The new TDS/TCS provisions – 194Q, 206AB, 206C(1H) and action points – Vishnu Daya & Co LLP (2024)

The Finance Act 2021, has brought out new TDS provisions with effect from 1st July 2021 relating to:

1. Applicability of TDS/TCS at higher rate in certain cases and
2. TDS on purchase of goods.

In this regard, following is the brief summary of the TDS provisions and the action points thereon which need to be taken care for the ease of compliance of these provisions.

Please find the attached chart for the easy understanding of interplay between TDS u/s 194Q and TCS u/s 206C(1H) in this regard.Interplay between TDS 194Q and TCS 206C(1H)

1.Section 206AB- TDS to be deducted at higher rate:

Applicability:

1. All the persons who are liable to deduct TDS as per the provisions of the Income tax Act, 1961 u/s 194J professional fees, 194C- contract, 194H commission , 194I rent etc but excluding TDS on Salary u/s 192, 192A, 194B, 194BB, 194LBC, 194N and 195, need to take care of these provisions
2. If the deductee (vendor/ service provider) has not filed the income tax return in both the immediately preceding financial years. For FY 2021-22, relevant two preceding financial years are FY 2018-19 and FY 2019-20; and
3. If the deductee has total TDS+TCS exceeding Rs. 50,000 in each of the two financial years considered above
4. The TDS applicable will be twice the regular rate or 5% whichever is higher

To check the applicability of this section, a declaration has to be taken from all the vendors/ service providers other than non- residents. Format of the declaration is attached herewithAnnexure 1 Declaration – 206AB of IT Act

2. Section 194Q

Applicability:

1. Applicable from 1st July 2021
2. Buyer who purchases goods from a resident seller for a value exceeding 50 lakhs in a financial year has to deduct TDS.
3. TDS at the time of payment or credit whichever is earlier
4. Rate of TDS is 0.1% on total purchase value
5. Not applicable to Buyers whose turnover for immediately preceding financial year is less than 10 crore

Section 206C(1H) which is applicable to a seller to collect TCS on sale of goods came into effect from 01.10.2020 and has the similar provisions. Hence when both TDS & TCS provisions are applicable to a same transaction, then TDS u/s 194Q would prevail over TCS u/s 206C(1H). However, if TDS is not applicable for the buyer, then TCS has to be collected by the seller, if other conditions are satisfied.

Therefore, to avoid the cascading effect of tax, it is preferable to give a declaration by the buyers to the sellers intimating that the buyer will be deducting the TDS on the purchase value.

The declaration format is attached as Annexure 2 – 194Q – to be given to seller by the buyer liable for 194Q. This needs to be given to the seller informing that TDS is being deducted u/s 194Q and confirming to the seller not to collect any TCS for the sale of goods.

3.Section 206C(1H)

Applicability:

1. Seller turnover> 10 crores in previous FY
2. Seller to collect TCS on sale of goods when collection against sales > 50 Lakhs in a FY
3. TCS at 0.1%
4. Not applicable if the TDS is being deducted by the buyer u/s 194Q
5. TCS at higher rate need to be collected if the provisions of 206CCA are applicable ( In this regard please take the necessary declaration as per Part B of Annexure 3)

As we have seen in the 2^nd point, TCS has to be collected by the seller only if the buyer is not deducting the TDS u/s 194Q. Hence, the seller has to collect the information from the buyer about the 194Q applicability to decide whether TCS has to be collected or not for a particular transaction.

In this regard please find the attached format of declaration Part A of Annexure 3 to be collected from buyer based on which the TCS collection can be decided by the seller.

It is also be noted that while collecting the TCS on sale of goods, the rate of TCS would be done at higher rate u/s 206CCA if the buyer has not furnished the details of his income tax returns ( the provisions are similar to Section 206AB as explained above. To check the applicability of this section, a declaration has to be taken from all the purchaser of the goods. Format of the declaration is attached herewith as a part B of Annexure 3.

Annexure 3- 206C(1H)- to be collected from buyer by the seller liable for 206C(1H)

4.Last date for linking Aadhar with PAN is 30^th June 2021

It is also to be noted that as the due date for linking of Aadhar and PAN is 30^th June 2021, if the same is not complied on or before the said date, the PAN would become invalid. Hence the provisions of section 206AA ( TDS at higher rates ) would be applicable for all the TDS provisions including TDS on salary. Please take care of this compliance while deducting TDS from 1^st July 2021.

It is to be noted that while circulating the Annexure 2 for the 194Q declaration Annexure 1 also has to be circulated as the confirmation about the rate of TDS also need to be decided based on such declaration.

It is also to be noted that with regard to compliance under section 206Ab and 206CCA, it is informed by the income tax department that they are developing a specific utility to find out whether vendor/ customer has filed the return or not for the previous financial years. Hence, once the said utility is made available, instead of the above declaration the information from the said utility can be accessed for the necessary compliance with these two sections.