Amendments in TDS/TCS Provisions per Union Budget 2021-22

The  Finance  Bill,  2020  includes  many  provisions  relating  to  amendment  and changes in various TDS and TCS provisions and further introduced many new TDS and TCS provisions in the statute.

In this article we are focusing on following four major amendments as proposed per the Budget 2020-21:

1. Dividend paid by SPV to Business trusts
2. TDS on payment made to FII
3. Insertion of section 194Q
4. Higher rate of TDS for non-filing of return of Income.

Provision relating to deduction of TDS on Distribution of Dividend was introduced and made effective from April 1, 2020 by withdrawing DDT in the Finance Act, 2020. Thus, dividend became taxable in the hands of the recipient. The second proviso to section 194 stated that this section shall not apply if the dividend is paid to insurance company or insurers. The Finance Bill 2021 now proposes to extend this benefit also to business trusts and states that if any dividend is paid/credited to a business trusts
established for special purpose vehicle, no TDS shall be deducted. Thus, SPV is not required to deduct TDS on payment of Dividend to business trusts. This is retrospective amendment from AY 2020-21. Further, TDS will not be deducted in case of payments made to any other person as may be notified by Government.

The section has been modified to rationalise the provision concerning withholding on payments made to Foreign Institutional Investors (FIIs). Accordingly, it is proposed to insert a proviso to subsection (1) of section 196D of the Act to provide that in case of a payee to whom an agreement referred to in section 90(1) or section 90A(1) applies and such payee has furnished the Tax Residency Certificate as required section 90(4) or section 90A(4) of the Act, then the tax shall be deducted at the rate of 20% or rate/rates of income tax provided in such agreement for such income, whichever is beneficial to FII.

In  the  last  Finance  Bill,  section  206C(1H)  was  introduced  according  to which seller was required to collect TCS on sale of goods and this year, a new section 194Q, being TDS on purchase of goods on the similar lines is proposed to be introduced.

a) A buyer, who is responsible for paying any sum to resident (referred as “seller”) for purchase of any goods of the value/ aggregate of such value. exceeding in a previous year of  50 lakhs, shall deduct 0.1% (5% in case of No PAN/ Aadhaar cases) of such sum exceeding  50 Lakhs as income tax,

b) A 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,

c) If the amount is credited to any account by whatever name called, these provisions shall apply,

However, the Central Government may, by notification in the official Gazette, specify for this purpose, subject to conditions as prescribed in such notification shall be exempted from TDS,
It is also stated that if the transaction is covered for TDS/TCS under any provision  of  the  Act  and  has  deducted  such  amount,  they  shall  be exempted from this provision. Further, if the transaction also falls in the purview of section 206 C (1H) then section 194Q is given preference and Buyer shall be responsible for deducting tax.

As  per  section  206AA,  a  higher  rate  of  TDS/TCS  was  deducted  if  the recipient/payee failed to submit PAN/Aadhar cases. New Sections 206AB and Section 206CCA have been proposed in the Finance Bill, which will require  that  the  Deductor/Payer  will  also  have  to  ensure  while  making payment that the “specified person” has also filed the Return of Income for the last two financial years, immediately prior to the financial year in which payment is made. In case of non-filing of Return income, by such resident deductee where the time limit under Section 139(1) has expired and the aggregate TDS and TCS is ₹50,000ormoreineachofthesetwoprevious years,  then  the  TDS/TCS  will  have  to  be  deducted  at  higher  of  the following rates as applicable under that Section in which payment is made:

a)  At twice the rate specified in the relevant provision of the Act, or
b) At twice the rate or rates in force, or
c) At the rate of five percent.

CPC/Government  will  provide  online  verification  mechanism  on  the website of ITD, in due course, which will enable the Deductor/ Payer to verify whether the payee/Recipient has filed the return of Income for the last two years or not.

The above provisions shall not apply to the following sections- 192, 192A,
194B, 194BB, 194 LBC and 194N