Understanding the New TDS Provision

The Finance Minister issued an Update on TDS provisions in June 2021. Read on to learn more about the changes that are being implemented.

In the latest Union Budget 2021, Finance Minister Nirmala Sitaram proposed a new rule to crack down on those who do not file their income tax returns. It states that if someone files his tax return in the last 2 years and whose 139(1) has expired, then he will have to pay double the applicable rate or 5 percent, whichever is higher. This rule will come into effect from 1 July 2021.

206AB: This TDS provision prescribes a higher rate of deduction of tax in the case of specified persons. The specified people are as follows:

• who has not filed IT returns for the last two years; and

• The time limit for filing IT return under section 139(1) has expired; and

• Total tax deducted or collected at source in his case in each of these last two years and the total tax exceeds Rs.50,000.

Further, the specified person shall not include a non-resident resident outside India.

Higher rate of tax prescribed in this case:

• Twice the rate prescribed by the relevant provision; or

• Twice the applicable rate; or

• Five percent.

The newly inserted Sections 206AB and 206CCA are still to be tested after coming into force from July 1, 2021.

How Can Technology Help?

Businesses are using technology in their 26AS synergies for TDS. 26AS is an automatic form of tax credit that is generated annually for a specific PAN. This technology makes the taxpayer aware of the tax credit available based on their TDS deduction. Further, the solution also helps in cases where only certain entries in the challan are liable to TDS deduction as it ensures streamlined book entries and accurate book-keeping.

These new TDS provisions will also impact the vendor ecosystem of the organization as a whole:

1. The organization will now have to keep an eye on its vendors so that they too are obedient.

2. Collecting information on direct and indirect tax would be a daunting task, but if successfully implemented, it would help the organization to segregate its vendors from different risk categories. Compliant vendors and partially compliant vendors.

3. With the implementation of new provisions under Direct Taxes and Indirect Taxes, the government is making the recipient organization responsible to take care of compliance with the seller. Non-filing of GST returns leads to non-availability of ITC, higher TDS/TCS rate due to non-filing of income tax returns

4. This exercise of collecting information at regular intervals is to be done to determine the risk category of the vendors.

5. The organization can keep compliant vendors as their primary source for procurement so that risk exposure is less and while dealing with partly compliant or non-compliant they may push hard on negotiation as they are risking the tax penalty exposure while dealing with them. This can be as per their internal SOPs.

In conclusion, recent provisions and amendments to the law make it clear that the government is looking at adopting stricter regulations and compliance, which will lead to less tax evasion and fraud, therefore, businesses need to ensure that they ready for such provisions and regulations.

This an updated version of the older post. Please find that post here.

Disclaimer: This article is intended for general consumption only. The information in the article was accurate at the time of publication, but it is subject to change due to changes in government rules and regulations. The contents of the blog may not be copied unless prior permission is obtained.

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