Income Tax - Higher Rate of TDS/TCS for non-filer deductees of income-tax return U/s 206AB(TDS)/ 206CCA(TCS)

 

W.e.f. July 01, 2021, Deductors/ collectors of TDS/TCS are burdened with additional task of collecting ITR filing status related data of deductee/collectee in addition to obtaining Permanent Account Number (PAN).  They are required to give special attention while making TDS deductions or collecting TCS as two new provions namely section 206AB and 206CCA has been inserted in Income-tax Act, 1961. 

Deductors/ collectors of TDS/TCS need to get confirmation from deductee or collectee about followings:

- their ITR filing status for last two financial years ( ITR acknowledgement Number), 

- date of filing of their ITR ( it should be on or before ITR filing date for that year) and 

- that amount of their total TDS in each of those two financial years should equal to or less than Rs. 50000.

 

TDS at Higher Rate for non-filers of Return [ Section 206AB]

The Finance Act, 2021 has inserted a new section 206AB for deduction of tax at higher rate if deductee failed to furnish return for previous two financial years.

This provision shall apply and the tax shall be deductible at the higher rates prescribed under this provision if all the following conditions are satisfied:

-        Deductee has not filed the return of income for 2 assessment years relevant to the previous years immediately prior to the previous year in which tax is required to be deducted;

-        The due date to file such return of income, as prescribed under Section 139(1), has expired; and

-        The aggregate amount of tax deducted and collected at source is Rs. 50,000 or more in each of these 2 previous years.

The tax shall be deducted at the higher of the following rates:

a) Twice the rate specified in the relevant provision of the Act;

b) Twice the rate or rates in force; or

c) 5%.

 

ü  The provisions of section 206AB doesn’t apply to a non-resident who does not have a PE in India.

ü  If both the provisions of section 206AA and section 206AB are applicable, that is, deductee has neither furnished his PAN to the deductor nor has he furnished his return of income for the specified periods, the tax shall be deducted at the rates provided in section 206AA or section 206AB, whichever is higher.

ü  Tax is required to be deducted at higher rates under section 206AB in respect of every sum or income or amount from which tax is deductible under any provision of Chapter XVII-B However provisions of section 206AB is not applicable in following cases:

(a) Section 192: TDS on Salary;

(b) Section 192A: TDS on withdrawal from EPF;

(c) Section 194B: TDS on winning from lotteries, crossword puzzles, etc.

(d) Section 194BB: TDS on winning from racehorses;

(e) Section 194LBC: TDS on income in respect of investment in Securitization Trust;

(f) Section 194N: TDS on cash withdrawal.

 

Comparison between Section 206AA and Section 206AB

 

Particulars	Section 206AA	Section 206AB
Applicability	When a deductee fails to furnish his PAN	When a deductee fails to furnish a return for the specified period and the aggregate amount of tax deducted or collected during such specified period exceeds the specified limit
Rate for deduction	Higher of: - Rate specified in the relevant provision;      - Rate or rates in force; or       - 20%.	Higher of: - Twice of rate specified in  relevant provision;  - Twice the rate or rates in force; - 5%.
Exception	In respect of the following income received by a non-resident (or a foreign company): (a) Interest on bonds referred under Section 194LC; (b) Specified payments as referred under Rule 37BC; and (c) Income in respect of investment in Category I or Category II AIFs as referred under Rule 114AAB.	In respect of sum/income on which tax is required to be deducted under any of the following provision: (a) Section 192 (b) Section 192A (c) Section 194B (d) Section 194BB (e) Section 194LBC (f) Section 194N Further, this provision does not apply if the non-resident is not having any PE in India
Special tax rates	5% tax rate to apply if the tax is deductible under Section 194-O and Section 194Q. If tax is deductible under Section 192A, the rate of TDS shall be the maximum marginal rate.	-

Provisions are related to Tax Collected at Source (TCS) at higher rate for non-filer collectees of tax return (SECTION 206CCA)

A similar Section 206CCA has been inserted to require the collector to collect the tax at a higher rate if the return is not filed by the collectee for the two previous years within the due dates for filing of tax returns. Thus, where tax is required to be collected under this provision on any sum (or amount), the tax shall be collected at the higher of following rates:

(a) Twice the rate specified in the relevant provision of the Act; or

(b) 5%.

However, where both the provision of this section and Section 206CC are applicable, the tax shall be collected at rates provided in this section or in section 206CC, whichever is higher.

Comparison between Section 206CC and Section 206CCA

Particulars	Section 206CC	Section 206CCA
Applicability	When collectee fails to furnish his PAN	When collectee fails to furnish the return of income for the specified period and the aggregate amount of tax deducted or collected during such specified period exceeds the specified limit
Rate for deduction	Higher of:     -    Twice the rate specified in Section 206C;      -   5%.	Higher of:          -Twice the rate specified in section 206C          -5%
Exception	If the non-resident does not have a PE in India	If the non-resident does not have a PE in India
Special tax rates	The tax shall be collected at the rate of 1% if tax is collectable under Section 206C(1H).	-

 Format for obtaining declarations from vendors can be obtaining by clicking on below link:

https://1drv.ms/w/s!Aj6O0jDpul3Qh8tGkhLwmOBrk2GocQ?e=KlasF8

in case of any query, please let us know at knaca.in@gmail.com 

Comparision Between 194Q and 206C(1H) of Income Tax Act, 1961

Provisions related to TCS under section 206C(1H) was inserted by Finance Act 2020 which is applicable w.e.f. October 01, 2020 to collect tax on receipt of consideration on sale of goods. Whereas provisions related to TDS under section 194Q has been inserted by Finance Act, 2021 which is applicable w.e.f. July 01, 2021. Both the provisions are mirror of each other and deals in sale/purchase of a transaction. Where TDS provision under section 194Q will be applicable, TCS provisions under section 206(1H) shall not apply.

