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June 1, 2021

CBDT failure results in tedious compliance of TDS from 1 July 2021 u/s 206AB

by CA Shivam Jaiswal in Income Tax

CBDT failure results in tedious compliance of TDS from 1 July 2021 u/s 206AB

The new draconian section of 206AB is to be implemented from 1st July 2021 as per the Finance Act 2021. To those unaware, let us enlighten you about the same. The said section is introduced so that the job of CBDT and finance ministry is shifted to us “The TAXPAYER”.

As per the new amendment if any person, who is required to deduct TDS under the Income tax Act, needs to check whether the person to whom he pay’s or liable to pay any sum has filed his return of income of last 2 assessment years. So now onwards all corporates and others who are subjected to undergo TDS compliances have to check with every single vendors, whether they have filed their income tax returns of last 2 years.

First let me remind you TDS is a tax of the seller which is to be discharged by the buyer. On top of it if the buyer does not deduct correctly the TDS then the expense gets disallowed under Section 40 A (ia).

Now, as per new Section 206AB, double rate of TDS as per prescribed section or 5% whichever is higher needs to be deducted by the buyer of goods and services, in case the seller/provider of services has not filed their income tax returns.

We just want answers to few of the following questions :

  • Why can the CBDT/FM not publish a list of defaulting PAN’s similar to what RBI publishes for its defaulter’s ? Let there be shame on the defaulter and not TDS deductor;
  • When GST is PAN based is that not proof enough for filing returns be it Income tax or GST. Both taxes are of the same nation right ?
  • Why can a system not be put on income tax website, wherein we the tax deductor can just upload all PAN’s in bulk and a compliance status of the vendor is given whether compliant or non-compliant?
  • Why can the burden of the deductor not be reduced that there won’t be any penalties or disallowance of expense even if 206AB is not followed to the “T”?
  • Which country on planet earth has a similar section to shift the return filing responsibility to the tax deductor?
  • If you are at failure and loss to answer any of the above questions, then why cannot an extension be given to taxpayer and section be reintroduced only when you are ready?
  • All assessment dates of income tax departments are being extended due to covid. Mind you 4 times in past 1 year. But this section which is less than a month away is expected to be on date and compliant from day 1 irrespective of COVID or not?
  • One assessment closure can take years and 4 extensions but Industries and business houses cannot get any relief. Does COVID affect only tax officers?

For those who are totally not in the know, from 1st July 2021, Section 194Q is applicable and TDS is required to be deducted on purchase of goods @ 0.1%. This section was introduced to remove difficulties faced in the erstwhile Section 206(1H) for tax collection at source. But this has just increased more difficulties. Let us state a few:

  • There are clear instructions in Act and circulars that TDS is not applicable on GST component.  TDS under Section 194Q is applicable on GST as value. Total contrast in the systems. How is tax deductor expected to make a uniform system?
  • Section 206(1H) was applied on all sale of electricity by various electric companies. Now will TDS apply to payment of electricity bills?
  • TDS is prohibited on payments made to government bodies. Section 194Q will apply on payments made government bodies/ government electric companies?  No instructions till date.
  • No answers but Section is effective from 1st July 2021.

Let us explain you the section in case of a small FMCG manufacturer with just 11 corers business. They have vendors for procuring raw materials, packaging, colors’, fragrances, oils, chemicals, surfactants, shapes, other materials, electricity bills, water bills, distributors and agents for selling, transporters, research consultants, lawyers, auditors, GST consultants, direct tax consultants, security, repairs and maintenance teams, media for marketing and selling and god knows so many other professionals just to do a small business. 

Now this small industry has to reach out to ALL of the above people just to check whether they have filed their last 2 years tax returns or not. Further, this activity is to be done EACH YEAR by the tax deductor .

An earnest request to the law makers. The COVID has not just affected the tax officers who keep on getting  extensions for doing just a single job of tax assessments.  The industry is suffering big time too due to loss of soo many employees, affecting productions and procurement of goods due to lockdowns not only in India but across the globe too.  Working capital is tight and danger too life is any time soon.

A humble request, getting declarations and verifying the same from each and every vendor is a herculean task for a small business. A bigger one in case of a large tax deductor.

In this digital age this reform and shifting the burden to the tax deductor in such tough times in uncalled for. Request to extend the section at a future date when you are able to provide effective systems for the same.

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