Section 194M – Rationale & Brief Analysis

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A new section 194M has been proposed in the Budget of 2019 wherein an individual or an HUF (those not covered in TDS), is now required to deduct TDS @ 5% for payments exceeding Rs. 50 Lakhs in a year to a resident contractor or to a professional (as defined u/s Section 194C and Section 194J respectively).

Currently, there was no liability on an individual or HUF to deduct tax at source on payments made to a contractor or professional when it is for personal use or business use (if not mandated). Due to this exemption, substantial amount by way of payments made by individuals or HUFs in respect of contractual work or for professional service is escaping the levy of TDS. To plug this loophole, Section 194M has been proposed in the Income Tax Act to to provide for levy of TDS.

Briefly, it is analysed below –

Definition of Payer and Recipient

Payer: Individual or HUF, irrespective whether in business / profession or not. However, it excludes those who are already mandated to deduct tax u/s 194C or 194J. Recipient: Should be resident. Implies that this section does not apply to non-residents recipients.

Nature of Work / Services Performed

It covers all work and / or services as defined u/s 194C (payment to contractors and sub-contractors) & 194J (payment to professionals)

When to Deduct the Tax

As usual, either at the time of providing credit of the amount or at the time of payment (in whatever mode), whichever is earlier.

TDS Rate & Threshold Limit

Tax to be deducted is @ 5%. This amount is to be deducted only if the aggregate sum exceeds Rs. 50 lakhs to one recipient (payment falling within the provisions u/s 194C or 194J or both together) in one financial year.

This amendment will take effect from 1st September, 2019

Section 194M – Deduction of TDS by Individual and HUF from payments to contractors and professionals

 

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Filing of TDS / TCS Return Online using Aadhaar

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One can file TDS / TCS Returns (both Regular & Correction Statements) through the Income Tax e-Filing portal through Aadhaar authentication.

Pre-requisites
TAN has to be registered at TRACES (https://www.tdscpc.gov.in) linking the Aadhaar of
the authorized person
The Aadhaar should be linked with the mobile number. This is for receiving the OTP.

The E-Returns are to be filed online at https://www.incometaxindiaefiling.gov.in/home

Steps involved:

Make sure the .FVU is ready that needs to be submitted

Login to https://www.incometaxindiaefiling.gov.in using the TAN, Password, etc.

After successful login for the TAN, one will need to provide the following information:

FVU Version No. – make sure the Return is validation with the latest version of FVU, otherwise
the Return will not be accepted
FA Year – this is the Financial Accounting Year
Form No. – select the TDS / TCS Form type (24Q, 26Q, 27Q, 27EQ)
Quarter – Select the quarter for which Return is being filed
Upload Type – Regular or Correction (please select)
RRR No. (Original & Previous) – needs to be provided only for Correction Statement
Select the .FVU from its location that needs to be uploaded

Important: Make the sure .FVU file matches all the information as specified, otherwise, the Return will be rejected at the submission.

Once the form is complete, click to generate the OTP No. This will be delivered as a SMS on the registered mobile of the authorized person of the TAN.

Enter the OTP correctly and proceed for completing the submission / filing process.

197 Certificate – Rationale, Brief Analysis & Validation

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Procedure of preparing e-Returns for TDS / TCS

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E-Returns for TDS / TCS was first introduced in 2002-03 and it has come a long way ever since. Currently, less than 1% are still on manually filed Returns.

The generic procedure of preparing E-Return for fundamental understanding is summarized as below:

Step – I
The Income Tax Department has specified a data format in which the information for the TDS / TCS Return needs to be prepared. This structure is regularly updated as a routine process for incorporating statutory changes and overall system improvement. All software / tools for TDS / TCS need to follow this data structure while providing the TDS / TCS related information for the E-Return.

Step – II
Once the data file is prepared in the specified format as above, the next step is to ensure all possible technical checks / validations before submission of the E-Return to avoid rejections. For this the Income Tax Department has provided a File Validation Utility (FVU). The data file needs to be passed through this FVU. Once it is validated successfully, it provides an encrypted output file with the extension ‘.FVU’, which needs to be submitted as an E-Return. In case validation fails, it points out the errors. One needs to again go back to the software / tool to correct the errors and follow Step I & Step II.

