Form No. 121 (FY 2026–27) Guide with Procedure, Penalties, AIS Reconciliation & Zero-Risk Compliance Strategy

 By CA Surekha Ahuja

Replacing Forms 15G and 15H under the Income-tax Act, 2025

Introduction: From Declaration to Data-Driven Tax Compliance

With effect from 1 April 2026, Form No. 121 replaces Forms 15G and 15H. This change marks a decisive shift from a declaration-based system to a data-driven, traceable compliance framework.

Each declaration is now:

• Tagged with a Unique Identification Number (UIN)
• Reported by the payer against its TAN
• Linked to the taxpayer’s PAN
• Reflected in system-based reporting such as TDS statements and AIS

The objective is clear: eliminate mismatches between income reporting, TDS data, and tax returns at a PAN–TAN level.

Legal Framework and Objective

Form No. 121 is prescribed under:

• Section 393(6) of the Income-tax Act, 2025
• Rule 211 of the Income-tax Rules, 2026

It enables eligible persons to declare that their estimated total income results in nil tax liability, allowing the payer not to deduct tax at source on specified payments.

Core Principle: Nil Tax Liability

The declaration is valid only where:

• Total income is properly estimated
• Deductions and rebates are considered
• Correct tax regime is applied
• Final tax liability is nil

This makes Form 121 a computation-based declaration, not a threshold-based formality.

Eligibility Position

Category	Eligibility
Resident Individuals	Eligible where tax liability is nil
Senior Citizens	Eligible where tax liability is nil
Hindu Undivided Family	Eligible where tax liability is nil
Firms / LLPs	Not eligible
Companies	Not eligible
Non-residents	Not eligible

Income Covered

The declaration applies to a wide range of incomes:

• Interest income
• Dividend income
• Mutual fund income
• Rental income
• Insurance commission
• Life insurance proceeds
• Provident fund withdrawals and pension receipts
• Other specified payments

Procedure and Mode of Filing

By the Taxpayer (Declarant)

Form No. 121 is not directly filed on the income-tax portal by the taxpayer.

It is furnished as a declaration to the payer:

• Before the scheduled transaction date
• Separately for each payer
• For each financial year

Modes:

• Physical submission, or
• Electronic submission (if enabled by payer)

By the Deductor (Payer)

The payer is responsible for system integration:

• Digitization of declaration (if physical)
• Generation of UIN
• Filing of Part B electronically on the portal
• Reporting in Quarterly TDS Statement (Form 140)

UIN and PAN–TAN Level Tracking

Each declaration is tracked through a 26-character UIN:

Component	Description
Sequence Number	D + 9 digits
Tax Year	Example: 202627
TAN	Payer’s TAN

This creates a three-way linkage:

• PAN of taxpayer
• TAN of deductor
• UIN of declaration

AIS, TDS and ITR Reconciliation: Government’s Core Objective

The introduction of Form 121 is closely aligned with the Government’s broader objective of data consistency and mismatch elimination.

How the System Works

• Declarations (Form 121) are reported by the payer
• Transactions are captured in TDS returns (Form 140)
• Data flows into the taxpayer’s Annual Information Statement (AIS)
• Taxpayer files Income-tax Return (ITR)

Mismatch Scenarios Targeted

Scenario	System Risk
Income received without TDS but not declared in ITR	High mismatch trigger
Form 121 filed but income later taxable	Red flag in AIS vs ITR
Multiple declarations across payers without consistency	Data inconsistency
Incorrect PAN / UIN reporting	Reconciliation failure

Compliance Impact

• Increased automated scrutiny selection
• System-generated notices and alerts
• Higher audit visibility at PAN level

Form 121 is therefore not just a TDS tool—it is part of a data reconciliation ecosystem.

Consequences, Defaults and Penalties

Non-Filing of Form 121

• TDS is deducted
• Cash flow is impacted
• Refund only through return filing

Delayed Filing

• Not valid for that transaction
• TDS already deducted cannot be reversed

Incorrect Declaration (Tax Liability Not Nil)

• Tax becomes payable
• Interest liability arises
• Penalty for under-reporting or misreporting may apply
• In serious cases, prosecution provisions may be invoked

Non-Furnishing of PAN

• Declaration becomes invalid
• TDS at higher rate

Payer-Level Defaults

Default	Consequence
Failure to generate UIN	Reporting breakdown
Non-filing of Part B	Penalty exposure
Non-reporting in TDS return	AIS mismatch risk
Delay in compliance	Late fees

Caution Points for Taxpayers

• Compute total income from all sources before filing
• Do not rely only on exemption limits
• Ensure filing before transaction date
• Submit separate declarations for each payer
• Monitor income during the year
• Inform payer if tax position changes

Caution Points for Deductors

• Do not rely on incomplete declarations
• Ensure PAN validation
• Maintain UIN-wise control register
• File Part B within prescribed timelines
• Reconcile with TDS returns
• Maintain audit documentation

Dynamic Situations: Mid-Year Changes

If income increases during the year and tax becomes payable:

• Taxpayer should inform the payer
• TDS should be applied on subsequent payments

Failure to act may result in:

• Interest liability
• Penalty exposure
• Increased scrutiny risk

Practical Risk Matrix

Situation	Risk Level	Impact
Correct declaration	Low	Smooth compliance
Non-filing	Medium	Cash flow impact
Late filing	Medium	TDS unavoidable
Incorrect estimation	High	Tax + interest + penalty
False declaration	Very High	Penalty and prosecution risk

Professional Compliance Approach

For Taxpayers

• Estimate income carefully
• Compute tax accurately
• File only where tax liability is nil
• Maintain supporting working

For Deductors

• Maintain UIN records
• Ensure timely reporting
• Align Form 121 with TDS returns
• Maintain audit trail

Strategic Perspective

Form No. 121 represents a transition from:

Declaration-based compliance to PAN–TAN integrated data verification

This ensures:

• Reduced mismatches in AIS and ITR
• Improved tax transparency
• Stronger compliance monitoring

Conclusion

Form No. 121 is a powerful compliance mechanism, but it operates within a data-driven tax environment.

