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).	-

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