Higher Rate of TDS/TDS in case of non-return filers

20 March 2021

Higher Rate of TDS/TCS in case of non-return filers

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The Finance Bill 2021 has proposed new Section 206AB and Section 206CCA under Income Tax Act, 1961 with effect from 01st July 2021, which provides for the higher rate of TDS and TCS respectively for the deductee who do not file their Income Tax Returns for both of the assessment years relevant to the two previous years which are immediately before the previous year in which tax is required to be deducted or collected.

Section 206AA of the Income Tax Act, 1961 provides for the higher rate of TDS for non-furnishing of PAN as well as section 206CC of the Income Tax Act, 1961 provides for the higher rate of TCS for non-furnishing of PAN.

The Central Government at the time of presentation of Budget 2021 has proposed to insert new section 206AB and section 206CCA in the Income Tax Act, 1961 as a special provision providing for a higher rate for TDS and TCS for the non-filers of the income tax return.

Proposed section 206AB of the Act would apply on any sum or income or the amount paid or payable or credited, by a person (herein referred to as deductor) to a specified person. The proposed TDS rate in this section is higher of the followings rates:-

• twice the rate specified in the relevant provision of the Act; or

• twice the rate or rates in force; or

• the rate of five percent

However, this section shall not apply where the tax is required to be deducted under sections 192 (TDS on Salary), 192A (TDS on Premature withdrawal of EPF), 194B (TDS on winnings from the lottery), 194BB (TDS on winnings from horse races), 194LBC (TDS by securitization trust) or 194N (TDS on cash withdrawal) of the Act.

If the provision of section 206AA of the Act is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA of the Act.

Proposed section 206CCA of the Act would apply to any sum or amount received by a person from a specified person. The proposed TCS rate in this section is higher of the following rates:-

• twice the rate specified in the relevant provision of the Act; or

• the rate of five percent

If the provision of section 206CC of the Act is applicable to a specified person, in addition to the provision of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC of the Act.

The specified person is a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years which are immediately before the previous year in which tax is required to be deducted or collected, as the case may be. Further, the time limit for filing income tax returns under sub-section (1) of section 139 of the Act has expired for both these assessment years. There is another condition that aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years. The specified person shall not include a non-resident who does not have a permanent establishment in India.

A consequential amendment is also proposed in sub-section (4) of section 194-IB of the Act.

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