Union Budget – 2021: Higher TDS/TCS Rates for Non Filers of Income Tax Return

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Union Budget – 2021: Higher TDS/TCS Rates for Non Filers of Income Tax Return

Query]

I have been told that there is a special rate of TDS/TCS if the recipient is not filing income tax return? If it is so, how to verify whether the person is filing the income tax return or not? Can you please elaborate about the new procedure & system of new TDS rate for the non-filers? Also, please elaborate about the changes in TDS/TCS provision in the Budget-2021? [KR]

Opinion:

Taxpayers not only have to do business but also have to work for the Government by doing TDS/TCS, which establishes the trail of the transactions. The scope & complications has further been widened by Union Budget-2021 wherein total 9 changes are done in TDS/TCS provision (4 new sections are added & 5 existing sections are amended). Key amendment which is sure to impact the businesses are as under:

  1. Higher Rate of TDS / TCS for Non-Filers of Income Tax Return [Section 206AB / Section 206CCA]:
    i) At present, the higher rate of TDS @ 20% is there if the PAN is not provided by the deductee to the deductor.
    ii) In addition to obtaining the PAN, Taxpayers would now be required to verify whether the recipient/ deductee (purchaser/buyer) has filed the income tax return or not. If the recipient / deductee has not filed the income tax return relevant to the 2 previous years immediately prior to the year in which tax is required to be deducted and for which the time limit for filing the return of income under section 139(1) has expired then TDS would be applicable at a higher rate. TDS rate in cases of such non-filers shall be the higher of the following:

(a)     At twice the rate specified in the relevant provision of the Act; or

 (b)  At twice the rate or rates in force; or

 (c)  At the rate of 5%.

iii) It may be noted that higher rate would be applicable only if the aggregate amount of TDS/TCS is Rs. 50,000/- or more in each of two preceding previous years.
iv) This new provision is not applicable on payment to a non-resident who does not have a permanent PE in India.
v) This provision is applicable from 1st July, 2021 in respect of all TDS provisions except in case of except in case of payment covered by sections 192 (Salary Payment), 192A (Payment of accumulated balance of due to an employee), 194B (TDS on Lottery/Crossword puzzle income) , 194BB (TDS on Winning from Horse Race), 194LBC (TDS on income from securitisation trust)  or 194N (TDS on cash withdrawals from Bank).

vi) How to verify whether the person has filed an Income Tax Return for two years or not?
A Similar provision for a higher TDS rate was introduced in the last year on cash withdrawals from the Bank. A utility has been provided at the income tax portal to verify whether the person is filing income tax return or not. Similar utility is expected to be provided at the income tax portal for above purposes.

  1. TDS in case of Specified Senior Citizens (Section 194P):
    Now, immunity is proposed to be given to specified senior citizens of 75 years or more and having income only by way of (a) pension & (b) interest from the same bank from which it is receiving pension. To ensure collection of tax in such cases, the liability has been shifted on the banker by adding new section 194P which now requires such banks to do TDS on the income of such specified senior citizens.
  2. Section 194Q – TDS on purchase of goods:
    Budget –2021 has widened the TDS net drastically by proposing new section 194Q in the Income Tax Act – 1961 which will now require buyers to do TDS on purchases. New proposed Section 194Q provides as under:
  3. Any buyer with turnover in the preceding previous year exceeding Rs. 10 Cr would now be required to deduct tax at source (TDS) on its purchases.
  4. TDS would be applicable only if the purchase or aggregate value of purchase from the seller exceeds Rs. 50 Lakh in a financial year. If the purchase from any seller is not exceeding Rs. 50 Lakh then the buyer would not be required to do any TDS. The sales /gross receipts/ turnover of the FY 2020-21 would be relevant in determining the applicability in the FY2021-22. TDS applicability would be required to be examined every year on the basis of turnover of preceding previous year.

iii.  TDS is applicable only on an amount exceeding Rs. 50 Lakh. Suppose M/s Smart Ltd has purchased goods of Rs. 51 Lakh from M/s X Ltd then the TDS would be required to be done only on Rs. 1 Lakh and not entire Rs. 51 Lakh.

  1. Liability to do TDS would arise 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. It means that the TDS liability would arise if the buyer makes the advance payment for purchase of goods.
  2. TDS U/s 194Q would not be required where,
    (a) Tax is Deductible under any of the provisions of this Act &
    (b) Tax is Collectible under the provisions of section 206C other than a transaction to which section 206C(1H) applies.Overall reading with above provisions would make it aptly clear that the TDS would be applicable even if the seller is collecting TCS U/s 206C(1H).

vi.It may be noted that if the buyer is liable for TDS under other provisions of the Act then the TDS would not be applicable u/s 194Q but would continue to be subject to the TDS under other provisions.

vii.       This section is applicable from 01.07.2021.

viii.  What if the PAN of the seller is not obtained by the Buyer [Proviso to section 206AA(1)]:  If the seller doesn’t furnish the PAN then the buyer would be required to do TDS @ 5% (and not 0.01% or 20%).

  1. TDS on Dividend:
    Section 194 which provides for TDS on dividend is also proposed to be amended so as to provide that no TDS would be required on interest paid to a Business Trust being REIT or InvIT as defined in 2(13A).
  2. TDS on Interest:
    Section 194A which provides for TDS on Interest is also proposed to be amended so as to provide that no TDS would be required on interest payment by the Infrastructure Debt Fund.
  3. TDS on Income of Financial Institutional Investor (FII):
    Section 196D which provides for TDS on Income of FII has also been proposed to be amended so as to provide lower TDS in certain cases.

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