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TCS Provisions on Sale of Goods under Section 206C(1H) along with TDS Provision on Purchase Transactions under Section 194Q

TCS Provisions on Sale of Goods under Section 206C(1H):

Finance Act 2020 had inserted a new sub-section (1H) under section 206 of the Income Tax Act. This new provision specifies the collection TCS on Sale of goods with some conditions, For this CBDT issued a circular No. 17 on 29th Sept 2020 for a better understanding of this provision. This section came into force with effect from 1st Oct 2020. 

Applicability of Section 206C(1H):

1. The tax shall be collected by the seller only if turnover is more than 10 crores in the preceding financial year.
2. The seller “receives” any amount for consideration for the “sale of goods” of the value or aggregate of such value exceeding INR 50 lakhs in any previous year from such buyer.

Then TCS collected by the seller at the rate of 0.1% on the sale consideration received exceeding Rs.50 lakhs on and after 1st Oct, 2020 and deposited the same within 7 days from the end of the month. The limit of 50 lakhs is per buyer per year.

The Guidance note clearly said that any transaction with various exchanges like recognized stock exchanges, recognized clearing corporations, and transaction with power exchanges not considered for the provision of Sec 206C(1H) as there is no one to one contract of buyer and seller.

In short, if the turnover of the seller exceeds 10 crores in the last year and the amount received from a buyer in the current year exceeds 50 lakhs then TCS should be collected on such sum exceeding 50 lakhs on and after 1st Oct,2020.

TDS Provisions on TDS on Purchase Transactions Section 194Q :

Finance Act 2021 had inserted a new Section 194Q- TDS on Purchase Transactions. This new section says Tax to be deducted on transactions with some conditions; this section is effect from 1st July 2021.

Applicability of Section 194Q:

1. The tax shall be deducted by the buyer only if turnover is more than 10 crores in the preceding financial year.
2. a buyer who is responsible for paying any sum to the seller for “purchase of goods” of the value or aggregate of such value exceeding INR 50 lakhs in any previous year, 

Then TDS to be deducted by the buyer at the rate of 0.1% on the payment exceeding Rs.50 lakhs on and after 1st July, 2021 and deposited the same within 7 days from the end of the month. TDS deducted at the time of payment and Seller must be resident.

In short, if the turnover of the Buyer exceeds 10 crores in the last year and the amount need to pay to the seller by such buyer in this year is exceeds 50 lakhs then TDS should be deducted on such sum exceeding 50 lakhs on and after 1st July,2021.

Summary:

Seller

Buyer

T/O last Year	Sale Value	TCS	T/O last Year	Purchase Value	TDS
Less than 10 CR	Less than 50 Lakhs	N.A	Less than 10 CR	Less than 50 Lakhs	N.A
Less than 10 CR	More than 50 Lakhs	N.A	Less than 10 CR	More than 50 Lakhs	N.A
More than 10 CR	More than 50 Lakhs	Yes	Less than 10 CR	More than 50 Lakhs	N.A
Less than 10 CR	More than 50 Lakhs	N.A	More than 10 CR	More than 50 Lakhs	Yes
More than 10 CR	More than 50 Lakhs	No	More than 10 CR	More than 50 Lakhs	Yes

Why section 194-Q and section 206 C (1H) was required by Law?

The motive behind Govt. having implemented these sections seems to be very clearly brought about a change where large amount of transactions are being traced without any trail where GST amounts is being misappropriated. Govt. intends to bring all such purchase and sales transactions under some audit trail so that fake or frivolous transactions could be tracked or bring under the trail of TDS and TCS provisions and checked in future, if required.

The Central Board of Direct Taxes (CBDT) was issued Notification No. 21/2021, dated 31-03-2021and notify the changes in ITR Forms for the Assessment Year 2021-22. 

First understand what is ITR-1?

