Author: Nikita Bhatia

Finance Act 2021 introduced section 206AB to the Income Tax Act which has major implications on existing TDS provisions and rates. The idea behind this provision is to extract Tax at source from persons who are not filing their IT Returns, thereby making the businesses more responsible towards filing their returns regularly.

Applicability:

Section 206AB states that TDS on any payment other than on salary has to be deducted at a higher rate in case the recipient or deductee,

• has not filed the returns of income (ITR) for the previous two financial years for which the time limit for filing ITR has expired, and
• the aggregate of tax deducted at source and tax collected at source in his case is Rupees Fifty Thousand (Rs. 50,000) or more in each of these two previous years.

The rate at which TDS will be required to be deducted is higher of the following:

(i) at twice the rate specified in the relevant provision of the Act; or

(ii) at twice the rate or rates in force; or

(iii) at the rate of five per cent.

Question: How to check whether the deductee/recipient has filed the ITR for the previous two financial years and their TDS exceeds Rs 50,000/- in each of the two previous financial years?

• The Govt. has come up with a utility where every person can check if their deductee/payee is a specified person on whom higher rate of TDS is applicable. The detailed procedure is given under Notification No. 01 of 2021 issued by CBDT Directorate of income tax(systems). It is also available on the reporting portal of the IT Deptt. (https://report.insight.gov.in).

• Alternatively, you can also take a declaration or an undertaking from all the persons for which you are liable to deduct Tax in respect of the same. Please note that a declaration or undertaking is not a substitute for checking if the person is a specified person from the Govt. prescribed utility.

Exclusions: Section 206AB is not applicable on the following:

• Section 192 – Payment for Salary to an employee
• Section 192A – Payment of accumulated balance due to an employee
• Section 194B – Winnings from lottery or crossword puzzle
• Section 194BB – Winning from a horse race
• Section 194LBC – Income in respect of investment in securitisation trust
• Section 194N – Payments of certain amount/amounts in cash

Besides, the provisions of this section do not apply to a non-resident who does not have a permanent establishment in India. Permanent establishment for this purpose includes a fixed place of business where the enterprise’s business is carried out wholly or partially.

Conclusion:

It should be noted that if a person does not furnish PAN, then tax shall be deducted or collected at 20 per cent or rates applicable as per this section, whichever is higher.

Budget 2021 has introduced similar provisions in TCS where higher rate of TCS is to be collected from ‘specified person’ who has not filed ITR of two previous financial years and total TDS and TCS exceeds Rs. 50,000/- vide section 206CCA.

In the Budget for FY 2021-22, a new section 194Q has been introduced which is related to payment of certain sum for purchase of goods.

As per this section, any person, being a buyer who is responsible for paying any sum to any resident for purchase of any goods of the value or aggregate of such value exceeding INR 50 lakhs in any previous year, shall, deduct TDS @0.1% on the total value of the transaction.

Here “buyer” means a person whose turnover in the preceding financial year exceeds INR 10 crore (exclusive of GST).

Applicability:

– This section (194Q) is applicable from 1^st July 2021.

– A Buyer need to deduct TDS under this section whose turnover during 2020-21 exceed 10 Crore.

– Purchase of goods during the year 2021-22 exceeds 50 Lakhs.

Rate of TDS:

– Rate of TDS will be 0.1%

– If PAN is not furnished then applicable TDS rate shall be 5%.

Point of taxation:

– TDS shall be deducted at the time of credit in the books of accounts or at the time of making payment, whichever is earlier.

Non-compliance of section 194Q:  If the Buyer fails to deduct TDS, 30% of the expenditure will be disallowed.

Others:

– TDS to be paid by 7^th of the subsequent month for April to February and 30^th April for March.

– TDS return will be furnished under 26Q

– Form 16A to be issued to the vendor 

Exemption:

– This section is not applicable to a person whose TDS deductible under any other provision of the Act

– This section is not applicable to a person whose TCS deductible under any other provision of the Act, other than Sec 206C(1H)