 

Provisions of both section 194Q and Section 206C(1H) are summarized in below table:

PARTICULARS	SECTION 194Q	SECTION 206C(1H)
Provisions are applicable from	1st July, 2021	1st October, 2020
Nature	Tax to be deducted on payment being made (TDS)	Tax to be collected on receipt of consideration (TCS)
Who will deduct or collect tax	Buyer/Purchaser will deduct TDS from seller	Seller will collect TCS from Buyer
When this provision will be applicable?	Turnover/ Gross Receipt/ Sales from the business of BUYER should exceed Rs 10 crore during the year (FY 20-21)	Turnover/ Gross Receipt/ Sales from the business of SELLER should exceed Rs 10 crore during the year (FY 19-20)
Timing of tax deduction	Payment or credit whichever is earlier	At the time of receipt of consideration
When this provision is not applicable?	1)    Transactions on which TDS is applicable under other provisions of the act   2)    Transactions on which TCS is applicable under 206C other than 206C(1H)	where TDS has been deducted u/s 194Q this section will not apply
When to deposit/collect	Tax so deducted shall be deposited with government by 7th day of subsequent month	Tax so deducted shall be deposited with government by 7th day of subsequent month
Rate of TDS/TCS	0.1 %     (if PAN is available) 5.0 %     (If PAN not available)   on amount exceeding Rs 50 Lakhs	0.1 % (if PAN is available) 1.0 % (If PAN not available)   On amount exceeding Rs 50 Lakhs
What are excluded from applicability of this provision	If notified by Government,   Not Yet Notified	If buyer is – Importer of goods Center/State Govt., Local Authority An embassy, High Commission, consulate and trade representation of a foreign state
Whether TAN is required to obtain	YES	YES

 

Section 206C(1H)- TCS ON RECEIPT OF CONSIDERATION FOR SALE OF GOODS

 

COLLECTION OF TAX (TCS) ON RECEIPT OF CONSIDERATION FOR SALE OF GOODS

[ Section 206C(1H) of Income Tax Act, 1961]

The Finance Act, 2020, amended the section 206C of Income Tax Act, 1961 to insert sub section (1H) for collection of tax by seller at the time of payment to buyer of the purchase of goods provided certain conditions are satisfied. This provision is applicable w.e.f. October 1, 2020.

Who is liable to Collect Tax (TCS) under Section 206C(1H)?

(Total Sale or Gross receipts or turnover) of Seller > Rs. 10 crores in financial year Immediately preceding the financial year in which sale of goods were carried out.

For example: if seller of goods is having turnover more than 10 crores in financial year 2020-2021, he shall be liable to collect TCS from buyer on receipt of consideration on sale of goods in financial year 2021-2022.

When TCS under Section 206C(1H) should be collected?

W.e.f. October 1, 2020, provisions of Section 206C(1H) is applicable.

 

TCS is required to be collected by seller

-        at the time of receipt of consideration

-        for sale of goods of value or aggregate of value

-        in excess of Rs. 50 Lakhs in a financial year

-        from buyer of such goods

 

What is excluded from Rs. 50 Lakhs?

For the purpose of section 260C(1H), following are excluded:

1)     any amount received as consideration against sale of any goods being exported out of India

2)     consideration on sale of following items which are mentioned in Section 206(1)

(i)	Alcoholic Liquor for human consumption
(ii)	Tendu leaves
(iii)	Timber obtained under a forest lease
(iv)	Timber obtained by any mode other than under a forest lease
(v)	Any other forest produce not being timber or tendu leaves
(vi)	Scrap
(vii)	Minerals, being coal or lignite or iron ore

 

3)     consideration for sale of a motor vehicle

4)     Receipts by Authorised Dealer of amount for remittance out of India or seller of an overseas tour program package

 

** However, for financial year 2020-2021, for the purpose of calculation of threshold limit of Rs 50 Lakhs receipts of consideration on sale of goods,  receipts on sale has to be considered from April 01, 2020 though TCS u/s 206C(1H) is applicable w.e.f. October 1, 2020.

 

Who is Buyer under Section 206C(1H)?

 

Buyer means a person who purchases any goods, but it does not include,—

a)        the Central Government, a State Government, an embassy, a High Commission, legation, commission, consulate and the trade representation of a foreign State; or

b)        a local authority; or

c)        a person importing goods into India or any other notified person;

What is rate of TCS?

Particulars	Rate of TCS
Where PAN or Aadhar is furnished by Buyer	0.1%
Otherwise (Where PAN or Aadhar is not furnished by Buyer)	1.0%

 

When TCS is required to be deposited in Government Account?

TCS under this section shall be deposited with government by 7th day of subsequent month.

Due Date for Filing of TCS Returns

Quarter	Due Date for filing TCS return in Form 27EQ
April to June	15th July
July to September	15th October
October to December	15th January
January to March	15th May

Penalty for Delay in Filing of TCS Return beyond Due Date

Delay in filing of TCS return beyond due date shall attract Rs. 200 per day late fee.

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