Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
The CBDT (Central Board of Direct Taxes), via finance Act, 2021, has introduced new sections under the Income-tax Act, which contains provisions related to the TDS & TCS for non-filers of the income-tax returns and TDS on payment of a certain sum for the purchase of goods.
Under the Income-tax Act, 1961, the following section shall be inserted with effect from the 1st day of July, 2021, namely:-
Section 206CCA- This contains special provisions for collection of tax at source for non-filers of income-tax return.
Section 206AB- This contains special provisions for deduction of tax at source for non-filers of income-tax return.
Section 194Q- This contains special provisions for deduction of tax at source on payment of a certain sum for purchase of goods.
Section 206AB & section 206CCA of the Income-tax Act, 1961 imposes a higher rate of TDS (deduction of tax at source) / TCS (collection of tax at source) if the transactions are done with the non-filers of income tax return (ITR). While section 194Q contains special provisions for deduction of tax (TDS) at source on payment of a certain sum for the purchase of goods.
Applicability of section 206AB
Where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than sections 192, 192A, 194B, 194BB, 194LBC, or 194N on any sum/income or the amount paid/payable or credited, by a deductee to a specified person, the tax shall be deducted at the higher of the following rates, namely:
- At twice the rate specified in the relevant provision of the Income-tax Act, 1961 or
- Twice the rate /rates in force or
- At the rate of 5%.
*If the provisions of section 206AA are applicable to a specified person, in addition to the provision of section 206AB, the tax shall be deducted at the higher of the two rates provided in section 206AB and section 206AA.
Read: Section 206AB & section 206CCA Explained
Applicability of section 206CCA
Where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum /amount received by the collectee from a specified person, the tax shall be collected at the higher of the following two rates, namely:
- At twice the rate specified in the relevant provision of the Income-tax Act, 1961 or
- At the rate of 5%.
*If the provisions of section 206CC are applicable to a specified person, in addition to the provisions of 206CCA, the tax shall be collected at higher of the two rates provided in 206CCA and in section 206CC.
Specified Person for the purpose of section 206AB & 206CCA
The “Specified person” for the purpose of section 206AB & section 206CCA, means a person:
- Who has not filed the ITR for 2 previous years immediately prior to the previous year in which tax is required to be collected/deducted and
- The time limit of ITR filing under sub-section (1) of section 139 is expired and
- The aggregate TDS or TCS is Rs. 50,000 or more in each of the 2 previous years.
“The specified person shall not include a non-resident who does not have a permanent establishment in India“.
CBDT issues functionality for Compliance Check for Sections 206AB & 206CCA
The CBDT (Central Board of Direct Taxes) has issued a functionality to verify whether the Vendors have filed a tax return for compliance of Section 206AB and Section 206CCA.
According to the interpretation of the new sections, the tax deductor or the tax collector is required to do a due diligence to check whether the deductee or the collectee is a specified person. This is a compliance burden on the part of such tax deductor or the tax collector.
To ease this compliance burden the CBDT has issued a new functionality called “Compliance Check for Sections 206AB & 206CCA”. Through this functionality, tax deductor or the collector can feed the single PAN (PAN search) or multiple PANs (bulk search) of the deductee or collectee and can get a response from the functionality if such deductee or collectee is a specified person or not.
Central Board of Direct Taxes is issuing a new functionality “Compliance Check for Sections 206AB & 206CCA”. This functionality is made available through the reporting portal of the Income-tax Department. Click here to go to the reporting portal.
Read: CBDT issues functionality for Compliance Check for Sections 206AB & 206CCA
For PAN Search, response will be visible on the screen which can be downloaded in the PDF format. For Bulk Search, the response would be in the form of downloadable file which can be kept for record.
The deductor or the collector may check the PAN in the functionality at the beginning of the financial year and then he is not required to check the PAN of a non-specified person during that financial year. The list would be drawn afresh at the start of each financial year.
As per circular no 11, the deductor can verify from the income tax portal its vendor’s status of filing the tax returns in the preceding 2 years. The department also clarified that the preceding 2 previous years for Financial Year 2021-22 shall mean Financial Year 2018-19 and Financial Year 2019-20.
Applicability of section 194Q
Under the Section 194Q, the buyer will be liable to deduct TDS if:
- Turnover of the buyer during the last year exceeds Rs. 10 Crores and
- The buyer purchases goods of Value that exceed Rs. 50 Lakhs (Including GST) in the current year from a Seller (PAN-Wise) and
- The Purchase is made from a Resident Supplier.
For the purposes of this sub-section, “buyer” means a person whose total sales, gross receipts, or turnover from the business carried on by him exceed Rs 10 Crores during the financial year immediately preceding the financial year in which the purchase of goods is carried out.
Section 194Q does not make any distinction between Capital Goods and other goods and therefore, it shall apply in the case of a purchase of Capital Goods too.
TDS shall be deducted on the date of credit or the date of payment whichever is earlier. TDS shall not be deducted for the payment or credit made before 01.07.2021.
Rate of TDS for Section 194Q- If PAN of the Seller is Available then the rate will be 0.1%, if PAN of the Seller is not available then the rate will be 5%.
Non-compliance of section 194Q: – As per section 40a(ia) of Income Tax Act 1961, if the buyer fails to deduct TDS, 30% of the expenditure will be disallowed.
Situations where Section 194Q is not to be applied
1. Tax is deductible under any of the provisions of this Act; and
Illustration: Suppose in case of Works Contract, TDS is required to be deducted u/s 194C and side by side conditions of section 194Q also fulfils, then, TDS shall be deducted u/s 194C and not under section 194Q.
2. Tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.
Illustration: Suppose we purchased a motor vehicle for Rs. 70 Lac and TCS charged by the Dealer u/s 206C(1F), then no TDS shall be deducted u/s 194Q.
For the latest business and financial updates, follow and connect with us on Facebook, Twitter, and Linkedin!
To Get Finance News & Job Alerts Directly On Your Mobile Join Our WhatsApp Group