TDS: New TDS/TCS regime from July 1 – are you prepared?

The tax administration‘s fascination with ‘knowledge’ assortment has been an indicator of India’s tax coverage within the current years. Introduction of expertise led GST regime in India paved the way in which for granular transaction degree reporting for oblique tax functions. This was adopted by introduction of Tax Assortment at Supply () on sale of products final yr the place vendor was entrusted with the accountability to gather Revenue-tax at 0.1% from purchaser, topic to sure situations.

In what’s popularly seen as a course appropriate, the Finance Act, 2021 shifted the compliance burden from vendor to purchaser by introducing Tax Deduction at Supply (TDS) on buy of products, topic to related situations w.e.f. 1 July 2020.

Which means the IT adjustments achieved by India Inc final yr to adjust to new TCS provisions could not be as related and new adjustments could be required to be applied to gear up the programs to deal with TDS on buy of products in addition to the interaction between TCS and TDS provisions.
It’s because introduction of TDS on buy of products exponentially expands TDS internet and the interaction between TDS and TCS provisions requires validation of purchaser’s turnover and transaction quantity. The place transaction worth exceeds Rs 50 lakh and purchaser’s turnover exceeds Rs 10 crores within the earlier yr, TDS would apply over TCS. On the market transactions involving motorcar, tendu leaves, scrap, and many others., TCS continues to use. There are additionally sure interpretational points (inclusion of GST in consideration, software on new corporations within the yr of incorporation, transitional points, and many others.) related to levy of TDS in addition to the interaction with TCS.

The opposite new provision coming into impact from 1 July 2021 is the one which requires each sellers and consumers to undertake due diligence w.r.t. tax return submitting standing of the opposite social gathering the place combination TDS/TCS credit score is not less than Rs 50,000. The place the payee is discovered to haven’t glad the due diligence checks, the payer is required to deduct tax at larger punitive charges as specified within the legislation, which might be larger of twice the conventional price or 5%. This due diligence requirement is relevant to most of TDS provisions on resident funds like shareholder dividends, service funds to distributors, lease, and many others. however doesn’t apply to wage, winnings from lottery/ crossword puzzle, and many others. Comparable is the expectation from the vendor who wants to gather TCS from the client at the next price if the client doesn’t fulfill the due diligence checks.

Whereas the bigger intent behind the above provisions is to push the compliance index, this could simply be a nightmare for India Inc due to the onerous due diligence requirement. However one should laud the tax administration for the current launch of the compliance performance ”
Compliance Test for Part 206AB and 206CC“which permits taxpayers to lookup PAN (particular person/bulk) of the opposite social gathering to carry out the due diligence checks. CBDT has additionally issued a information masking the procedural facets intimately.

Contemplating the language of the provisions, India Inc could be required to undertake this due diligence not less than twice in a yr. Nonetheless, the current CBDT Round supplies a welcome aid by proscribing the necessity for second due diligence to solely these events who fail the primary one. CBDT has additionally clarified that even a belated tax return submitting will assist the taxpayer to flee from such punitive provisions.

Whereas compliance test performance by the tax administration ought to take some burden off India Inc’s shoulders, one should not low cost the necessity for turnover affirmation from prospects to determine whether or not transaction must be subjected to TCS or TDS. Moreover, smarter methods to find out relevant TDS/TCS part and corresponding charges would should be adopted contemplating this large surge in variety of transactions that might now be subjected to TDS or TCS to effectively deal with compliance and reporting necessities. IT programs should be up to date to create mandatory flags foundation the output generated by the compliance test performance. One might also see sellers renegotiating contracts with consumers to incorporate indemnity clauses to cowl potential liabilities arising out of reliance positioned on purchaser’s declarations.

All in all, this can be a vital revamp of TDS and TCS provisions, which can assist the tax administration in making a complete knowledge lake. What must be seen is whether or not India Inc proactively finds environment friendly methods to deal with rising compliance and reporting panorama or if the above provisions would give rise to new litigation earlier than the mud lastly settles.

(
Ashish Jain is Tax Associate, EY India. Rohan Tanwani, senior tax skilled, EY additionally contributed to the article)

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