 ITR-1 (Sahaj), A simpler forms and filed by the small and medium individual taxpayer having income up to Rs 50 lakh and who receives income from salary, one house property or other sources like  interest income etc.

In this Pandemic time there is no such significant changes done.

Changes in ITR-1 from AY 2021-22 are as follows:

• ITR-1 shall not be available to an individual taxpayer whose tax has been deducted on cash withdrawal under Section 194N.

Under section 194N of the Income Tax Act, tax is required to be deducted by any bank, banking institution, cooperative bank or post office if the amount of cash withdrawn by individual person from one or more account during the year exceeds Rs 20 lakh in case of certain non-filers of return and Rs 1 crore in other cases.

Rule 12 of the Income tax rules has been amended and Consequential changes have been made to ITR-1.

• ITR-1 shall not be available to an individual taxpayer in case of deferment of tax on ESOPs, Deferment the payment or deduction of tax on ESOPs allotted by an eligible start-up referred under Section 80-IAC has allowed in the Finance Act, 2020

Under section 80-IAC (applicable for eligible start-ups) of the Income Tax Act, Tax is required to be deducted or paid of such ESOP’s within 14 days from the following period:

Under section 80-IAC (applicable for eligible start-ups) of the Income Tax Act, Tax is required to be deducted or paid of such ESOP’s within 14 days from the following period:

1. After expiry of 48 months from the end of AY relevant to the financial year in which ESOPs are allotted;
2. From the date of sale of shares allotted under ESOP ; or
3. From the date the assessee ceases to be an employee of the organization.

Rule 12 of the Income tax rules has been amended and Consequential changes have been made to ITR-1.

• ITR-1 changes due to change in taxability in Dividend Income.

The Finance Act 2020 Finance Minister abolished the Section 115-O – Dividend Distribution Tax (DDT) and Shift the burden of tax on the shareholders by withdrawing the Section 10(34) and accordingly section 115BBDA has no relevance as entire dividend is taxable in the hands of shareholders from 1st April 2020.

From 1st April 2020 Companies deducted TDS @ 10% under section 194 of Income tax Act if dividend payout is more than Rs.5000.

Now Dividend Income comes in Schedule SI (Special Income) of ITR-1 and taxable with special rate. Corresponding changes have been made to Schedule SI.

Provision & Computation with Example’s

The Finance Act, 2020, has allowed to defer the payment or deduction of tax on ESOPs allotted by an eligible start-up referred under Section 80-IAC. The tax is required to be paid or deducted in respect of such ESOPs within 14 days from the earliest of the following period:

1. After expiry of 48 months from the end of Assessment year relevant to the financial year in which ESOPs are allotted;
   1. From the date the assessee ceases to be an employee of the organization; or
   1. From the date of sale of shares allotted under ESOP.

Reporting of amount deferred in respect of ESOPs

If an employee has received ESOPs from an eligible start-up referred to in Section 80-IAC in respect of which the tax has been deferred, the Part B of Schedule TTI (Computation of tax liability on total income) seeks the disclosure of the tax amount which has been deferred in this respect.

The ITR Form does not provide any guidance on the computation of the tax to be deferred. In such a situation, the tax to be deferred can be computed in accordance with the guidance give below.

Applicable rate of tax

As the perquisite arising from ESOPs shall be taxable in the year in which shares are allotted or transferred by the employer to employees, the tax shall be calculated on the basis of rates applicable in the year in which shares are allotted or transferred.

Example, X Pvt. Ltd launched an Employee Stock Option Scheme for its employee in year 00 under which shares of the company would be allotted to employees at free of cost. Mr. A, one of the employees of X Pvt. Ltd., exercises his option to apply for the shares of the company in year 01. At the time of exercising of option, the fair market value of shares was Rs. 100. However, the company allots shares to Mr. A in Year 02. What shall be the amount of perquisite and in which year it shall be chargeable to tax in hands of Mr. A and at what rate?

