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Higher TDS / TCS rates for not filing of IT Returns | Sections 206AB & 206CCA
To bring more people and entities under the tax net, the Finance Bill 2021 has proposed for insertion of 2 new sections under Income Tax Act, 1961. Section 206AB and 206CCA are effective from 01st Jul 2021
1. What is Section 206 AB and 206 CCA?
Section 206 AB (TDS) : The Tax needs to be deducted on any amounts (income or sum) paid or payable by a person (Payer or Deductor) to a specified person (Payee or Deductee)
Section 206 CCA (TCS) : The Tax needs to be collected at Source (TCS) on any amounts (income or sum) received by a person from a specified person.
Note: The above sections will be attracted only if the tax is deductible under TDS provisions2. Who are Specified Persons?
The following are the specified persons to whom the TDS needs to be deducted or TCS to be collected.
- Persons who have not filed Income Tax Returns for 2 Financial Years (previous years) immediately before the financial year (previous year) in which tax is required to be deducted and for which the time limit for filing the return of income under section 139(1) has expired AND
- The aggregate tax deducted at source (TDS) or tax collected at source (TCS), is Rs. 50,000 or more in each of the 2 financial (Previous) years.
EXCEPTION: Specified Person does not include non-residents who does not have a permanent establishment in India.
Note: As these sections are effective from 01st Jul 2021, the deductor or collector are under obligation to check the return filing status of specified person for AY 2019-20 and AY 2020-21 for the payments upto 31st Mar 2022. For Payments after 31st Mar 2022, AY 2020-21 and AY 2021-22 returns status needs to be verified
New Income Tax Portal is expected to facilitate PAN number search to identify whether a supplier / entity has filed their ITR during past two years.
3. Non-applicability of Section 206AB and Section 206CCA
Section 206AB and 206CCA does not apply to the following payments
- Salary - Section 192
- TDS on premature withdrawal of EPF - Section 192A
- TDS on Lottery - Section 194B
- TDS on Horse Races - Section 194BB
- TDS on income in respect of investment in securitization trust - Section 194LBC
- TDS on Cash withdrawal in excess of Rs 1 Crore - Section 194N
4. What are the Rates of Tax Deduction u/s 206AB and 206CC?
The rates of tax deduction in such cases shall be higher of the following rates -
- at twice the rate specified in the relevant provision of the Act; or
- at the rate of 5 percent
Example:
Krishna Pvt Ltd is paying a rent of Rs. 3,60,000 per annum to Mr Arjun for the current financial year. The TDS rate u/s 194I is 10% on Rs. 3,60,000 i.e., Rs. 36,000
Mr Arjun did not file the Income Tax returns for AY 2019-20 and AY 2020-21. Krishna Pvt Ltd should deduct the TDS at following rates whichever is higher
- at twice the rate specified in the relevant provision of the Act i.e., 2*10% - 20%
- 5%
In this case, Krishna Pvt Ltd should deduct TDS @ 20% on payments made to Arjun
Note: if PAN is not furnished by Arjun, TDS needs to be deducted @ 20% or twice of rate mentioned in Section u/s 206AA