Special provision for deduction of tax at source for non-filers of income-tax return
Section 206AB For TDS
Section 206CCA For TCS
Effective Date: 01st July 2021
Effective Assessment Year: 2022-23
Introduction
- The Finance Budget was presented on 1st Feb, 2021 by our Hon’ble Finance Minister.
- Several amendments in various sections of the Income-tax legislations were proposed.
- Out of all the above proposals, one amendment which caught special attention was the introduction of TDS/TCS at higher rates in case of non-filers of Income-tax returns
What is Sec 206AB?
- Where tax is required to be deducted on any sum or income or amount paid under Chapter VIIB except as specified by a person to a specified person, TDS shall be deducted at higher of (i) at twice the rate in relevant provisions (ii) at twice the rate in force (iii) at 5%
- Applicable for payments made or sums or income on or after 1st Jul, 2021(previous year 2021-22)
- Relevant two previous year shall be 2019-20 and 2020-21
Applicability of section 206AB on various sections under Chapter XVIIB
Sections excluded under Chapter XVIIB:
- 192- TDS on Salary
- 192A- TDS on payment of accumulated balance due to an employee
- 194B- TDS on winnings from lottery or crossword puzzle
- 194BB- TDS on winnings from horse race
- 194LBC- TDS on income in respect of investment in securitization trust
- 194N- TDS on payment of certain amounts in cash
Sections included under Chapter XVIIB:
- All other sections which are specifically excluded
Definition of Specified Person
- not filed the returns of income for both of the two assessment years immediately prior to the previous year in which tax is required to be deducted, and
- time limit of filing return of income u/s 139(1) has expired; and
- aggregate of tax deducted & collected at source is rupees >=50,000 in each of these two previous years
Note: In order to calculate the applicability for TDS/TCS>=50,000 u/s 206AB/206CCA, both TDS and TCS credits should be aggregated. This is a drafting error in the opinion of author as TCS is governed and regulated u/s 206CCA read with 206C. One cannot deduct TDS on amounts/incomes/sums on which TCS is applicable.
Double Taxation
- To increase the taxpayer base in the country, the non-filers are now obligated to file income-tax return.
- Further, the same income would be taxed at two different points of time:
(i) at the time of payment or credit
(ii) at the time of determination of non-compliance
Higher TDS
- at twice the rate specified in the relevant provision of the Act; or
- at twice the rate or rates in force; or
- at the rate of five per cent.
Calculation of TDS rate u/s 206AB
| TDS u/s 194J(Fee for Professional Services) | TDS u/s 206AB |
| (i) 10% | (i) 2*10%=20% |
| (ii) 10% | (ii) 2*10%=20% |
| (iii) 5% | (iii) 5% |
| Higher of above calculated u/s 206AB=20% | |
Manner of Applicability
Questions Unanswered: Practical Difficulty
It is not clear when to deduct taxes. Whether it is immediately after expiry of time limit u/s 139(1). If not deducted timely whether the same would be liable for interest on delay in deduction or deposit.
Questions Unanswered :Practical Difficulty
How would the deductor know whether deductee has furnished the return of income for the relevant two previous years?
Questions Unanswered :Practical Difficulty
In which assessment year relevant to previous year and how the credit of taxes would be given along with reporting of income for taxation purposes?
Questions Unanswered :Practical Difficulty
This would pose additional compliance burden of deducting and depositing taxes and furnishing of TDS returns in 26Q, 27EQ and 27Q including issuing of TDS Certificates in Form 16A
Questions Unanswered :Practical Difficulty
What will happen to a case if tax is deducted u/s 194-IA Payment on transfer of certain immovable property other than agricultural land and seller is specified person within the meaning of 206AB?
Questions Unanswered :Practical Difficulty
- The deductor has to wait till the time limit u/s 139(1) has been expired and whether the taxpayer has filed return of income or not
- The deductor has to wait for each of the two assessment years to ascertain the applicability
Author Bio
Many unanswered questions:
1. Additional burden on the deductor for maintaining the copies of income tax returns for all its deductees to prove the TDS is properly deducted in TDS assessment.
2. What if the deductee has below threshold income and he is not required to file the return
3. If the transaction takes place before the due date of filing the return of income, will the deductor required to deduct TDS u/s 206AB. In such case, if the deductee does not file the return of income afterwards, how will the deductor track it? Especially if it is a one- off transaction, is it the responsibility of the deductor to go back to deductee and ask for copy of income tax return ?
4. How is the limit of Rs. 50000 interpreted? If it is a new deductee, this limit of Rs. 50000 will not apply then in such case, whether Section 206AB will not apply in such transaction?
One simple amendment will clear all complications as to Filers, 3 Year Filers, Non-Filers etc.Suggested amendment :
“ALL CITIZENS IRRESPECTIVE OF THEIR INCOME SHALL FILE APPROPRIATE ITR AS PER RULES THEREFOR. FAILURE TO DO SO SHALL BE PUNISHABLE WITH 50,00O/-FINE OR A MINIMUM OF 1 YEAR RIGOUROS IMPRISONMENT OR BOTH. NO APPEAL SHALL LIE WITH ANY AUTHORITY