OUR REMARKS

With the introduction of two new sections, namely section 206AB and 206CCA, there has been an additional compliance burden being imposed on the taxpayers/assessee.
Earlier, the assessee wont to only enkindle PAN of the deductee/ collectee. If PAN wasn’t available TDS/TCS was made at a better rate.
But now from 1st July 2021, the assessee also will have to check whether such person has filed its ITR or not for last 2 financial years. Further, he also must check whether the TDS/TCS amount in such 2 years was Rs. 50,000 or more.
With the introduction of these sections, the taxpayer is ought to be quite careful in deducting TDS or collecting TCS. They are required to be prepared, in order to gather the copy of their client’s ITR and also Form 26AS to comply sections 206AB & 206CCA.
There’s no rationale behind these sections. the govt is simply casting additional responsibility upon the assessee which was undoubtedly an obligation of the govt to confirm that the ITR is filed by the person who is liable for deduction/collection of TDS/TCS.

SECTION 194Q

s-purchase of goods

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%, and the same be deducted, where the buyer credits the amount of transaction in the name of the seller, being an Indian resident, or at the time of payment using any other mode, whichever is earlier.

The details application of this section has been explained as follows –

This section will apply to the client whose total sales, gross receipts or turnover from the business was quite Rs.10 crores within the previous yr.
Such buyer is required to deduct the TDS of every such seller from whom the combination purchase value exceeds Rs. 50 lacs during the year.
TDS is to be deducted at 0.1% on the number by which the mixture 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 fiscal year is over Rs. 10 crores then party A will should deduct TDS of party B on Rs. 5 lacs (55-50) at the rate of 0.1%.