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Higher rate of TDS in certain situations from 1st July 2021

[By Shaleen Shah (Partner), VNCA]

Finance Act 2021, has introduced a new section 206AB effective from 1-Jul-2021 wherein a payer/buyer is responsible to deduct TDS at higher rate (i.e. twice the rate as specified under the relevant provision of the Income Tax Act or twice the rate/ rates in force; or at the rate of 5% whichever is higher) from the payee/seller/vendor in the following stipulated situation*:

  • The aggregate TDS & TCS of the vendor in each of the last two years is more than Rs.50,000/-; and
  • The vendor has not filed Income Tax Return for last two years

Note:

  1. this provision is not applicable if the vendor is a non-resident who does not have a permanent establishment in India;
  2. where the vendor has not linked his Aadhaar with his PAN by 30-Jun-2021 (as extended), the PAN will be made inoperative and higher rate of TDS will be applicable as per section 139AA read with Section 206AA

Illustrative Table of TDS Rates for FY 2021-22

Section Nature of Payment Normal rate Vendor/ Payee has PAN, Linked PAN with Aadhaar but has not filed Return as per stipulated situation* Vendor/ Payee does not have PAN or has not linked PAN with Aadhaar
192 Salary as per slabs N.A.
(as per slabs)
20% or as per higher slab
193 Interest on securities 10 20 20
194 Income by way of dividend 10 20 20
194A Income by way of interest other than ‘Interest on securities’ 10 20 20
194C Payment to contractor/sub-contractor      
  a) HUF/Individuals 1 5 20
  b) Others 2 5 20
194H Commission or brokerage 5 10 20
194-I Rent      
  a) Plant & Machinery 2 5 20
  b) Land or building or furniture or fitting 10 20 20
194-IA Payment on transfer of certain immovable property other than agricultural land 1 5 20
194J Fees for professional or technical services:      
  a) sum paid or payable towards fees for technical services 2 5 20
  b) Any other sum 10 20 20
194M Payment by certain Individuals/HUF to contractor, professional or payment by way of commission or brokerage above Rs.50 Lacs 5 10 20
194Q Payment to resident for purchase of goods of the aggregate value exceeding Rs. 50 lakhs 0.1 5 5

Action Point:

  1. The payer/buyer should obtain a declaration from the payee/seller/vendor by 30-Jun-2021 to determine the appropriate rate of TDS