The tax authorities have introduced a structured compliance framework for cases where tax is not deducted at source, enhancing transparency and reporting standards.

Key Update by CBDT

The Central Board of Direct Taxes (CBDT) has prescribed a new procedure for furnishing Form 121 and generating a Unique Identification Number (UIN) in cases where no TDS is deducted.

This will be applicable from April 2026 onwards.

Key Compliance Requirements

• Verification of Declaration
  Payers must carefully verify Form 121 submitted by the payee

• UIN Generation
  A 26-character UIN must be generated for each valid declaration

• Quarterly Reporting
  Details must be reported in Part B of TDS returns on a quarterly basis

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• Mandatory Reporting
  Reporting is required even if no tax is deducted, ensuring full disclosure

Legal Framework

This update is aligned with:

• Relevant provisions of the Income-tax Act, 1961 governing TDS compliance

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• CBDT procedural guidelines and reporting requirements

• Broader compliance framework under TDS return filing provisions

Practical Implications

• Increased Compliance Responsibility for deductors

• Improved Traceability of non-TDS transactions

• Need for Robust Systems to track and report UINs accurately

Conclusion

This move strengthens reporting discipline and reduces the risk of misuse of non-deduction provisions. Businesses should update their processes to ensure timely and accurate compliance.

For expert guidance on this topic, contact your tax professional today.