Correct usage ensures:

• No TDS deduction
• Efficient cash flow
• Clean tax reporting

Incorrect usage may result in:

• Tax liability
• Interest and penalties
• System-triggered scrutiny

Before furnishing Form No. 121, it is essential to confirm:

The estimated total income has been properly computed and results in nil tax liability, and that such position will remain consistent with reporting in AIS and ITR.

 

Comprehensive Guidance Note on TDS Demands

 By CA Surekha S Ahuja

Legal Position, System Behaviour, Consequential Actions and Resolution Framework

(Applicable to all Financial Years under the Income-tax Act, 1961 and the Income-tax Act, 2025)

Purpose and Applicability

This Guidance Note provides a consolidated and authoritative framework for understanding, managing, and resolving all types of TDS demands, irrespective of:

• the financial year involved,

• whether the demand is legacy or current, or

• whether it is system-generated or officer-driven.

It is intended for Boards of Directors, Audit Committees, CFOs, Tax Heads, Chartered Accountants, and Legal Advisors and is designed to serve as a practical operating manual rather than a theoretical exposition.

Executive Overview

TDS demands today operate in a highly automated, time-bound, and system-driven environment.
The scope for post-facto correction has narrowed significantly, and under the Income-tax Act, 2025, it has been further compressed to a two-year statutory window.

Accordingly:

• Certain TDS demands are curable,

• certain demands are disputable, and

• certain demands—particularly time-barred legacy demands—are final and irreversible.

Correct identification of the nature and stage of a TDS demand is therefore critical, as it directly determines the available remedy.

Classification of TDS Demands

Every TDS demand must first be classified into one of the following categories:

Statement-Related Demands

Arising from errors in TDS statements, such as:

• incorrect PAN reporting,

• challan mismatches,

• incorrect section or rate,

• late filing fee under Section 234E, or

• interest computation under Section 201(1A).

Deduction-Related Demands

Arising from substantive defaults, including:

• short deduction,

• non-deduction, or

• non-application of a valid lower or nil deduction certificate.

Time-Barred / Legacy Demands

Demands relating to periods where the statutory window for correction has expired (notably periods up to FY 2018-19 Q3).

Adjustment-Based Demands

Demands arising due to:

• automatic adjustment of refunds under Section 245, or

• CPC-initiated set-offs without fresh adjudication.

This classification governs what can still be done and what is no longer permissible.

How TDS Demands Are Generated

Online System Processing (CPC / TRACES)

1. TDS statement is processed under Section 200A

2. System detects mismatch or default

3. Demand is computed (tax, interest, fee)

4. Demand is reflected across:

   • TRACES

   • CPC portal

   • AIS / TIS

   • Refund adjustment dashboard

This process is fully automated and largely non-discretionary.

Offline Departmental Action (AO / TDS Officer)

Where defaults persist or are substantive:

• orders are passed under Section 201(1),

• interest is levied under Section 201(1A), and

• recovery proceedings may be initiated.

Importantly, once limitation expires, neither CPC nor the AO has authority to permit correction, regardless of merits.

Legal Limits on Correction and Rectification

Correction of TDS Statements

• Under the Income-tax Act, 1961: correction was permitted within six years

• Under the Income-tax Act, 2025: correction is permitted only within two years

Once this window expires:

• correction uploads are system-blocked, and

• rectification under Section 154 is not available.

Special Position of Legacy Periods

For time-barred periods:

• statements are treated as final,

• demands are crystallised, and

• no transition benefit is available under the new Act.

These demands are closed in law and closed in system.

Consequences of an Outstanding TDS Demand

If a TDS demand remains unresolved:

• interest continues to accrue,

• refunds are automatically adjusted under Section 245,

• recovery proceedings may commence under Section 222,

• bank accounts may be attached,

• compliance ratings are adversely impacted, and

• statutory audit and CARO reporting implications arise.

TDS demands therefore represent not merely a tax exposure, but a governance and financial reporting issue.

Permissible Actions – Online and Offline

Online Actions Available

Subject to limitation and facts:

• filing correction statements (where legally open),

• filing appeals under Section 246A,

• applying for stay of demand (Form 13),

• responding to CPC communications, and

• payment of demand through Challan 281.

Offline Actions Available

Limited to:

• representation for instalments or stay,

• personal hearings on merits (not on limitation), and

• collection of deductee confirmations for appellate support.

Offline representations cannot override statutory limitation or system blocks.

Resolution Framework – Decision Approach

Correction (Where Open)

Appropriate for procedural errors and must be undertaken immediately, as delay may permanently foreclose this option.

