Section 206AB and 206CCA

For Private Circulation Only

For Sales Customer: (For considering whether TCS is applicable or not)

Please take confirmation from all customers whose sales are more than Rs 50 Lacs in preceding financial year:

1. Declaration from customers on their letter head, on last two-year (FY 1819 and FY 1920) income tax returns being filed on Time with IT Return Acknowledgement Copy

2. Declaration for whether customers will deduct TDS on payments made to us under section 194Q as Purchase of Goods. Please ask your customer to give declaration that all necessary TDS will be deducted under section 194Q by respective customer and no TCS will be collected by us under section 206C (1H) i.e Customers Communication in favour of us to stop charging TCS U/s 206C(1H)

3. Declaration from customers whether their income is liable for TDS deduction of more than Rs. 50,000 in the last two preceding previous years.

4. If no declaration is received the rate of TCS under section 206 CCA shall be higher of the following:

a. Twice at the rates specified in the relevant provisions of the income tax act.

b. At the rate of five per cent.

5. This rule of TDS shall be applicable with effect from 1st July 2021.

For Suppliers of Goods: (For ascertaining the TDS Rate)

A new section 194Q introduced in Budget 2021-22 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 (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding Rs. 50 lakhs (fifty lakh Rupees) in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 percent of such sum exceeding fifty lakhs’ rupees as income-tax.

Time of Deduction of TDS under Section 194Q

(i) At the time of credit of such sum to the account of the seller; or

(ii) At the time of payment thereof by any mode

Whichever is earlier.

“Buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed Ten Crore Rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein Where any sum is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person (Buyer) liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee (Seller) and the provisions of this section shall apply accordingly.

Exception to TDS Deduction under Section 194Q:

The provisions of this section shall not apply to a transaction on which:

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.

TDS Rate under Section 194Q of Income Tax Act, 1961

i. 0.1% on sum exceeding Rs. 50 lakhs in any previous year

ii. 5% in case PAN number of Seller is not available (section 206AA).

It implies that if on a transaction a TDS or tax collection at source (TCS) is required to be deducted under any other provision, then it would not be subjected to TDS under this section. However, there is one exception to this general rule is that if on a transaction TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on that transaction only TDS u/s194Q shall be deducted.

Non-compliance of section 194Q

As per section 40a(ia) of Income Tax Act 1961, dis-allowance to the extent of 30% of the value of transaction. It means that if the buyer fails to deduct and deposit TDS as applicable then dis-allowance shall be restricted to 30% of the amount of expenditure on which TDS is not deducted and deposited.

For this purpose, please take following declarations from suppliers:

1. Declaration from Suppliers on their letter head, on last two-year (FY 1819 and FY 1920) income tax returns being filed on Time with IT Return Acknowledgement Copy

2. Declaration from customers whether their income is liable for TDS deduction of more than Rs. 50,000 in the last two preceding previous years.

3. Declaration to be given to suppliers for not to collect TCS under section 206C (1H) as you will be deducting TDS under section 194Q.

4. If no declaration is received the rate of TDS shall be higher of the following:

a. Twice at the rates specified in the relevant provisions of the income tax act.

b. At the rate of five per cent.

5. This rule of TDS shall be applicable with effect from 1st July 2021.

Section 206AB of the Income Tax Act is recently introduced vide the Finance Act, 2021.

Section 206AB mandates the person to deduct TDS in case of non-filing of an income tax return by the specified person.

Provision of section 206AB of the Income Tax Act–

The provision of section 206AB of the Income Tax Act are simplified and explained below-

Particulars

Details

Who is liable to deduct TDS?

The person paying any sum to the specified person.

Amount on which TDS is to be deducted

Any amount/ sum/ income paid or payable or credited to the specified person.

From the above table, one can easily figure out that it is important to understand the term ‘specified person’ and the same is briefly explained below.

Meaning of the term ‘Specified Person’ for Section 206AB

The term ‘specified person’ is explained under section 206AB (3). The coverage and non-coverage of the term is explained hereunder-

Coverage

Non-coverage

The term ‘specified person’ includes the person who satisfies all the following criteria-

1. The person has not filed income tax return of two previous years immediately before the previous year in which TDS is required to be deducted;

2. The time limit of filing of an income tax return as per section 139(1) is expired; and

3. The total TDS and TCS is INR 50,000 or more in each of the two previous years.

The term ‘specified person’ doesn’t include a non-resident not having a permanent establishment in India.

Rate of deduction of TDS under section 206AB

TDS under section 206AB will be deducted at higher of the following rates-

• Twice the rate as specified under the relevant provision of the Income Tax Act; or

• Twice the rate/ rates in force; or

• At the rate of 5%.

The effective date of provisions of section 206AB The newly inserted provisions of section 206AB of the Income Tax Act will be effective from 1^st July 2021.

For Format of Self Declaration u/s 206AB & 206CCA of The Income Tax Act, 1961 email on info@sabhasad.com