TDS /TCS changes w.e.f. 1st July 2021

Certain changes have been made in provisions for TDS / TCS vide Finance Act 2021 which will come in force with effect from 01.07.2021. In short, changes are as under:

1. As per Section 194Q TDS is to be deducted by persons whose total sales, gross receipts or turnover exceeds Rs.10 Crore during the financial year immediately preceding the financial year at 0.1 percent from the payment made to seller on purchase consideration paid or credited to him on the amount exceeding Rs 50 lacs in the financial year. If the Seller has not provided Permanent Account Number (PAN) or Aadhar Number to the buyer then the TDS would be deducted at 5 percent instead of 0.1 percent.

2. In case tax is deductible under section 194Q of the Act by the buyer, Seller shall not collect TCS under section 206C(1H).

3. New sections 206AB and 206CCA have been introduced providing that every person liable to deduct / collect tax at source has to collect information from the deductee that if in his case amount of TDS / TCS in last two previous years has been Rs.50,000/- or more whether he has filed returns of income for those assessment years. In case returns have not been filed by him for both the assessment years rate of TDS / TCS will be higher of the following rates: –

• • Twice the rate as specified in the tax law, or
  • Twice the rate or rates in force, or
  • Rate of 5 percent.

Provisions of above sections are not applicable only if tax is deductible under sections 192 (Salaries), 192A (Payment of accumulated balance from PF), 194B (Winning from lottery or cross word puzzle), 194BB (Winning from horse race), 194LBC (Income in respect of investment in Securitization Trust) and 194N (tax on cash withdrawals from banks)

In view of above amendments, assesses have to collect information / take declaration from each of the vender / supplier / seller / buyer and persons from whose income tax is required to be deducted in regard to applicability of provisions of section 194Q or 206C(1H) of the Act so that proper modification can be made in accounting software in order to deduct / collect tax as per correct provisions of law. Information has also to be collected in respect of PAN and filing of returns for last two assessment years i.e. 2019-20 and 2020-21. Similarly, assesses have also to provide information regarding PAN and filing of returns for assessment years 2019-20 and 2020-21 to all the persons who are liable to deduct / collect tax from income / payments to be made or credited  to the assessee during the current financial year.

Suggested draft of letters / declarations to be issued or to be given by each assessee have been prepared and same are attached herewith as per details given below:-

a. Draft of letter to be issued to buyers asking them if their turnover in FY 2020-21 has been more than Rs.10 Crores and tax is deductible by them under section 194Q of the Act from payments of purchase consideration to be made by them exceeding Rs. 50 lacs, so that tax is not collected under section 206C(1H) of the Act. Draft of declaration to be given by buyers is also being given. (Annexure-A)

b. Letter to be issued to venders / suppliers / sellers for the purpose of applicability of provisions of Sections 194Q and stating that tax will be deducted under above section and therefore, no action be taken by them under section 206C(1H) of the Act, if applicable to them. Draft of declaration to be given by venders/ supplier/ sellers is also being given. (Annexure-B)

c. Letter is to be issued by each deductor to all the persons from whose income tax is required to be deducted / collected requiring them to give information regarding PAN and filing of returns of income for AYrs 2019-20 and 2020-2021. Draft of declaration to be given by the concerned persons is also being given. (Annexures-C and D)

d. Declaration to be given by each assessee to all the persons who are liable to deduct / collect tax at source from payments / income of the assessee giving information regarding PAN and filing of returns of income by your company for AYrs 2019-20 and 2020-2021. (Annexure-D)

Since amended provisions which will come in force with effect from 01.07.2021 each assessee has to take immediate action in the matter, so that he is in a position to comply with the same. suggested drafts can be used, if same are suitable to the case. Alternatively, same can be modified as per facts and the provisions applicable to particular case.

