Important changes in TDS and TCS provisions (Applicable from 1st July 2021)

1. If your vendor/payee is not filing a return, a higher TDS/TCS rate will be applicable

In order to penalize those who don’t file income tax returns (ITRs) [despite being liable to], the government has inserted new Section 206AB and 206CCA in Union Budget 2021.

– Where, Section 206AB mandates the person to deduct TDS at a higher rate & Section 206CCA mandates the person to collect TCS at a higher rate

– With effect from July 1, 2021, payment to a specified person (payee) will be after deducting TDS/ TCS at a higher rate (Double of existing rate or 5% whichever is higher) if the specified person (payee) has not filed a return of income.

A) Who shall be called as a specified person?? – A person who has not filed the returns of income for two immediately preceding years relevant to the year in which tax is required to be deducted or collected, as the case may be, & – Aggregate of his TDS and TCS equals or exceeds Rs.50,000/- in each of these two previous years. Exception: A specified person shall not include a non-resident who does not have a permanent establishment in India.

B) Declaration forms of sections 206AB & 206CCA – The deductor/collector should ask for declarations from the specified person who should mention that the income tax return filed or not. If income tax return is filed, declaration should specify acknowledgment of income tax return filed, date of filing return and PAN.


2. Section 194Q – TDS on Purchase of Goods!!

Another change is TDS on the purchase of goods. Buyer (having TURNOVER > 10 Crores) paying amount to the seller for the purchase of any goods of the value or aggregate of such value exceeding Rs. 50 lacs in any previous year shall deduct TDS @ 0.1% in excess of Rs.50 lacs.

A) TDS shall have to be deducted at the rate of 0.1% of the purchase value exceeding Rs. 50 lakhs at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier.

B) The Buyer shall have the primary and foremost obligation to deduct the tax if the transaction could be subject to both provisions and no tax shall be collected by the seller on such transaction under Section 206C (1H). However, if the buyer makes a default or fails to deduct tax, the liability to collect the tax gets shifted to the seller if his turnover exceeds 10 crores.