With every amendment, the Government is increasing its nexus over taxpayers by extending the scope of TDS and TCS or has stringent provisions related to TDS and TCS. Earlier, TDS was deductible on procurement of services only such as professional service, Brokerage, Interest, Contractor (Service component only), commission, etc., and TCS provisions were applicable on sale of selected goods only.
However, with effect from 1st October 2020, the Government extended provisions of TCS collection to all taxpayers on sale of all kinds of goods subject to certain conditions. Similarly, through the Finance Act, 2021, the Government extended provisions of TDS on procurement of all goods by all taxpayers subject to certain conditions.
Through this article, we are informing you about major changes made by the Finance Act, 2021 that are becoming applicable with effect from 1st July 2021.
1. Applicability of Section 194Q: TDS on payment for purchase of goods
a. Provisions of Section 194Q
- Finance Act, 2021 inserted a new section 194Q coming into effect from 1st July 2021.
- As per Section 194Q, TDS is to be deducted by every person from every resident seller for purchase of goods at the rate of 0.1% subject to following conditions:
- The turnover of the buyer must exceed INR 10 crores during preceding Financial Year.
- TDS shall be deducted from the seller from whom aggregate value of purchase exceeds INR 50 Lacs during the year and TDS should be deducted on an amount above INR 50 lacs.
- In case of non-availability of PAN or AADHAAR, TDS shall be deducted @ 5%
- Provisions of section 194Q shall not apply in following cases:
- Tax is deductible under any other provisions of the Act; or
- The tax is collectible under section 206C (other than transaction to which section 206C(1H) applies)
b. TDS under Section 194Q Vs TCS under Section 206(1H)
- As per Section 194Q, provisions of this section shall not apply on transactions on which Tax is collected under Section 206C other than Section 206C(1H).
- Therefore, even if TCS is collectible under Section 206C(1H), still TDS is deductible under Section 194Q.
- As per Second proviso to Section 206C(1H), provisions of this section shall not apply if the buyer is liable to deduct TDS under any other provision of this Act on the goods purchased by him and he has deducted such amount.
- As per joint reading of Section 194Q and Section 206C(1H), if a transaction is subject to both TDS and TCS then on such transaction buyer is required to deduct TDS and no TCS shall be collected on the same.
- Example
| Scenario | Aggregate Turnover of Seller during preceding year | Aggregate Turnover of buyer during preceding year | Transaction Amount during the year | TDS/TCS |
| 1 | INR 8 Crores | INR 7 Crores | INR 1 Crores | Neither TDS nor TCS shall be deducted on same |
| 2 | INR 11 Crores | INR 7 Crores | INR 1 Crores | Seller shall collect the TCS u/s 206C(1H) |
| 3 | INR 6 Crores | INR 11 Crores | INR 1 Crores | Buyer shall deduct the TDS u/s 194Q |
| 4 | INR 11 Crores | INR 11 Crores | INR 1 Crore | Buyer shall deduct the TDS u.s194Q |
| 5 | INR 11 Crores | INR 11 Crores | INR 40 Lacsc | Neither TDS nor TCS shall be deducted on same |
c. Declaration to be collected by seller
- Therefore, where Section 206C(1H) is applicable, Seller is required to obtain a declaration
2. Section 206AB and 206CCA – TDS/ TCS on non-filers of ITR at higher rates
a. Provisions of Section 206AB and 206CCA
- Finance Act, 2021 make Income Tax law strict for non-filers of Income Tax returns by inserting new Section 206AB and 206CCA. Newly inserted section provides for a higher rate of TDS and TCS respectively on non-filers of Income Tax Return.
- As per new sections, a person shall deduct the TDS or collect the TCS from specified person at higher of the following rate:
- Double of the rate provided under Chapter XVII-B or
- 5%
- Specified person means:
- A resident who has not filed his Income tax returns for the continuous 2 preceding years;
- The time limit of filing returns have been expired; and
- His aggregate value of TDS deducted or TCS collected is INR 50000 or more in each of the 2 previous year;
- Section 206AB and 206CCA shall not be applicable where the tax is required to be deducted under the following sections:
- Section 192 (Salary)
- 192(A) (Payment of accumulated balance of provident fund which is taxable in the hands of an employee)
- 194B (Winnings from lotteries, crossword puzzles, card games and other games of any sort)
- 194BB (Winnings from horse races)
- 194LBC (Income in respect of investment made in a securitisation trust)
- 194N (Cash withdrawal during the previous year from one or more accounts maintained by a person with a banking company, co-operative society engaged in business of banking or a post office).
B. Declaration to be collected by Deductor/Collector
- To execute these amendments, the deductor/collector is required to obtain declaration from counter party about following points:
- Amount of TDS deducted/Collected during preceding 2 Financial Years (FY 2018-19 and FY 2019-20 for TDS to be deducted during FY 2021-22)
- Whether Income Tax returns has been filed for preceding 2 Financial years.