Appeal

Appropriate where:

• demand is duplicative,

• tax has already been paid by the deductee, or

• jurisdictional or legal infirmities exist.

Interest continues unless a stay is granted.

Payment and Closure

Appropriate where:

• default is clear,

• deductee has already claimed credit, or

• cost of litigation outweighs benefit.

This provides finality and certainty.

Provisioning and Monitoring

Appropriate where:

• demand is disputed, and

• litigation outcome is uncertain.

Such demands generally require accounting provision rather than mere disclosure.

Governance and Internal Control Expectations

Every organisation should:

• maintain a TDS demand register,

• review demands periodically,

• track correction limitation dates,

• document decisions on appeal or payment, and

• keep the Board and Audit Committee appropriately informed.

Failure to do so exposes management to avoidable financial and compliance risk.

Position Going Forward under the Income-tax Act, 2025

The new Act reflects a clear legislative intent:

• faster finality,

• shorter correction windows, and

• minimal tolerance for legacy non-compliance.

Early identification and timely correction will be critical to risk management.

Concluding Professional Position

TDS demands are no longer routine compliance irritants.
They are statutory obligations with direct financial, governance, and reputational consequences.

The law, the system, and departmental practice now operate in unison:

• correction is time-bound,

• discretion is limited, and

• finality is enforced.

Accordingly, the only sustainable approach is early diagnosis, informed decision-making, and decisive resolution.

“Every TDS demand has a limited life cycle. Once the correction stage is missed, only appeal or closure remains.”

TDS Late Filing Fee Under Section 234E - Compliance, Challenges & Reliefs

With increasing compliance scrutiny and automated processing of TDS returns, deductors are frequently receiving demand notices under Section 234E for late filing fees. Many taxpayers are unaware that late fees cannot be waived and that demands are being raised for older periods. With the approaching deadline of 31.03.2025, it is crucial to address any pending TDS compliance issues to avoid financial penalties. This article aims to clarify when the late fee is valid, when it is not applicable, and how to ensure compliance to avoid unnecessary financial burden.

Applicability of Late Filing Fee under Section 234E

Section 234E of the Income Tax Act, 1961, mandates a late filing fee for the delayed submission of TDS/TCS returns. If a deductor fails to submit the TDS/TCS statement within the prescribed due date, they are liable to pay a fine of ₹200 per day until the failure continues, subject to the total TDS amount deducted.

Key Aspects of Late Filing Fee (Post 1st June 2015)

1. Legal Validity – The late filing fee under Section 234E has been explicitly made applicable with the insertion of Section 200A(1)(c) and (d) by the Finance Act, 2015, with effect from 1st June 2015. Prior to this, there was no provision for automatic levy of fees under intimation under Section 200A.

2. Auto-Adjustment in TDS Intimations – Post 1st June 2015, the late fee is automatically adjusted while processing TDS statements under Section 200A, and the deductor is mandatorily required to pay it.

3. Upper Limit on Late Fee – The total fee cannot exceed the total tax deducted/collected for the respective quarter.

4. Non-Waivable Nature – Unlike penalties, the late fee under Section 234E is mandatory and non-waivable, meaning that no appeal or discretion is available to reduce or remove this charge.

5. Applicability on Older Defaults – Late filing fees for TDS statements filed before 1st June 2015 but processed after this date should not be charged, as per multiple judicial pronouncements.

Relevant Provisions Before and After Finance Act 2015

Section 200A Prior to 1st June 2015 (Before Amendment):

Prior to 1st June 2015, Section 200A allowed for processing of TDS returns, but did not provide for levying a fee under Section 234E. It allowed only for the computation of arithmetical errors, incorrect claims, and interest payable on TDS defaults. There was no legal basis for imposing a late filing fee under Section 234E before this amendment.

Additionally, it was provided that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the statement is filed. Furthermore, an incorrect claim apparent from any information in the statement was defined as:

• An entry that is inconsistent with another entry in the same or another statement.

• A deduction rate that is not in accordance with the provisions of the Act.

Section 200A After 1st June 2015 (Post Amendment):

The Finance Act, 2015, amended Section 200A to include sub-clause (c) and (d), thereby permitting the computation and levy of fee under Section 234E while processing TDS statements. This means that from 1st June 2015 onwards, the late filing fee became enforceable through automated demand intimations.

The amendment also clarified that the intimation of any demand under this section must be sent within one year from the end of the financial year in which the statement is filed.

Judicial Precedents Supporting Non-Imposition of Fee for Periods Before 1st June 2015

Several court rulings have held that demands under Section 234E cannot be enforced for returns filed before 1st June 2015, even if processed afterward. Some key cases include:

• Rajesh Kourani v. UOI (Gujarat HC) – Held that prior to 1st June 2015, there was no mechanism to levy a fee under Section 234E, making such charges invalid for earlier periods.

• Fatheraj Singhvi v. UOI (Karnataka HC) – Upheld that 234E is not applicable for TDS statements filed before 1st June 2015, even if processed later.

Compliance and Payment Mechanism

1. Checking Defaults – Deductors should review TRACES portal for any pending 234E late fee demands and clear dues before 31.03.2025 to avoid further complications.