Step – III
The .FVU file which is the E-Return, is now ready for submission. This can be submitted online at http://incometaxindiaefiling.gov.in as per specified rules or alternatively, can be submitted physically (through CD / Pen Drive / Email) to the TIN Facilitation Centres (TIN-FCs) as appointed by the Department through their designated service provider, NSDL.

Step – IV
Once the E-Return is successfully submitted, a Receipt / Token is generated which is the proof of submission. This needs to be kept on record.

Important
Using a good software simplified the whole process. TDSMAN is one of the popular software since the last 15 years. By a single process, both Step I & II are taken care of. Anyone can prepare their E-Returns and submit without any professional assistance. Download the Trial Version for evaluation.

Procedure to submit TDS Returns online

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TCS on sale of goods – Amendment from 1st October 2020

In the Finance Act 2020, a new sub section has been added which is vide Section 206C (1H) to give effect to the Tax collected at source (TCS) on sales of goods. From 1st October 2020, onwards TCS will be applicable on all goods. Whereas before adding this sub-section, TCS was applicable on some specified goods.

1. Applicability

• It requires the seller to collect TCS on account of sale of all goods made to the buyer in a single transaction or in aggregate during the financial year over and above the sale amount of Rs. 50 Lakhs
TCS will be applicable for every seller whose turnover from the business, exceeds RS.10 ‘Crore during the FY: 19-20 & onwards
• This section will be applicable from 1st October 2020. It means only amount received for sale after 1st October 2020, is liable for this section
• Rate of TCS from the above mentioned date on all goods will be 0.075% (till 31.03.2021)
• Non availability of PAN or Aadhaar No. of the buyer shall attract TCS at the rate of 1%

2. Non-applicability

• If the total turnover of the seller in FY: 19-20 is less than Rs. 10 Crore, then the section will not be applicable for the FY: 20-21
• If on a particular transaction, if the buyer is liable to deduct TDS under any other provision of the Act and has deducted such amount on the goods purchased by him, then on that same transaction seller do not require to collect TCS
TCS will not be applicable for Central government, State government, Local authority, Importer of goods, Trade representation of a foreign state, High commission, Embassy and Legation

3. Examples

Case 1: Turnover of seller in FY: 19-20 is Rs. 9 Crore (Which is less than Rs.10 Crore)
Amount of the sale made during FY: 20-21 is Rs.80 Lakhs (Which is more than Rs.50 Lakhs).
The buyer made payment to the seller of Rs. 80 lakhs during the FY: 20-21.
In such case, seller will not be liable to pay TCS, as the turnover criteria is not met.

Case 2: Turnover of seller in FY: 19-20 is Rs. 12 Crore (Which is more than 10 crore).
Amount of the sale made during FY: 20-21 is Rs.80 Lakhs (Which is more than Rs.50 Lakhs).
The buyer made payment to the seller of Rs. 80 lakhs during the FY: 20-21.
In such case, value for calculation of TCS will be the surplus amount of the total transaction, which is 30 lakhs (80L-50L)

Case 3: Turnover of seller in FY: 19-20 is more than 10 Crore
Amount of sale made during the FY: 20-21 is Rs.80 Lakhs
Buyer made payment to seller between 01/04/2020 to 30/09/2020 = Rs.10 Lakhs
Buyer made payment to seller between 01/10/2020 to 31-03-2021 = Rs.70 Lakhs
In such case 20Lakhs (70L-50L) will be valued for calculation of TCS.

Case 4: Amount of sales is RS. 80 Lakhs
Buyer made payment to seller against the sale is, 40 Lakhs between 01/10/2020 to 31/03/2021.
In that case, value of TCS will be Nil for that Financial Year. In next FY when the remaining value of Rs. 40 Lakhs will be received against the sale of Rs. 80 Lakhs, in such year the value for
calculation of TCS will be Rs. 30 Lakhs (80L-50L).

4. The due date for depositing TCS is the 7th of next month. Every person who is collecting TCS is required to submit a quarterly TCS return in Form – 27EQ. The due dates for filing of TCS returns are mentioned below:-

Capture

5. The main intend to the section 206C(1H) is to provide more check for the database to the government to track the high value transactions.

Source : Income Tax

File error free TDS/TCS Returns with TDSMAN Software

Reduction in TDS/TCS Rates

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