Amendment in TDS and TCS Provisions by Finance Act 2020

Amendment in TDS and TCS Provisions by Finance Act 2020

Finance Act 2020 brings couple of changes in Tax Deduction at Source (TDS) and Tax Collected at Source (TCS) provisions of income tax act. Some of the changes are into existing provisions of Income tax act or some of by inserting new sections into act. Let’s understand Key Amendment made by Finance Act 2020 relating to TDS and TCS Provisions:

1) Amendment to Section 194J: Under Section 194, amendment has been made to provide relief by reducing TDS rate on technical services. After that amendment tax on technical services shall be liable for deduction at 2% as compare to existing 10%. The purpose of this amendment is to provide relief to startups as most of the startups are into technical services and innovation.

a) Relevant para of Existing Provision of Section 194J:

194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of—

(b) fees for technical services,

shall deduct an amount equal to 10% of such sum

b) Relevant para of Revised Provisions of Section 194J:

The words “10% of such sum” shall be substituted with “2% of such sum in case of fees for technical services (not being a professional service).

Implication:

After that amendment, rate of TDS will be 2% for payment made for technical services. Revised rate of TDS (2%) will applicable uniformly irrespective of type of payee like Individual or company or Startups etc.

2) Amendment to Section 194N: Section 194N of Income tax was first introduced by Finance Act 2019 for Tax Collection at Source (TCS) by Banking Company/Post office etc where cash withdrawal exceeds INR 1 Crore. However this section made applicable from 1 September 2019.

By Finance Act 2020, this section has been amended and prescribed higher rate of TCS where account holder defaulted in filing of ITR in last three years.

a) Relevant para of Existing Provision of section 194N:

Every person, being,

(i)a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act);
(ii)a co-operative society engaged in carrying on the business of banking; or
(iii)a post office,

who is responsible for paying any sum, or, as the case may be, aggregate of sums, in cash, in excess of one crore rupees during the previous year, to any person (herein referred to as the recipient) from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum, deduct an amount equal to 2% of sum exceeding one crore rupees, as income-tax:

b) Relevant para of Revised Provisions of section 194N (effective from 1 July 2020):

Provided that in case of a recipient who has not filed the returns of income for all of the three assessment years relevant to the three previous years, for which the time limit of file return of income under sub-section (1) of section 139 has expired, immediately preceding the previous year in which the payment of the sum is made to him, the provision of this section shall apply with the modification that

  • the sum shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding twenty lakh rupees during the previous year; and
  • (ii) the deduction shall be—
    1. (a) an amount equal to 2% of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds twenty lakh rupees during the previous year but does not exceed one crore rupees; or
    2. (b) an amount equal to 5% of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds one crore rupees during the previous year:

Implication:

After that amendment higher rate of TCS shall apply to account holder who did not file any of the ITR in Last 3 assessment year whose due date has been passed. New provisions prescribed higher rate of 2% or 5% will depend upon cash withdrawal amount. Such amended provisions shall be apply from 1 July 2020.

Lets Understand both the cases:

Case 1: Timely ITR filed by Account Holder

Rate of TDS will be 2%

Case 2: ITR did not filed by Account Holder

Cash withdrawnRate of TDS
Cash withdrawn upto 20 LakhNil
Cash withdrawn Exceeds 20 lakh but upto 1 Crore2%
Cash withdrawn Exceeds 1 Crore5%

3) Insertion of New Section 194O:

A new section has been inserted to impose compulsion on E-commerce operator to deduct TDS at 1% on gross value of consideration received by e-commerce operator.  We have critically analysed the same provision, please refer https://www.gstfever.com/tds-on-e-commerce-operator/ for comprehensive interpretation.

 

4) Insertion of New Section 206C (IH): (Effective from 1 October 2020)

Every person, being a seller, who receives any amount as consideration for sale of any goods exceeding fifty lakh rupees in any previous year at the time of receipt of such amount, collect from the buyer (TCS), a sum equal to 0.1% of the sale consideration exceeding fifty lakh rupees as income-tax.

However rate of TCS shall be 5% if buyer has not provided the Permanent Account Number (PAN) or the Aadhaar number to the seller.

Here seller 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 (i.e. FY 2019-20) immediately preceding the financial year in which the sale of goods is carried out.

Implication:

By applicability of this section, a compliance burden has been increased for large scale businessman whether buyer and seller. From 1 October onward, Sellers who reported more than 10 crore turnover in FY 2019-20 shall collect TCS from buyers who purchased goods more than 50 Lakh in FY 2020-21. TCS will be collected over and above of INR 50 Lakh i.e. if total sales to single buyer is 75 lakh then TCS will be collected on 25 lakh at 0.1%.

*Above blog is based on the basis of information available in public domain and  to the best of knowledge of Author. The author shall not be responsible for any action or decision taken on the basis of above blog

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