New TDS Rule from July’21 - All You Need to Know New TDS Rates

Every year new provisions are introduced in the Union Budget on the first day of February. This consequently materializes into the Finance Act of the upcoming financial year. Accordingly, Finance Act 2021 has introduced various new TDS compliances for taxpayers. These compliances shall reduce the possibility of tax evasion and also encourage taxpayers to file their return of income. This is because a higher rate of tax would now be withheld on non-filing of return of income. Further, the stringent provisions have been introduced to encourage deduction of tax while making the payment for purchase of goods as non-compliance of the same shall attract drastic provisions under Section 40(a)(ia) of the Income Tax Act “IT Act”.

What is TDS and Why is it deducted?

TDS is an acronym for tax deducted at source. Any person making payment of a specified nature, which is covered under the ambit of Chapter XVII of Income Tax Act, to any other person shall withhold part of such payment as tax deducted at source and remit the same into the account of the Central Government. The onus of such tax is ultimately against the income of the person receiving such payment while the responsibility to pay such tax to the government is on the person making such payment. The tax withheld shall be available as credit to the person from whose income tax has been deducted. The same shall reflect in FORM 26AS of the concerned person and would be visible in the tax deduction certificate.

Which Transaction Attract TDS

Chapter XVII of Income Tax Act provides for the manner of tax to be deducted by an assessee while making payments of a specified nature where the amount exceeds a certain specified limit. It also days down the rates of such deduction according to the nature of payment, namely - Salary; Dividend; Interest on fixed deposits; Rent; Contractual payments; Professional and Technical Services; payments to non-residents etc. It is imperative for a taxpayer to know about the class of payments on which tax is to be deducted. In case where an assessee fails to deduct tax as per the relevant provision of the and pay the IT Act, it shall attract penal provisions.

What are the New TDS Rules from July 1, 2021?

Various new provisions have been introduced with respect to TDS compliances.

Section 194Q has been introduced with effect from 1st July 2021, wherein a buyer is now required to withhold tax on purchase of any goods from a resident seller at the rate of 0.1% of the aggregate value of such goods exceeding INR 50 Lakhs.). Any Taxpayer whose gross receipts or turnover exceeds INR 10 Crore in the financial year immediately preceding the year in which such goods are bought is considered to be a buyer for the purpose of this provision.

Applicability: It is pertinent to note for a buyer making payment of goods, that cumulative satisfaction of the below conditions shall trigger applicability of tax deduction under Section 194Q:

• Gross receipts or turnover of the buyer of goods exceeds INR 10 Crores for the immediately preceding financial year.
• The value of goods purchased exceeds the aggregate value of INR 50 lakhs
• The seller is a person resident in India.
• The buyer is not on the list of persons excluded from the provision for deduction of tax.
• No tax is deductible or collectible under any other provision except Section 206C(1H), which deals with TCS on sale of all goods.

Secondly, with effect from 1st July 2021, it is mandatory to deduct tax at a higher rate, that is, twice of the prescribed rate or rate of 5%, whichever is higher in case the following conditions are satisfied cumulatively:

• The person receiving payment has not filed their return of income under the IT Act in the two financial years immediately preceding the year in which tax is to be deducted.
•  The aggregate tax to be deducted at source by the payer is INR 50,000 or more in each of the above two financial years.

CBDT has confirmed that this compliance check provision is already functional in the reporting portal of the income tax department. PAN of the person can be entered on the portal to know whether they are a specified deducted or collected as per the above.

This provision is applicable on payments like, contracts, interest, professional services, rent etc. However, transactions where full amount of tax is to be deducted are excluded from the ambit of this provision. Such transactions include –

• Salary payments made by an employer.
• Income from winnings of any lottery, crossword puzzles, card games or any horse races.
• Income earned from investment in securitization trust.
• Premature withdrawals from employees' provident fund.
• Cash Withdrawals above INR 1 Crore.