In the above example, the amount of perquisite chargeable to tax in the hands of Mr. A shall be the fair market value of shares on the date of exercising of option, i.e., Rs. 100 and it shall be chargeable to tax in the year in which shares are allotted by the company, i.e., Year 02. Thus, tax on perquisite shall be calculated at the rate as applicable in Year 02.

How to calculate the amount of tax to be deferred?

An employee is required to disclose the value of perquisite from ESOPs in his return of income (Schedule TTI) of the year in which shares are allotted. However, due to the deferment of payment of tax, the employee shall not be required to pay tax on perquisite arising from ESOPs in such year. The tax to be payable on the salary income, excluding the perquisite value of ESOPs, should be computed as per following formula.

Tax payable on salary income excluding ESOPs perquisite	=	Tax on total income including ESOPs perquisites	X	Total income excluding ESOPs perquisites ———————— Total income including ESOPs perquisites

Example, Mr. A, working in a start-up company, has been allotted 100,000 shares at the rate of Rs. 10 per share under ESOP scheme in the Financial Year 2020-21. The fair market value of shares at the time of exercising of option by Mr. A is Rs. 100. The perquisite value of ESOPs taxable in the hands of Mr. A shall be Rs. 90 Lakhs [100,000 shares* (Rs. 100 – Rs. 10)]. The annual salary of Mr. A (excluding perquisite value of ESOPs) in that year is Rs. 40 Lakhs. He continues with the company even after expiry of 48 months from the end of the assessment year in which shares are allotted and he does not sell the shares even after expiry of said period. What shall be the mechanism for deferment of TDS and tax on perquisite value of ESOPs in such a case?

Assessment Year 2021-22
Mr. A would be required to disclose the perquisite value of ESOPs, i.e., Rs. 90 lakh in his return of income but he shall not be liable to pay any tax thereon in the year of allotment of shares. The tax to be payable on the salary income, excluding the perquisite value of ESOPs, shall be computed in the following manner:

Particulars	Amount (in Rs.)
Total Income before including perquisite value of ESOPs (A)	40,00,000
Add: Perquisite Value of ESOPs (B)	90,00,000
Total Income after including perquisite value of ESOPs  (C)	1,30,00,000
Tax on Rs. 1.30 crore  as per slab rates applicable for Assessment Year 2021-22 as per old taxation regime (D)	37,12,500
Add: Surcharge [E = D * 15%]	5,56,875
Add: Education Cess [F = (D + E) * 4%]	1,70,775
Total tax liability for Assessment Year 2021-22 after considering perquisite value of ESOPs [G = D + E + F]	44,40,150
Tax liability attributable to salary income (excluding the perquisite of ESOPs) [G * A / C]	13,66,200

Assessment Year 2026-27
As Mr. A continues with the company after expiry of 48 months from the end of the Assessment Year in which shares are allotted and he does not sell the shares even after expiry of said period, the liability to deduct tax or make payment of tax on perquisite value of ESOP will arise in the Assessment Year 2026-27, i.e., after expiry of 48 months from the end of the Assessment year (2021-22) in which shares are allotted. The TDS shall be deducted within 14 days from the end of the assessment year 2025-26. The tax liability for the Assessment Year 2026-27 shall be computed as under:

Particulars	Amount (in Rs.)
Total tax liability for Assessment Year 2021-22 after considering perquisite value of ESOPs	44,40,150
Less: Tax already paid at the time of filing of return for the Assessment Year 2021-22	13,66,200
Differential amount to be deducted or paid by the employer or employee in the Assessment Year 2026-27	30,73,950

About Sovereign Gold Bonds (SGBs):

Sovereign Gold Bonds (SGBs) are the alternative to investment in physical gold. These bonds are risk-free as issued by the Government of India. The Government launched this scheme in 2015 under Gold Monetisation Scheme. These bonds are backed with policies and procedures notified by RBI.  

