New norms of TDS/TCS from July 1

Shishir Sinha Updated on June 17, 2021

Three key changes relate to purchase of goods, pension income and accelerated TDS rates for non-filers

Businesses may be in for some extra work from July 1 to ensure compliance with the new Tax Deducted at Sources/Tax Collected at Sources norms and face higher TDS if Aaadhar is not linked with PAN.

Finance Act 2021 has made three key changes in TDS norms which are purchase of goods, pension income of eligible senior citizens and accelerated TDS rates for non-filers. While the first and third provisions are applicable from July 1, second one applies for the pension income of this entire financial year.

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Newly inserted section 194Q related to deduction of tax at source on payment of certain sum for purchase of goods. Section 206AB and 206CCA prescribes special provision for deduction of tax at source for non-filers of income-tax return.

Explaining the new provisions, Sujit Bangar, Founder of Taxbuddy.com says from this July subject to certain conditions, business purchases of more than ₹50 lakh per annum will attract TDS at the rate of 0.1 per cent of the value of such gross purchases.

Turnover limit

“Other important conditions are that your gross turnover in preceding year should have exceeded ₹10 crore and no other TDS is to be applicable to such transaction. This TDS needs to be done at the time of credit to the account of the purchase party or at the time of making payment whichever is earlier,” he said, adding that this applies to suspense accounts too.

According to Shailesh Kumar, Partner with Nangia & Co LLP, where section 194Q is applicable, the buyer will have to communicate to all its vendors not to collect TCS on its purchases. “From a seller’s point of view, they’ll have to ensure information from their customers as to whether provisions of section 194Q are applicable, if not the seller will have to collect TCS in order to avoid non-compliance. Such data gathering is another difficulty for taxpayers while complying with new provisions,” he said.

Another provision of TDS intends to curb non-filing of income tax returns. This is applicable in case of persons who have not filed ITRs in two years previous to the year of TDS deduction. And the tax is deductible in case of each these two years. In such cases the deductor or payer of income is required to deduct tax at twice the rates applicable for the relevant transactions or at 5 per cent whichever is more. “The ITR filing status of the person can be known by the bank from the income tax portal of the Government,” Bangar said.

Kumar says the deductor/collector may be required to gather huge data from each and every vendor/ customer with respect to filing of their ITRs and available TDS/TCS credit in order to ensure correct rate for deduction/ collection of taxes. “This may not be practically possible unless the tax authorities provide them with a utility having all the data with respect to filing of ITRs and available TDS/TCS credit in Form 26AS,” he said.

After numerous extensions, new deadline for linking Aaddhar with PAN is June 30. Kumar said that if not done, the PAN shall be treated as inoperative and the person shall be liable for all consequences under the ITA for not furnishing, intimating or quoting PAN. (example, higher rate of TDS at the rate of 20 per cent).

Published on June 17, 2021
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