2. Payment Process – The fee must be paid using challan ITNS 281 under Fee under Section 234E.

3. Avoiding Future Late Fees – Ensure timely TDS filings as per due dates:

   • Q1 (April-June) – 31st July

   • Q2 (July-September) – 31st October

   • Q3 (October-December) – 31st January

   • Q4 (January-March) – 31st May

Conclusion

The late filing fee under Section 234E is strictly applicable post 1st June 2015, and courts have ruled against retrospective imposition. With automated compliance checks and the deadline of 31.03.2025, it is crucial for deductors to ensure timely TDS return filing and clear any outstanding late fees to avoid unnecessary penalties and additional financial burden.

FINAL TDS CORRECTION DEADLINE MARCH 31, 2025 FOR FIN YEAR 2007-08 TO 2018-19

As the March 31, 2025, deadline approaches, it is imperative for taxpayers and deductors to review and rectify any pending TDS corrections. The Finance (No. 2) Act, 2024, has introduced a strict time limit for submitting correction statements under Section 200(3) and Section 206C(3B) of the Income-tax Act.

Key Deadline and Implications

• March 31, 2025, is the final date for filing TDS correction statements for financial years 2007-08 to 2018-19.

• This deadline applies to all unresolved TDS mismatches, including discrepancies due to incorrect demands, Aadhaar/PAN validation errors, inoperative PAN, and data inconsistencies in the TDS portal.

• All demand cancellations for mismatches, invalid PAN, inoperative PAN, or any other correction must be completed before this deadline.

• Post this date, no further corrections will be accepted for these years, and all future corrections will be subject to the new six-year limitation period introduced by the Finance (No. 2) Act, 2024.

• Any pending corrections left unfiled will require separate appeals for each quarter and each financial year, covering all types of TDS returns, including Form 24Q (Salary TDS), Form 26Q (Non-Salary TDS), and Form 27Q (Non-Resident TDS).

• Deductees can pressurize deductors if TDS has been deducted but is not reflecting in Form 26AS, leading to potential disputes and compliance burdens.

Action Plan for Deductors and Taxpayers

• Conduct an immediate review of past TDS filings and identify any errors requiring correction.

• Ensure all correction statements are filed before the deadline to avoid compliance risks.

• Address any Form 26AS mismatches, as unresolved issues could impact tax credits and create financial liabilities.

Clarification from CBDT: No Extensions Will Be Granted

• The Central Board of Direct Taxes (CBDT) has confirmed that the March 31, 2025, deadline is final.

• Businesses and individuals must proactively complete their TDS corrections to prevent compliance challenges.

Final Reminder: Act Now to Avoid Future Liabilities

The Finance (No. 2) Act, 2024, has set an unambiguous cut-off for TDS corrections. From April 1, 2025, corrections will only be allowed within six years from the end of the financial year in which the original statement was filed. Failing to comply before March 31, 2025, may lead to permanent tax credit losses and regulatory complications. Failure to rectify errors now will necessitate individual appeals for each period and return type, creating significant compliance burdens. Ensure all necessary corrections are made immediately to remain compliant and avoid penalties

TDS Correction Deadline & Procedure: Key Changes Under The Finance (No. 2) Act, 2024

The Finance (No. 2) Act, 2024, has introduced a landmark amendment affecting Tax Deducted at Source (TDS) correction statements. Historically, there was no restriction on how long these corrections could be made, leading to frequent and, at times, questionable revisions. The recent amendment aims to enhance transparency and curb the misuse of this facility.

Key Amendment and Its Implications

Previously, while TDS and Tax Collected at Source (TCS) returns had specific filing deadlines, there was no defined time limit for correction statements. This resulted in multiple revisions—sometimes voluntarily or in response to tax authorities’ queries—causing administrative challenges and potential tax fraud.

New Time Limit Introduced

The Finance (No. 2) Act, 2024, has amended Section 200(3) and Section 206C(3B) of the Income-tax Act, enforcing a time limit for filing TDS correction statements:

• Corrections must now be filed within six years from the end of the financial year in which the original statement was submitted.

• This amendment ensures timely and accurate TDS data correction while minimizing opportunities for manipulation.

March 31, 2025: The Final Deadline for Past Financial Years

A critical deadline has been set for historical TDS corrections:

• March 31, 2025, is the last date for filing correction statements for financial years 2007-08 to 2018-19.

• This deadline also applies to rectifying TDS mismatches due to wrong demands, Aadhaar or PAN validation issues, and other discrepancies present on the TDS portal.

Why is March 31, 2025, Important?

March 31, 2025, marks the final opportunity for taxpayers and deductors to rectify any discrepancies in TDS filings for financial years 2007-08 to 2018-19. Post this date:

• No further corrections will be allowed for these financial years.

• Taxpayers will not be able to claim or correct TDS credits related to past years, potentially leading to tax demands and penalties.

• Deductors will be unable to amend errors in TDS returns, which could result in unresolved compliance issues and disputes with tax authorities.

• Any unresolved mismatches in Form 26AS could lead to financial liabilities for both deductors and deductees.

Given the significance of this deadline, taxpayers and deductors must act swiftly to review their past TDS statements and make necessary corrections before the cutoff date.

Procedure for TDS Correction

To comply with the new deadline and ensure accurate reporting, follow these steps to file a TDS correction statement:

1. Log in to TRACES Portal:

   • Visit https://www.tdscpc.gov.in and log in using your credentials.

2. Check Form 26AS and TDS Statements:

   • Download and review Form 26AS to verify TDS credits.

   • Identify any discrepancies in the deducted and reported amounts.