Features:

• A Person resident in India having PAN can apply for this scheme. Even a resident person subsequently changes the status to non-resident also continues to hold SGB till early redemption/maturity.
• The Bonds are issued in one gram of gold denominations and in multiples thereof. The Minimum investment shall be 1 gram per fiscal year. The Maximum investment is 4 kg for Individual/HUF and 20 kg for others per fiscal year.
• Bonds having a tenor of 8 years but early redemption allowed after 5 years of lock- in period.
• Once bond purchased the certificate of holding will be issued by the RBI. The said holding is credited in the Demat account and can be traded in stock exchanges.
• At the time of redemption price will be decided based on the simple average of the closing price of gold purity 999 of the previous 3 working days published by the India Bullion and Jewelers Association Limited.

Advantage to Invest in SGB:

• Every investor is compensated with fixed Interest at the rate of 2.50 percent payable semiannually directly in the bank account of the investor.
• Bonds are exchange traded fund.
• Bonds are transferable to relatives/friends/others in accordance with the provisions of the Government Securities Act 2006.
• The capital gains tax arising on redemption on the maturity of SGB to “an individual” has been exempted. The indexation benefits will be provided to long terms capital gains arising on the transfer of bonds.
• Joint holding is allowed.
• A minor also can invest.
• Nomination facility is available for the investor.
• Investment in SGB is risk-free. All the risk and cost of storage with holding physical gold are eliminated.
• No TDS will deduct. It’s the responsibility of bond holders to comply with tax laws.
• Partial redemption is allowed in multiples of 1 gram.

What is Offer for Sale (OFS)?

An Offer for Sale is a method in which promoters of listed companies can sell their shares through the bidding platform for the Exchanges and transparently reduce their holdings.

It’s an easier process for the promoter to dilute their stake with minimum compliance. OFS was introduced in 2012 by SEBI and available for top 200 companies in terms of market capitalization.

OFS process opted by the listed companies for the fulfillment of financial needs. Only promoters or shareholders holding more than 10 percent of the share capital can avail this issue. The minimum offer size is 25 crore.

Bidder Includes Companies, Individual, FII’s, and QIB’s.

In an OFS, a minimum of 25 percent of offer size is reserved for mutual funds (MFs) and insurance companies, and a minimum of 10 percent of the offered size is reserved for retail investors.

Process for Application, Bidding, and Allotment in OFS:

• The company has to inform stock exchanges atleast 2 days before the OFS.
• An individual can apply for OFS with the help of brokers with the bid value not exceeds Rs. 2 Lakh. And unlike to IPO an investor can put multiple bids and the bid can be modified or cancel any time during bidding hours.
• The company set a floor price, No allocation will be made below the floor price.
• The OFS is open for a single trading day with Bid timing is between 9.15 am to 2.45 pm.
• Settlement takes place T+1 day.

Difference between OFS and IPO/FPO

Timeline to file belated Income Tax Return (ITR) under section 139(4):

As per the Finance Act 2016 amendment from AY 2017-18 anyone can file a belated return on or before the relevant Assessment Year if missed the due dates mentioned in section 139(1) of the Income tax Act.

Example: For AY 20-21 last date to file a belated return on or before 31^st Mar 2021.  

File Income Tax return under section 119:

This section 119 authorized to Central Board of Direct taxes -CBDT to direct Income tax authority to allow the assessee to file ITR even missed deadline under section 139(4). The Taxpayer can claim for exemption, deduction, refund, and any other relief even after the expiry of the time limit to make such claims.

Conditions:

• Taxpayers have to file an Application in writing to the relevant Authorities.
• Time limit to file the application within next 6 years from the end of the assessment year
• The authorities accept the application to file the return under sec. 119 only if there is a genuine reason otherwise they have right to reject.

How to file returns under section 119(2)(b):

Once the application is accepted an order should be passed by the authorities.