Annexure – A

(On the Letterhead of Company)

Date: 1^st June, 2021

Buyer,             

Address

Dear Sir / Madam,

We, ________________________, having PAN ______________ hereby inform you that our total sales, gross receipts, or turnover from Business during FY 2020-21 has been more than Rs.10 Crore. Therefore, provisions of Section 206C(1H) are applicable for the purpose of collection of tax at source on receipt of sale consideration of goods purchased by you from our company during the current financial year on the amount exceeding Rs.50 lacs. In relation to compliance with above provisions we require following information / declaration from you: –

1.  Section 194Q has been inserted in the Income Tax Act vide Finance Act 2021 with effect from 01.07.2021. As per above Section tax is required to be deducted at source from purchase consideration paid / credited on or after 01.07.2021 by you against purchases made from us, in case your total turnover during financial year 2020-21 has been more than Rs.10 Crores. In case you are liable to deduct tax under section 194Q of the Act, tax will not be collectible by our company under section 206C(1H) of the Act w.e.f. 01.07.2021. Please confirm that you are liable to deduct tax at source under section 194Q of the Act from payment of purchase consideration to be made / credited to us. On receipt of above confirmation, we will not be taking any action for collection of tax at source as per section 206C(1H) of the Act, otherwise we will be collecting tax from you as per above Section.
2. You are also requested to intimate to us your Permanent Account Number. In case you fail to provide your PAN, tax will be deducted at the rate of 1 percent instead of 0.1 percent in terms of Section 206CC of the Act.
3. Further, you are also required to confirm that in your case amount of TDS/TCS was Rs.50,000/- or more in previous years relevant to Assessment Years 2019-20 and 2020-20 and you have filed your returns of income for these assessment years. Please also provide acknowledgement numbers for filing the same, otherwise tax is required to be deducted at the rate of 5 percent in terms of Section 206CCA of the Act.

You may send to us your declaration in the enclosed draft on or before 15.06.2021 to enable us to take note of same and modify our accounting software accordingly. In case your declaration is not received by us by the above date, we will modify our software to collect tax at the rate of 5 percent and it would be difficult for us to take corrective action to reduce the rate during the current financial year.

For ________________Ltd.

Authorised Signatory

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Format for declaration

On the letter head of vender / supplier / seller

The______________ Ltd.

_______-_______

Sub: Declaration / information for deduction of tax at source u/s 194Q of       the Act.

Dear Sir,

This is with reference to your letter dated _________ requiring our declaration / information in regard to Collection of tax at source u/s 206C(1H) of the Act.

The information is being provided hereunder:

1. Turnover of our company during Financial Year 2020-21 was more than Rs. 10 Crores. Therefore, our company is liable to deduct tax u/s 194Q of the Act @ 0.1 % of sale consideration to be paid / credited  to your company on or after 01.07.2021 by us on the amount exceeding Rs.50 lacs during the current financial year. Hence, we request you not to take any action to collect tax under section 206C(1H) of the Act.

Or

Turnover of our company during Financial Year 2020-21 was not more than Rs. 10 Crores. Therefore, our company is not liable to deduct tax u/s 194Q of the Act.  You may, therefore, continue to comply with provisions of Section 206C(1H) of the Act to collect tax on the amount of sale consideration exceeding Rs. 50 lacs.

2. Permanent Account Number of our company is ________. Further we have duly filed our returns of income for Assessment Years 2019-20 and 2020-21 as per information given hereunder:

Please take note of the above information and confirmation and collect tax at the appropriate rate taking cognizance of above information.

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Annexure – B

(On the Letterhead of Company)

Date: 1^st June, 2021

To,

< Supplier’s Name>

<Address>.

Dear Sir / Madam,

We, ­­­­­­­­­__________________, having PAN _____________ hereby inform you that our total sales, gross receipts, or turnover from Business during FY 2020-21 has been more than Rs.10 Crore. Therefore, provisions of Section 194Q inserted in the Income Tax Act vide Finance Act 2021 with effect from 01.07.2021 are applicable to our company. Hence, we shall be deducting tax at source at per provisions of above section from purchase consideration paid / credited on or after 01.07.2021 to you against supplies made by you. Deduction will be made at the rate of 0.1 percent of purchase consideration paid / credited exceeding rupees 50 lacs during the current financial year.