3. Select the Relevant Financial Year:

   • Go to ‘Statements / Payments’ > ‘Request for Correction.’

   • Select the financial year and quarter for which correction is needed.

4. Choose Type of Correction:

   • Modify PAN details, TDS amounts, challan details, or update deductee records.

   • Ensure that correct details are entered before submitting.

5. Validate & Submit the Correction Statement:

   • Use the Digital Signature Certificate (DSC) for authentication.

   • Submit the correction statement and track the processing status.

6. Verify Updated Records:

   • Once the correction is processed, re-check Form 26AS to ensure accuracy.

   • Inform deductees about updated credits if necessary.

The Loophole: Why a Time Limit Was Needed

For years, the lack of a correction deadline led to tax credit manipulations, where deductors exploited the system:

• The deductor filed the TDS return, allowing the deductee to claim credit in their Income Tax Return (ITR).

• The deductee received an income tax refund based on this TDS credit.

• The deductor later revised the TDS statement, reallocating the credit to another deductee.

Major Consequences:

• Once the tax refund was issued, there was no automated mechanism to verify if the TDS credit still existed in Form 26AS.

• If the deductor deleted or modified the TDS entry, the tax department did not notify the deductee.

• This resulted in taxpayers unknowingly facing tax demands, interest penalties, and prolonged litigation.

Is the Six-Year Limit Enough? A Stronger Safeguard Needed

While the six-year restriction is a step toward better compliance, it does not fully eliminate the risk of last-minute modifications and fraudulent reallocations. A more robust safeguard could be:

TDS Credit Lock Mechanism:

• When submitting their ITR, the deductee should be prompted to confirm or dispute the TDS credit displayed in Form 26AS.

• Once confirmed, the credit should be locked, barring any unilateral changes by the deductor.

• If a correction is necessary, the deductor should seek deductee approval through an automated PAN-linked system.

• To ensure fairness and efficiency, manual intervention by tax officers should be eliminated.

A similar approval mechanism is already in place for Form 26QB and 26QC, where modifications related to PAN, date, or amount require prior consent before processing.

Conclusion: A Positive Step, But More Safeguards Needed

The introduction of a six-year time limit for TDS correction statements is a welcome reform that will enhance tax compliance, reduce litigation, and improve transparency. However, to completely eliminate fraudulent reallocations and disputes, the government should consider implementing additional safeguards, such as a TDS credit lock-in mechanism.

Taxpayers should remain vigilant, ensuring their TDS credits are accurately reflected in Form 26AS before filing returns. With the critical deadline of March 31, 2025, approaching, it is imperative for deductors and deductees to act swiftly to avoid compliance issues.

Changes in TDS Thresholds and Rates: A Comprehensive Overview of the Union Budget 2025

The Union Budget 2025, presented by Finance Minister Smt. Nirmala Sitharaman on February 1, 2025, brought several changes aimed at enhancing the ease of doing business and promoting better taxpayer compliance. A significant proposal in the Finance Bill 2025 is the rationalization of various TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) rates, including an increase in the threshold limits for TDS applicability under several sections. These changes are expected to ease the tax burden on taxpayers, particularly individual taxpayers, and provide relief to smaller income groups.

The following table outlines the proposed changes in TDS thresholds, which will come into effect from the assessment year 2025-26.

S. No.	Section	Nature of Income	Current Threshold	Proposed Threshold
1.	193	Interest on Securities	Nil	Rs. 10,000
		Interest payable to resident individual/HUF on any debenture issued by public company	Rs. 5,000	Rs. 10,000
2.	194	Dividend	Rs. 5,000	Rs. 10,000
3.	194A	Interest other than interest on Securities	• Rs. 50,000 for senior citizen; • Rs. 40,000 in case of others when payer is bank, cooperative society and post office. • Rs. 5,000 in other cases	• Rs. 1,00,000 for senior citizen • Rs. 50,000 in case of others when payer is bank, cooperative society and post office • Rs. 10,000 in other cases
4.	194B	Winning from Lotteries, Crossword Puzzles, gambling, betting, etc. (except online games)	Aggregate of amounts exceeding Rs. 10,000 during the financial year	Rs. 10,000 in respect of a single transaction
5.	194BB	Winnings from online games	Not Provided	Not Provided
6.	194D	Insurance Commission	Rs. 15,000	Rs. 20,000
7.	194G	Commission and other payments on sale of lottery tickets	Rs. 15,000	Rs. 20,000
8.	194H	Commission and Brokerage	Rs. 15,000	Rs. 20,000
9.	194-I	Rent	Rs. 2,40,000 during the financial year	Rs. 50,000 per month or part of a month
10.	194J	Royalty and Fees for Professional or Technical Services	Rs. 30,000	Rs. 50,000
11.	194K	Income in respect of units of mutual fund	Rs. 5,000	Rs. 10,000
12.	194LA	Compensation on account of compulsory acquisition of an immovable property (other than agriculture land)	Rs. 2,50,000	Rs. 5,00,000

Impact of the Proposed Changes:

1. Increased Threshold for TDS Applicability: Several TDS thresholds have been significantly increased, which will reduce the compliance burden for individuals and businesses. For instance, the threshold for TDS on rent has been raised to Rs. 50,000 per month (from Rs. 2,40,000 annually), benefiting both taxpayers and landlords.

