New TDS rules: The changes will be applicable for persons who have not filed the returns of income for two assessment years and whose aggregate of TDS and tax collected at source is Rs 50,000 or more.
The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, among others.
The new rules related to TDS will come into effect from July 1. In a circular dated June 25, the Central Board of Direct Taxes (CBDT) extended the due date for various compliances under the Income-tax Act, 1961. Through separate circulars, it also notified the changes in TDS due to insertion of new sections under the Finance Act, 2021. We take a look at the new changes which came into effect from July 1:
What is TDS?
For quick and efficient collection of taxes, a system of deduction of tax at the point of generation of income has been developed which is called as ‘Tax Deducted at Source’ or TDS. Under this system, tax is deducted at the origin of the income by the payer and is remitted to the government by the payer on behalf of the payee.
The provisions of deduction of tax at source are applicable to several payments such as salary, interest, commission, brokerage, professional fees, royalty, contract payments, among others.
Higher TDS for non-filers of IT returns
The Finance Act, 2021 inserted two new sections 206AB and 206CCA in the Income-tax Act 1961 for tax deduction (section 206AB) or tax collection (section 206CCA) at higher rate in case of certain non-filers. As per the CBDT, the higher rate will be twice the prescribed rate or 5 per cent, whichever is higher.
The new changes will be applicable for persons who have not filed the returns of income for two assessment years and whose aggregate of tax deducted at source and tax collected at source is rupees 50,000 or more in each of these two previous years.
To reduce the compliance burden, the CBDT has issued a new functionality — “Compliance Check for Sections 206AB & 206CCA”.
“This functionality is made available through reporting portal of the Income-tax Department. The tax deductor or the collector can feed the single PAN (PAN search) or multiple PANs (bulk search) of the deductee or collectee and can get a response from the functionality if such deductee or collectee is a specified person,” CBDT said in a circular.
TDS on transactions above Rs 50 lakh
Under the new section 194Q inserted through Finance Act, 2021, a buyer will have to deduct TDS at 0.1 per cent of amount exceeding Rs 50 lakh at the time of credit of such sum to the account of the seller or at the time of payment, whichever is earlier.
CBDT said that when tax is deducted at the time of credit of amount in the account of seller and in terms of the agreement or contract between the buyer and the seller, the component of GST comprised in the amount payable to the seller is indicated separately. Hence, tax shall be deducted without including GST in such cases.
“However, if the tax is deducted on payment basis because the payment is earlier than the credit, the tax would be deducted on the whole amount as it is not possible to identity that payment with GST component of the amount to be invoiced in future,” it said.