Since we are liable to deduct tax at source under section 194Q of the Act, you may ensure not to take any action to collect tax at source under section 206C(1H) of the Act w.e.f. 01.07.2021, in case provisions of section are applicable to you considering your amount of turnover and our purchases being of more than rupees fifty lacs.

You are also requested to intimate your Permanent Account Number. In case you fail to provide your PAN, tax will be deducted at the rate of 5 percent instead of 0.1 percent in terms of Section 206AA of the Act.

Further, you are also required to confirm that in your case amount of TDS/TCS was Rs.50,000/- or more in previous years relevant to Assessment Years 2019-20 and 2020-20 and  you have filed your returns of income for these assessment years, otherwise tax is required to be deducted at the rate of 5 percent in terms of Section 206AB of the Act.

You may send to us your declaration in the enclosed draft on or before 15.06.2021 to enable us to take note of same and modify our accounting software accordingly. In case your declaration is not received by us by the above date, we will modify our software to deduct tax at the rate of 5 percent and it would be difficult for us to take corrective action to reduce the rate during the current financial year.

For _________________

Authorised Signatory

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Format for declaration

On the letter head of vender / supplier / seller

_________________

_______-

_______

Sub:    Declaration / information for deduction of tax at source u/s 194Q of the Act.

Dear Sir,

This is with reference to your letter dated _________ requiring our declaration / information in regard to deduction of tax at source u/s 194Q of the Act. The information is being provided hereunder:

1. Since your company is liable to deduct tax u/s 194Q of the Act, you may deduct the tax @ 0.1 % of sale consideration paid /credited by your company to us on the amount exceeding Rs.50 lacs during the current financial year. We also confirm that we will not take any action to collect tax at source under section 206C(1H) of the Act w.e.f. 01.07.2021.
2. Permanent Account Number of our company is ________. Further, we have duly filed our returns of income for Assessment Years 2019-20 and 2020-21 as per information given hereunder:

Please take note of above information and confirmation and deduct tax at the appropriate rate taking cognizance of above information.

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Annexure-C

(On the Letterhead of Company)

__Name of deductee

__Address

Sub.: Information regarding filing returns of income for last two years.

Dear Sir / Madam,

As you would be aware vide Finance Act 2021 Sections 206AB and 206CCA  have been inserted in the   Income Tax Act, 1961. Above sections will come into force with effect from 01.07.2021. Sections provide that a person from whose income / payment tax is required to be deducted or collected at source as per provisions of above Act has to be provide information to the person responsible for deduction / collection of tax at source to the  effect that if amount of TDS or TCS in his case has been of Rs.50,000/- or more in two previous years, he has filed his returns of income for relevant assessment years. In case above information is not provided tax is required to be deducted / collected at the rate higher of following rates:

• Twice the rate as specified in the tax law, or
• Twice the rate or rates in force, or
• Rate of 5 percent.

Since tax is to be deducted by our company from payments to be made to you after 01.07.2021 as per provisions of Income Tax Act, we request you to provide information in regard to your PAN and filing of returns of income for Assessment Years 2019-20 and 2020-21.

You may send to us your declaration in the enclosed draft on or before 15.06.2021 to enable us to take note of same and modify our accounting software accordingly. In case your declaration is not received by us by the above date, we will modify our software to deduct tax at the higher rate as would be applicable as per above mentioned Sections and it would be difficult for us to take corrective action to reduce the rate during the current financial year.

For__________________

(Authorised Signatory)

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Annexure-D

Format for declaration

______________

_________________,

Sub.:   Information regarding Permanent Account Number and of filing returns of income for last two years.

Dear Sir,

This is with reference to your letter dated _________ requiring information regarding filing of returns of income in respect of Assessment Years 2019-20 and 2020 by us / me  in  relation to deduction of tax at source under any of the provisions of Income Tax Act from any sum of income or payment to be made or credited to our / my account during the FY 2021-22.

In reply We / I may state that our / my  Permanent Account Number is as under. Further, we / I confirm that we / I have filed our / my Income Tax Returns for last two previous years. Acknowledgment numbers for filing the same are also being given for your reference.

Please take note of above information and confirmation and deduct / collect tax at the appropriate rate taking cognizance of above information.

(______________)