Then follow the below steps:

• Login to  income tax e-filing portal
• Go to the “e-file” tab and select “Income tax returns”
• Select the assessment year for which you have to file the return under this section
• Then, choose the filing type – “Filing against notice/order”
• Select the filing section – “139 read with section 119(2)(b)”
• Then upload an XML and file return by verifying it.

How to Get Instant PAN through AADHAAR

Step 1-Go to website https://www.incometaxindiaefiling.gov.in/home. You found an option in left side in Quick Links called “Instant PAN through Aadhaar” as marked in below picture.

Step-2 Click on link “Get New PAN”

Step-3 Fill in your Aadhaar number in the provided apace, Enter captcha and confirm.

Step-4 Applicant will receive an OTP on the registered Aadhaar mobile number as a part of E KYC. Submit this OTP in the text box on the webpage.

Step-5 After submission, an acknowledgement number will be generated. Please keep this acknowledgment number for future reference.

Step-6 On successful completion, a message will be sent to the applicant’s registered mobile number and e-mail id (if registered in UIDAI & authenticated by OTP). This message specifies the acknowledgement number.

How to Download your PAN

Step 1-Go to website https://www.incometaxindiaefiling.gov.in/home. You found an option in left side in Quick Links called “Instant PAN through Aadhaar” as marked in below picture.

Step 2- Click the link- ‘Check Status/ Download PAN’.

Step 3– Submit the Aadhaar number in the provided space, then submit the OTP sent to the Aadhaar registered mobile number.

Step-4 Check the status of application- whether PAN is allotted or not.

Step 5– If PAN is allotted, click on the download link to get a copy of the e-PAN pdf.

The Major points of this facility are:

1. The applicant should have a valid Aadhaar which is not linked to any other PAN.
2. The applicant should have his mobile number registered with Aadhaar.
3. This is a paper-less process and applicants are not required to submit or upload any documents.
4. The applicant should not have another PAN. Possession of more than one PAN will result in penalty under section 272B(1) of Income-tax Act.

What is Dividend?

If you buy shares of any listed company then you are the shareholder in that company and out of the surplus/ profit and retained earnings share of profit pay out to the shareholder is called Dividend.

The value of dividend is determined on per share basis and approved by Board of directors.

Tax on Dividend Income:

Provision up to F.Y. 2019-20

Any dividend received from a domestic company is exempt from tax in the hands of shareholders under section 10 (34) of Income Tax Act. Tax has to be paid by the domestic company under section 115-O – Dividend Distribution Tax (DDT). As company paying tax on dividend distributed so it was exempt in the hands of shareholders to avoid double taxation.

However, in 2016 new section 115BBDA introduced, and the provision of this section says Dividend Income received from domestic companies @ 10% if aggregated of such dividends exceeds Rs. 10 Lac. In simple words if dividend received from domestic companies is more than 10 lac then dividend income in excess to 10 lac should be taxable in the hands of shareholders @ 10% 

Provision from F.Y. 2020-21

In budget 2020 Finance Minister abolished the Section 115-O – Dividend Distribution Tax (DDT) and Shift the burden of tax on the shareholders by withdrawing the Section 10(34) and accordingly section 115BBDA has no relevance as entire dividend is taxable in the hands of shareholders from 1st April 2020.

From 1st April 2020 Companies deducted TDS @ 10% under section 194 of Income tax Act if dividend payout is more than Rs.5000.

‘Income tax return (ITR)’ is a form in which taxpayers declare details of income, deductions, exemptions, and taxes payable on their taxable income. ITR are governing by the Rules of Income Tax Act, 1961. ITR must be filed in a prescribed format and should be submitted to the Income tax department on or before the due date to avoid the penalties. For filling returns first have to register in https://portal.incometaxindiaefiling.gov.in with the help of valid PAN card.