2. Higher Limits for Senior Citizens: The proposed increase in the TDS exemption for senior citizens (from Rs. 50,000 to Rs. 1,00,000 for interest other than securities) is a welcome relief, particularly for retirees who depend on fixed income sources.

3. Easier Compliance for Small Taxpayers: Many small taxpayers, especially those receiving income from interest or dividends, will see relief due to the higher thresholds. This includes the increase in the threshold for interest and dividend income, which will mean fewer deductions at source for small amounts.

4. Sector-Specific Relief: The reduction in the TDS rate under Section 194LBC for securitization trusts from 25%/30% to 10% is an important move aimed at promoting growth in the well-regulated securitization sector.

5. Potential Growth for Online Gaming Sector: With the introduction of TDS applicability for winnings from online games, there will be greater regulation and transparency, potentially benefiting the growing online gaming industry.

Overall, these changes are designed to simplify the taxation process, enhance compliance, and reduce the burden on small and medium taxpayers, contributing to a more efficient and business-friendly tax environment

Comprehensive Guide to Key Income Tax Amendments Effective from 1 October 2024

The Government of India has introduced significant amendments to the Income Tax Act, 1961, which will come into effect on 1 October 2024. These changes are aimed at reducing litigation, simplifying tax compliance, and providing clarity to taxpayers. This guidance note highlights the key changes and provides a summary for quick reference.

1. Vivad Se Vishwas Scheme 2024

The Vivad Se Vishwas Scheme 2024 is reintroduced to facilitate the resolution of pending tax disputes through a simplified process, offering reduced interest and penalties for eligible taxpayers.

• Applicability: Tax disputes pending before ITAT, CIT(A), High Courts, and Supreme Court.
• Key Benefit: Settlement with reduced interest and penalties.

This scheme offers an excellent opportunity for taxpayers to settle long-standing tax disputes and avoid prolonged litigation.

2. Mandatory Aadhaar-PAN Linkage

Starting from 1 October 2024, Aadhaar Enrollment IDs will no longer be accepted for PAN-related formalities. Taxpayers must use their Aadhaar number for the following:

• Application for a new PAN.
• Filing income tax returns (ITRs).

This change enforces stricter compliance with Section 139AA of the Income Tax Act, making Aadhaar-PAN linkage mandatory for all individuals.

3. Post Office Small Savings Scheme Updates

Amendments to popular post office schemes, such as Public Provident Fund (PPF) and Sukanya Samriddhi Yojana, will be introduced. These changes include:

• Regularization of multiple PPF accounts held by a single person.
• Allowing Non-Resident Indians (NRIs) to continue investing in PPF.

These updates aim to streamline compliance and enhance the flexibility of these savings schemes.

4. Revised TDS Rates

The government has revised several TDS (Tax Deducted at Source) rates to simplify compliance and reduce tax burdens. Key revisions include:

• TDS on life insurance payouts reduced from 5% to 2%.
• TDS on rent payments by individuals or HUFs lowered from 5% to 2%.

These changes are expected to improve cash flow for taxpayers by lowering the tax deducted upfront on common transactions.

5. Omission of Section 194F – Mutual Fund Transactions

Section 194F, which required TDS on repurchase of mutual fund units, will be omitted from 1 October 2024. This is aimed at simplifying tax compliance for mutual fund investors by eliminating an additional withholding requirement.

6. Credit for TDS/TCS for Salaried Employees – Section 192(2B)

A key benefit for salaried employees will be the ability to claim TDS and TCS credits for income from sources other than salary, such as rent and interest.

• Key Impact: Employers can now factor in TDS and TCS credits for accurate salary deductions, reducing the chances of overpayment and improving cash flow for employees.

This change is expected to simplify tax deductions for salaried employees, minimizing the need for refunds.

7. Introduction of Section 194T – TDS on Payments to Partners

From 1 April 2025, partnership firms will be required to deduct TDS on payments made to partners (such as salary, interest, and commission) under Section 194T.

• TDS Rate: 10% on amounts exceeding Rs. 20,000 per financial year.

This provision improves transparency and ensures tax compliance for payments made to partners.

8. TDS on Immovable Property Sales – Section 194-IA

The government has clarified that TDS on the sale of immovable property will be calculated based on the aggregate transaction value, regardless of the number of buyers or sellers. This change aims to eliminate confusion in real estate transactions, ensuring uniformity in TDS deductions.

9. TDS on Floating Rate Savings Bonds (FRSB) 2020

Effective from 1 October 2024, TDS will apply to interest exceeding Rs. 10,000 earned on Floating Rate Savings Bonds (FRSB) 2020. This aligns the TDS treatment of FRSBs with other fixed-income securities, ensuring uniform tax withholding.

10. Rationalization of Penalties and Refund Procedures

The new rules under the Finance Act (No. 2), 2024, will streamline the penalty and refund processes, providing clear timelines for imposing penalties and a simplified process for issuing refunds.

• Penalty timelines: Defined timelines for imposing penalties.
• Refund process: More efficient refund mechanisms for taxpayers.

These changes are aimed at reducing disputes and ensuring timely refunds.

11. Securities Transaction Tax (STT) on Derivatives

The Securities Transaction Tax (STT) rates on Futures & Options (derivatives trades) will be revised:

• STT on Sale of Options: Increased from 0.0625% to 0.1%.
• STT on Sale of Futures: Increased from 0.0125% to 0.02%.

