Challenge – TDS Changes in Budget 2021

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Last year, the Government implemented TCS provision u/s 206C(1H) for `Seller of Goods’ on Receipts/advance from/for Sales of Goods, exceeding Rs. 50 Lakhs as consideration, during a financial year. “Seller” means a person whose total sales, gross receipts, or turnover from the business carried on by him exceeded ten crore rupees during the financial year immediately preceding the financial year in which consideration/advance exceeding Rs. 50 Lakh are received.

There were instances, where Seller Turnover is less than 10 Crore but his receipts from sales of goods to buyers were exceeding Rs. 50 Lakh. Therefore, there was no obligation to collect TCS from the seller. To resolve this situation, the Government has come up with a similar type of provision for Purchaser(Buyer) via TDS applicability u/s 194Q.

Simplified:

CASE 1:

ABC ltd (Turnover >10 cr) buys materials from Supplier Ram & Co (purchases exceeded 50 lacs in FY 2021-22) deducts TDS (U/s 194Q) @0.1% (PAN available, ITR confirmation for preceding 2 years)

CASE 2:

ABC Ltd (Turnover >10 cr) sells material to Customer Dhawan Enterprises (Turnover <10 crores) exceeding 50 lacs will have to collect TCS u/s 206C(1H) on receipt of payment.

Requirement:

The recent development in withholding tax provisions introduced vide Finance Act, 2021 (under the Income Tax Act) and as applicable from 1st July 2021. Deduction of Tax at Source (TDS) under Section 194Q.

Sec 194Q requires a person whose turnover exceeds 10 crores INR during the preceding Financial year (FY 2020-21)

  • To deduct tax at source (TDS) on purchase of Goods
  • TDS @ 0.1%
  • On Transactions exceeding 50,00,000 INR during FY 2021-22

Note:

  • A credit of TDS can be claimed while filing an Income Tax return
  • Amount deducted and deposited with Tax Authorities would appear in Form 26AS
  • TDS under Sec.194Q is not applicable in case TDS is deducted u/s 194c or TCS is levied on the sale of scrap

Deduction of TDS at a higher rate under Section 206AB – Applicable to the supplier of goods and/ services which are subject to TDS provisions

The Finance Act 2021 has introduced a new provision relating to withholding tax (Section 206AB) which provides for a higher withholding tax rate in case the vendor to whom the payment is to be made has not filed his income tax return for the previous two financial years within the prescribed statutory timelines. This new provision is applicable from 1st July 2021 and will apply to any invoice issued by you on or after 1 July 2021.

As per new provisions, withholding tax on certain payments to ‘specified persons’ to be higher of the following:

(a)  Twice the rate specified; or
(b)  Twice the rates in force; or
(c)  Five percent

Therefore, if you have not filed an income tax return for the two preceding years, payments against your invoices will attract higher withholding tax.

Below is the illustrative table of TDS rates from 1st July 2021 onwards for reference:

TDS section  Existing TDS Rate TDS rate – If ITR not filed for both years U/s 206AB TDS Rate- If PAN is not available U/s 206AA
194C-Contractor 1% or 2% 5% 20%
194J-Technical Services 2% 5% 20%
194J- Professional Services 10% 20% 20%
194-I(a)- Rent for plant & machinery 2% 5% 20%
194-I(b)- Rent for Land/Building 10% 20% 20%
194H- Commission or Brokerage 5% 10% 20%
194Q – Purchase of Goods subj to qualification TO > 10 crores 0.1% 5% 5%

Applicability of section 194Q with Examples:

Seller’s Turnover: Rs. 9 Crores
Buyer’s Turnover: Rs. 15 Crores
Receipt or Payment for sale or purchase of goods in the previous year: Rs. 55 lakhs

Taxability:

Buyer’s Turnover is more than Rs. 10 Crores
Taxable amount: Rs. 5 lakhs ( Rs. 55 lakhs-Rs.50 lakhs)
TDS u/s194Q : 0.1% on Rs. 5* lakhs
TCS u/s 206C(1H): not applicable as the Seller’s turnover is less than 10 Crores.

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Seller’s Turnover : Rs. 15 Crores
Buyer’s Turnover : Rs. 9 Crores
Receipt or Payment for sale or purchase of goods in the previous year: Rs. 55 lakhs

Taxability:

Buyer’s Turnover is less than Rs. 10 Crores
Seller’s Turnover is more than Rs. 10 Crores
Taxable amount: Rs. 5 lakhs ( Rs. 55 lakhs-Rs.50 lakhs)
TDS u/s194Q: Not applicable
TCS u/s 206C(1H): 0.1% on Rs. 5 lakhs**.

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Seller’s Turnover : Rs. 15 Crores
Buyer’s Turnover : Rs. 15 Crores
Receipt or Payment for sale or purchase of goods in the previous year: Rs. 55 lakhs

Taxability:

Buyer’s Turnover is more than Rs. 10 Crores
Seller’s Turnover is more than Rs. 10 Crores
Taxable amount: Rs. 5 lakhs ( Rs. 55 lakhs-Rs.50 lakhs)
TDS u/s194Q : 0.1% on Rs. 5 lakhs*
TCS u/s 206C(1H): Not applicable (see exception).

TDS 194Q Vs TCS 206C(1H)

Solution – TCS & TDS handling in Tally

TCS (Tax Collected at Source) is the tax that a seller collects from the buyer during the sale of specific goods under provision 206C, or any other goods on the basis of realization. TallyPrime not only supports the latest budget changes for TCS but also provides you with a comprehensive TCS solution for your business needs. You now have the flexibility to calculate TCS either after receiving the payment or during billing.

We at Nandini Infosys are ready with a solution to handle your 194Q provisions and update the ledger master so that you can manage the TDS deductions as applicable as per the act.

You can also download the sample declaration format to be collected from your suppliers.

Download TDS 194Q Declaration Form

Download TDS 194Q Undertaking Form

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