Different types of ITR forms which a taxpayer has to file:

FORM	PARTICULARS
ITR-1	Individuals having income from salary, House property & other sources Total income upto 50 lacs.
ITR-2	Individuals/HUF not carrying business or profession under proprietorship.
ITR-3	Individuals/HUF earning income from proprietorship
ITR-4	Opting for Presumptive tax scheme
ITR-5	LLP, Firm, Trust, Co-operative society etc. Those covered under ITR-7 shall not fill this form.
ITR-6	Companies other than those claiming exemption under section 11 of Income tax act.
ITR-7	Requires to furnish details u/s 139 [4A, 4B, 4C, 4D, 4E] of Income tax act, 1961

Benefits:

1. Improve your loan documentation process:

Filing ITR will help you in your loan application, Banks asks for ITR prior to review your application for any kind of loan. Banks ascertain your loan repayment capacity with the help of ITR.

2. Carry forward of Losses:

If anyone has suffered losses in a year, then by filing income tax return he can carry forward that loss for next eight subsequent years to set off the same by the future income as per the provision of Income Tax Act, 1961.This can help reduce the burden of tax in future years.

3. Processing of VISA:

If you are traveling overseas, foreign embassies ask you to furnish ITR return of the last couple of years at the time of the visa interview. Some embassies may ask for ITR receipts of previous three years, while some others may ask for the most recent one. ITR receipts VISA processing team to assess your income and ascertain that you will be able to looking after of the expenses on the trip.

4. Avoid Interest and penalties by Tax Authority:

Any person liable to file tax returns does not file returns within the due date, and then he is liable to pay penalty of up to Rs. 10,000 for non-filing the return within the due date. If you don’t file ITR, then belated return could be filed with extra cost to you lead to extra interest on monthly basis for the remaining tax payable.

5. Claim Income Tax Refund:

There are various banks and Companies do tax deducted at source (TDS) in a financial year. So in order to claim TDS refund, one will have to file the ITR to claim refund of the same.

A private limited company is requires to file certain forms as an annual Compliance.

Form MGT-7

Form MGT-7 which includes information about the company, its shareholders, Directors, KMP etc. as on 31st March and filed with ROC. As per Section 92 & Rule 11, 12 of Companies (Management & Administration) Rule 2014 all class of Companies included small company and one Person Company (OPC) must file this form within 60 days from the date of Annual General Meeting of the company.

Form AOC-4

Filing of form AOC-4 for submitting financial statements (Profit & Loss and Balance Sheet) along with Board’s report, Auditors’ report, Statement of subsidiaries in Form AOC-1, details of CSR policy etc. AOC-4 must be certified by Company Secretary or Practising Chartered Accountant  and filed with the ROC.

Form MGT-8

Form MGT-8 is a certification given by a Practising Company Secretary, under Section 92(2) of Companies Act 2013.

MGT-8 filling is applicable on Companies:

• A listed company or
• A company with paid-up share capital of Rs 10 crore or more or
• Turnover of Rs. 50 crore or above

Form DPT-3

DPT 3 is a form to file details of deposits or say transaction not considered as deposit under rule 2(1)(c) of the Companies (Acceptance of Deposit) Rules, 2014.

DPT-3 filling is not applicable on:

• Government companies
• Banking companies
• NBFC

Form ADT-1

Filing form ADT-1 regarding appointment or change in auditor if any during the year

Form DIR-3

Filing  DIR-3 KYC Form for KYC of directors having a Director Identification Number (DIN No.).

Filing of KYC of company on yearly basis.

All the above form need to file within time allowed as per Companies Act. 2013

Some more activities need to be done

• All the Director have to provide MPB-1 to the company specify their interest in other entities in the first board meeting of financial year.
• Dir-8 is to be given by directors to the company every year in the initial board meeting about their disqualification.
• Minutes book of Board Meeting and Annual General Meeting should be maintained in writing, signed and kept by company.
• Apart from all above if there is a change in anything, the company had to take note of it and if required to file the form to ROC, then it should be filed on time.