This change is expected to generate additional revenue and provide more regulation for the derivatives market.

At a Glance – Summary of Key Changes

Amendment/Provision	Previous Requirement	Revised Requirement	Effective Date
Vivad Se Vishwas Scheme 2024	N/A	Settlement scheme for tax disputes	1 October 2024
Aadhaar-PAN Linkage	Aadhaar Enrollment ID allowed	Aadhaar number mandatory for PAN/ITRs	1 October 2024
TDS on Life Insurance Payouts (Section 194DA)	5%	2%	1 October 2024
TDS on Rent Payments (Section 194-IB)	5%	2%	1 October 2024
Omission of Section 194F (Mutual Funds)	TDS on Mutual Fund repurchase	No TDS	1 October 2024
Credit for TDS/TCS for Salaried Employees	TDS/TCS credits not fully considered	TDS/TCS credits fully included	1 October 2024
TDS on Payments to Partners (Section 194T)	N/A	10% TDS on amounts > Rs. 20,000	1 April 2025
TDS on Immovable Property Sales (Section 194-IA)	Buyer-specific deduction	Aggregate deduction	1 October 2024
TDS on Floating Rate Savings Bonds	No TDS	TDS on interest > Rs. 10,000	1 October 2024
STT on Sale of Options	0.0625%	0.1%	1 October 2024
STT on Sale of Futures	0.0125%	0.02%	1 October 2024

Conclusion

The amendments effective from 1 October 2024 introduce several compliance and procedural changes. Taxpayers, especially salaried employees, mutual fund investors, real estate participants, and partners in firms, should carefully review these changes to ensure compliance and take advantage of available benefits. These updates aim to reduce litigation, simplify tax procedures, and streamline refund and penalty processes.

Compliance Guide: Sections 206AB & 206CCA and Vendor Declaration Draft

In the realm of Indian tax legislation, Sections 206AB and 206CCA of the Income Tax Act have been pivotal in reshaping compliance norms, particularly concerning Tax Deduction at Source (TDS) and Tax Collection at Source (TCS). These sections were introduced to reinforce tax discipline by imposing higher rates of TDS/TCS on specified persons who have not met their income tax return filing obligations. Understanding these provisions is crucial for businesses and individuals alike to ensure adherence and avoid penalties.

Understanding Sections 206AB & 206CCA

Section 206AB: Tax Deduction at Source (TDS)

Section 206AB mandates higher TDS rates for "specified persons" who have not filed their income tax returns for the immediately preceding two financial years, and where the aggregate TDS deducted in each of these years is ₹50,000 or more. The rates under this section are prescribed as:

• Twice the rate specified in the relevant provision of the Act, or
• Twice the rate or rates in force, or
• Five percent.

Section 206CCA: Tax Collection at Source (TCS)

Similarly, Section 206CCA imposes elevated TCS rates on specified persons who have not furnished their PAN or Aadhaar to the collector of TCS. The rates are set as:

• Twice the rate specified in the relevant provision of the Act, or
• Five percent.

Recent Amendments and Exemptions

The Union Budget 2023 brought about significant amendments to the definition of "specified person" under Sections 206AB and 206CCA. This revision exempts non-residents without a permanent establishment in India and individuals not obligated to file income tax returns for the relevant assessment year from these higher tax rates. This adjustment aims to streamline compliance requirements and alleviate burdens on certain categories of taxpayers. 

Conclusion

Understanding the nuances of Sections 206AB and 206CCA is imperative for businesses to navigate tax obligations effectively. By ensuring compliance and utilizing the provided declaration, vendors and payees can mitigate risks and uphold seamless business operations. Stay informed, stay compliant, and embrace these tax provisions to foster financial prudence and regulatory adherence

Draft Declaration for Compliance

To facilitate compliance with Sections 206AB and 206CCA, vendors and payees can use the following declaration template:

---

Draft Declaration

On the Letterhead of the Vendor

Undertaking pursuant to Section 206AB and Section 206CCA

To
[Name of the Company]
[Date]
[Place]

Re: Declaration Confirming Filing of Income Tax Return for Immediately Preceding Two Years

I, [Name of the person signing declaration], in the capacity of [Self/Proprietor/Partner/Director] of [Vendor Name], having registered office address at [Address] and PAN [PAN Number], do hereby declare that I/we have filed our Income Tax Returns for the immediately preceding two financial years as detailed hereunder:

S.No	Financial Year	Due Date of filing return of income u/s 139(1) of the Act	Date of filing return of income	Acknowledgement Number
1	2021-22	[Date]	[Date]	[Acknowledgement Number]
2	2022-23	[Date]	[Date]	[Acknowledgement Number]

I/We further state that the above information is true and correct. If any liability arises on your business under Section 206AB/206CCA of the Act in respect of tax to be deducted/collected on account of any of the information mentioned hereinabove being incorrect, we hereby indemnify to reimburse the same.

Yours faithfully,

For [Vendor Name]

[Name of person signing]
[Designation]

Understanding the Impact of Inoperative PAN on TDS Deductions and Compliance

Navigating the intricacies of the Indian Income Tax Act is essential for ensuring compliance and optimizing tax liabilities. One critical aspect is the operability of your Permanent Account Number (PAN). Failure to maintain an operative PAN can lead to higher tax deductions at source (TDS) and potential complications. This guide explores the implications of an inoperative PAN, the relevant legal provisions, and provides illustrative examples to help taxpayers understand and manage their obligations effectively.

