Before you decide to pay your vendor, you have to make sure you are in compliance with the GST act as well as the Income Tax Act.
Paying a vendor will?
Help you claim ITC but an incorrect payment will get you into trouble with Income Tax provisions.
Starting 1st July, Section 206AB and 206CCA will become applicable.
Let’s understand them in more details-
What are Sections 206AB and 206CCA?
Finance Act 2021 introduced new sections 206AB and 206CCA levying a double TDS rate for the non-filers of ITR of 2 previous years.
These provisions are applicable when the total TDS/ TCS of the deductee or collected is more than Rs.50,000 in each of the two previous years.
Section 206AB proposes that in cases where an entity (deductor) is required to deduct TDS while making a payment to another person, they will be liable to deduct it at a higher rate in the case of a ‘specified person’.
Similarly, under Section 206CCA, an entity (tax collector) will be liable to collect a higher TCS (tax collected at source) in the case of a ‘specified person’.
Who shall pay a higher TDS/TCS under Sections 206AB and 206CCA?
A “specified person” as defined under the new section is a person who has :
Aggregate of TDS / TCS of more than Rs.50,000 in each of the preceding two years.
Preceding two years will be those years whose return filing date specified under section 139(1) has expired. For example, for AY 2021-22, two preceding years would be 2018-19 and 2019-20.
Dedeuctee or collectee has not filed income tax returns for two preceding years, and
The due date to file the return under section 139(1) of the previous years has expired.
It does not apply to a non-resident who does not have a permanent establishment in India.
What is the rate at which TDS/TCS will be deducted? What are the conditions where you have to pay higher?
According to the new section 206AB, a tax deductor shall be liable to deduct TDS at higher of the below-mentioned rates in case of a ‘specified person’:
Twice the specified rate as per relevant provisions of the Income Tax Act.
Twice the rate/rates in force
At the rate of 5%
TDS to be deducted at a rate that is higher than the above.According to the new section 206CCA, a tax collector shall be liable to collect TCS at higher rates in case of ‘specified person’:
Twice the specified rate as per relevant provisions of the Income Tax Act.
At the rate of 5%
TCS to be deducted at a rate that is higher than the above.
What are the exemptions under Section 206AB?
The new TDS provisions apply to all TDS/TCS deductions except in a few instances like tax deducted while payment of salaries, tax deduction on premature withdrawal of PF, tax deducted on income from horse races, etc.
Hope this helps you understand how to apply these new provisions.
Doo reach out to us if you have any questions.
Regards, Syrphyy சிற்பி
-Murugesan Mylsamy.
