Are you ready with New TDS and TCS changes in your ERP from Jul- 2021?

New TDS and TCS changes in ERP from Jul- 2021 :

Budget 2021 has introduced new section 194Q in income tax to deduct TDS @0.10 % on purchase of goods on value exceeding Rs. 50 Lakhs during financial year i.e. 2021-22 .In case turnover of Buyer is exceeding Rs. 10 crores in FY 2020-21, he is liable to deduct TDS u/s 194Q otherwise seller has to continue collecting TCS u/s 206C(1H). In case Seller is having turnover exceeding Rs.10 crores in FY 2020-21 , he is liable to collect TCS u/s 206C(1) on sales consideration. This post will provide details regarding New TDS and TCS changes in ERP from Jul- 2021 . If both sections are applicable for a particular transactions, section 194Q will prevail as per provision of this section.

Circular No.11 of 2021 related to Section 206AB & 206CCA

Government has issued circular No.11 of 2021 dated 2021 to check status of valid PAN and ITR from reporting portal of Income Tax Department . Click on this link to download Circular No.11 2021. You can check status of Valid PAN and ITR filing with reference to section 206AB & 206CCA.

New TDS and TCS changes in ERP from Jul- 2021

Now Below steps are required to do necessary changes in your ERP system:

Purchase Side

1. In case your sales turnover is more than Rs.10 Crores in FY 2020-21, you are liable to deduct TDS u/S 194Q . You have to inform supplier that you will deduct TDS under this section so don’t collect TCS u/s 206C(1H).
2. Get declaration from vendor that they have valid PAN (i.e. PAN linked to Aadhar in case of individual supplier ) and filed ITRs in last years as per section 206AB. Other wise Twice the Specified TDS rates/rates in force or 5% whichever is higher is applicable . Alternatively you can check based on availability of facility of checking valid PAN and ITRs from reporting portal of Income Tax Department.
3. Accordingly update Vendor master with related TDS key
4. Update vendor master to maintain threshold limit of Rs.50 Lakhs which will be reckoned from 01.04.2021 however TDS will be applicable on amount exceeding Rs. 50 Lakhs after 1st Jul,2021. TDS is applicable on credit or payment whichever is earlier .

Sales Side

1. Get declaration from customer if he is going to deduct TDS u/s 194Q, deactivate TCS u/s 206C(1H) from your customer and tax master
2. In case customer is not deducting TDS u/s 194Q, you have to continue to collect TCS u/s 206C(1H) .(If your turnover is exceeding Rs. 10 crores in FY 2020-21 you are liable to collect TCS @0.10% on sales considering exceeding Rs. 50 Lakhs during FY 2021-22. In case customer doesn’t provide PAN/Aadhar, TCS @ 1% applicable. Do read our Post New TCS as per Section 206C(1H) in this regard.
3. You have to collect TCS @ 5% as per section 206CCA in case customer has not filed ITRs in last two Assessments years when TDS/TCS amount is exceeding Rs.50,000 in each year. Last two assessment years means AY 2019-20 & AY 2020-21 .
4. In case of individual customer, they have to link their PAN with Aadhar other it will be inactivate and will be like invalid PAN and TCS rate will apply accordingly @ 1% .
5. Accordingly you need declaration from customer for Valid PAN and filing of ITRs in last two AYs from customer. Alternatively you can check based on availability of facility of checking valid PAN and ITRs from reporting portal of Income Tax Department.

Please note that this new provision u/s 194Q (TDS on purchase of goods) , Section 206AB (Higher TDS for non ITRs filers) and Section 206CCA (Higher TCS for non ITRs filers) are applicable from 01.07.2021 to all sections except section 192 , 192A , 194B, 194BB, 194LBC,194N and further if non-resident is not having any PE in India. So you have to create TDS key/TCS key for all existing rates . For example , TDS rate for professional services is 10% but they have not filed ITRs as per section 206CCA , you have to deduct TDS @ 20% and so on.

Hope this post helps you to understand how to do New TDS and TCS changes in ERP from Jul- 2021

Check below link to see latest circular from Income Tax .

Income Tax Circular