1. Inoperative PAN and Taxable Salary between 0-250,000/-

Law (Section 206AA, Income Tax Act, 1961): As per Section 206AA, if a taxpayer fails to furnish their PAN to the deductor, TDS shall be deducted at a higher rate of 20% or the rate specified under the Act, whichever is higher.

• Example 1:

  • Scenario: Rahul, with a taxable salary of Rs. 2,00,000/-, did not furnish his PAN to his employer.
  • Outcome: Since his income is below the taxable threshold of Rs. 2,50,000/-, no TDS was deducted. However, if his income had exceeded Rs. 2,50,000/- and he had not provided PAN, TDS would have been deducted at the higher rate of 20%.

• Example 2:

  • Scenario: Priya, with a taxable salary of Rs. 1,80,000/-, did not provide her PAN details to her employer.
  • Outcome: Despite her income being below the taxable limit, she should ideally provide her PAN to avoid any future compliance issues.

Explanation: Compliance with PAN provision is essential to avoid higher TDS rates and ensure accurate tax deductions under Section 206AA.

2. Inoperative PAN and Taxable Salary between 250,000-500,000/-

Law (Section 87A, Income Tax Act, 1961): Individuals with taxable income between Rs. 250,000 to Rs. 500,000 are liable to TDS as per applicable slab rates and may claim a rebate under Section 87A, up to Rs. 12,500, if eligible.

• Example 1:

  • Scenario: Deepak, with a taxable income of Rs. 3,50,000/-, did not update his PAN details with his employer.
  • Outcome: TDS was deducted as per prescribed rates. However, since he is eligible under Section 87A, he can claim a rebate of Rs. 12,500 to reduce his overall tax liability.

• Example 2:

  • Scenario: Swati, earning Rs. 4,80,000/- annually, neglected to provide her PAN to her employer.
  • Outcome: TDS was deducted according to applicable rates. Swati can still claim a rebate under Section 87A, if eligible, reducing her tax liability.

Explanation: Section 87A offers relief to taxpayers within specified income limits, encouraging compliance and reducing tax burden.

3. Possibility of PAN Becoming Inoperative Again After Showing as Operative

Law (General Compliance): Once PAN is updated as operative on the reporting portal, it should remain operative unless discrepancies or non-compliance issues arise.

• Example:
  • Scenario: Rohan rectified discrepancies in his PAN details and updated it as operative on 1st April 2023.
  • Outcome: His PAN should remain valid unless further issues arise, such as incorrect information or non-compliance notices from tax authorities.

Explanation: Timely and accurate reporting ensures PAN remains operative, crucial for tax compliance and financial transactions.

4. Linking PAN by an Employee and Its Applicability

Law (General Practice): Linking PAN by an employee applies prospectively from the date of linkage for tax-related transactions.

• Example 1:

  • Scenario: Meera linked her PAN to her bank account on 15th July 2023.
  • Outcome: All subsequent financial transactions and tax filings accurately reflect her updated PAN details.

• Example 2:

  • Scenario: Ajay updated his PAN details with his employer on 1st January 2024.
  • Outcome: Henceforth, all salary payments and associated tax deductions are processed using his updated PAN information.

Explanation: Prompt linkage of PAN ensures accurate tax filings and compliance with regulatory requirements from the specified date.

5. Additional Advice

• Regular Compliance and Updates: Maintain updated PAN details to prevent disruptions in tax compliance and higher TDS rates.
• Utilization of Rebates and Deductions: Maximize tax benefits by claiming applicable rebates and deductions under the Income Tax Act, such as Section 87A.
• Consultation with Tax Professionals: Seek guidance from qualified tax advisors or professionals to navigate complex tax scenarios effectively and ensure adherence to legal provisions.

 Understanding and adhering to PAN-related provisions under the Income Tax Act is crucial for accurate tax management and minimizing liabilities. The provided examples illustrate how compliance or non-compliance impacts TDS deductions, rebates, and the operational status of PAN, emphasizing the importance of timely compliance and proactive tax planning.

New CBDT Guidelines: Simplifying TDS/TCS Compliance for Inoperative PANs

The Central Board of Direct Taxes (CBDT) has recently revised its guidelines regarding inoperative PANs affecting TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) compliance. This revision is detailed in Circular No. 6/2024 dated 23.04.2024, addressing the challenges faced by taxpayers due to inoperative PANs.

Key Modifications in the New Circular

1. Transactions Deadline and PAN Reactivation: For transactions conducted up to March 31, 2024, and where a PAN becomes operative (by linking to Aadhaar) on or before May 31, 2024, the higher tax rates under sections 206AA/206CC will not be applied. This adjustment provides relief from higher TDS/TCS rates for inoperative PANs during this period.

2. Standard TDS/TCS Rates: For affected transactions, the standard TDS/TCS rates under Chapter XVII-B or XVII-BB of the Income Tax Act will apply, rather than the elevated rates previously triggered by inoperative PANs.

Compliance Guidance

Taxpayers and professionals handling TDS/TCS should update their practices according to these new guidelines to ensure compliance. Detailed information can be accessed through the full circular available here: Circular No. 6/2024.

This modification is expected to streamline the compliance process for TDS/TCS, reducing complications associated with inoperative PANs and ensuring more straightforward tax administration.