AMENDMENT TO THE PROVISIONS OF ‘TDS’ AND ‘TCS’ BY FINANCE BILL, 2021

Part B of Chapter XVIII of the Income Tax Act, 1961 (‘Act’ for short) provides the procedure for deduction of tax at source under various heads from sections 192 to section 206B. Part BB of Chapter XVIII of the Act provides the procedure for collection of tax at source from sections 206 C to 206 CC.

The Finance Bill, 2021 (‘Bill’ for short) makes amendments to the provisions of TDS as well as TCS.

Tax deducted at source

Dividends

Section 194 of the Act requires the principal officer to deduct tax @ 10% from the dividend payable to the assessee. The second proviso to this section provides that the provisions of Section 194 will not be applicable to the insurance companies. The Bill adds two additional categories which will be exempted from deduction of tax source from dividends which are-

• a “business trust”, as defined in clause (13A) of section 2, by a special purpose vehicle referred to in the Explanation to clause (23FC) of section 10;
• any other person as may be notified by the Central Government in the Official Gazette in this behalf.

The above said insertion shall be deemed to have been inserted with effect from the 01.04.2021.

Interest other than ‘interest on securities’

Section 194A(1) of the Act provides that any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force .

Section 194A (3)(x) of the Act provides that the provisions of sub-section (1) shall not apply to such income which is paid or payable by an infrastructure capital company or infrastructure capital fund or a public sector company or scheduled bank in relation to a zero coupon bond issued on or after the 1st day of June, 2005 by such company or fund or public sector company or scheduled bank.

Section 45 of the Bill inserts the words ‘infrastructure debt fund or’ after the words ‘infrastructure capital fund or’.

Payment of rent by certain individuals or Hindu undivided family

Section 194IB of the Act provides the procedure for deduction of tax at 5% on the payment of rent by certain individuals or Hindu Undivided Family. Section 194IB(4) provides that in a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

Section 46 of the Bill substitutes the words ‘section 206AA or 206AB such’ for the words ‘section 206AA, such’.

This amendment will come into effect from 01.07.2021.

Senior Citizens

Section 47 of the Bill inserted a new Section 194P dealing with deduction of tax at source in case of specified senior citizen. The explanation to the newly inserted Section 194P defines the expression ‘specified senior citizen’ as an individual, being a resident in India-

• who is of the age of seventy-five years or more at any time during the previous year;
• who is having income of the nature of pension and no other income except the income of the nature of interest received or receivable from any account maintained by such individual in the same specified bank in which he is receiving his pension income; and
• has furnished a declaration to the specified bank containing such particulars, in such form and verified in such manner, as may be prescribed.

According to Section 194P such senior citizens are not required to file income tax return under section 139 of the Act provided that the specified bank shall, after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A, compute the total income of such specified senior citizen for the relevant assessment year and deduct income-tax on such total income on the basis of the rates in force.

The explanation (a) to this section defines the expression ‘specified banks’ as a banking company as the Central Government may, by notification in Official Gazette, specify.

TDS on purchase of goods

Section 48 of the Bill introduces a new Section 194Q which came into effect from 01.07.2021. Explanation to Section 194Q defines the term ‘buyer’ as a person whose total sales, gross receipts or turnover from the business carried on by him exceed ₹ 10 crores 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.

Section 194Q (1) provides that any person, being a buyer, responsible for paying any sum to any resident seller for purchase of any goods of the value or aggregate of such value exceeding ₹ 50 lakhs 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% of such sum exceeding ₹ 50 lakhs, as income-tax.

Suspense account

Section 194Q (2) provides that 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 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 and the provisions of this section shall apply accordingly.

Guidelines

Section 194Q(3) provides that if any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty. Every guideline issued by the Board hall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.

Non applicability of this section

Section 194Q (4) provides that the provisions of this section shall not apply to a transaction on which-

• tax is deductible under any of the provisions of this Act; and
• tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.

TDS on income of FIIs from securities

Section 196D of the Act provides the procedure for deducting tax at source on income of Foreign Institutional Investors from securities. The tax shall be deducted @ 20%.

Section 49 of the Bill inserts a new proviso to section 196D (1) of the Act. The newly inserted proviso provides that where an agreement referred to in section 90 (1) or section 90A (1) applies to the payee and if the payee has furnished a certificate referred to in sub-section (4) of section 90 (4) or section 90A (4) as the case may be, then, income-tax thereon shall be deducted at the rate of 20% or at the rate or rates of income-tax provided in such agreement for such income, whichever is lower.

Furnishing PAN

Section 206AA of the Act requires the tax deduction to furnish the PAN, failing which the tax is to be deducted at 20%.

Section 50 of the Bill inserts a new proviso to section 206AA (1). The newly inserted proviso provides that where the tax is required to be deducted under Section 194Q, the provisions shall apply as if for the words 20% the words 5%; had been substituted.

Non filers of income tax return

Section 51 of the Bill inserts a new section 206AB where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than sections 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person to a specified person, the tax shall be deducted at the higher of the following rates,-

• at twice the rate specified in the relevant provision of the Act; or
• at twice the rate or rates in force; or
• at the rate of 5%.

Applicability

Section 206(AB) provides that the provisions of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.

Higher rate of tax

Section 206AB (2) provides that if the provisions of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.

Specified person

Section 206 AB (2) provides that a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is ₹ 50000/- or more in each of these 2 previous years. The specified person shall not include a nonresident who does not have a permanent establishment in India.

Explanation to this section defines the expression ‘permanent establishment’ as including a fixed place of business through which the business of the enterprise is wholly or partly carried on.

Tax Collection at source

Special provisions for non filers of return

Section 52 of the Bill inserts a new section 206CCA which will come into effect from 01.07.2021.

Section 206CCA(1) provides that where tax is required to be collected at source on any sum or amount received by a person from a specified person, the tax shall be collected at the higher of the following two rates, -

• at twice the rate specified in the relevant provision of the Act; or
• at the rate of 5%.

Section 206CCA (2) provides that If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC.

Specified person

Section 206CCA (3), for the purpose of this section, defines the expression ‘specified person’ as a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be collected, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is ₹ 50000/- or more in each of these two previous years.  The specified person shall not include a nonresident who does not have a permanent establishment in India.

Permanent establishment

The explanation to section 206CCA defines the expression ‘permanent establishment’ as including a fixed place of business through which the business of the enterprise is wholly or partly carried on.