Higher rate of withholding tax for non-filers of income-tax returns – Section 206AB
Section 206AA of the IT Act provides for higher rate of tax withholding for non-furnishing of PAN. In order to further increase the compliance of filing return of income by persons who have borne a reasonable amount of withholding taxes, the Finance Bill proposed to introduce section 206AB to the IT Act.
This section provides for higher rate for tax withholding for the non-filers of income-tax return. Section 206AB to the IT Act would apply on any sum or income or amount paid, or payable or credited, by a person to a ‘specified person’ where tax is required to be withheld under the provisions of Chapter XVII-B of the IT Act. However, the proposed section shall not apply where the tax is required to be deducted under sections 192(Salary), 192A(withdrawals of the provident fund), 194B (winnings from any lottery or crossword puzzle), 194BB(winning from Horse Race), 194LBC (Investment in Securitisation Trust) or 194N (cash withdrawal >20 lakhs) of the IT Act.
The proposed withholding tax rate would be higher of the followings rates:
1. twice the rate specified in the relevant provision of the IT Act; or
2. twice the rate or rates in force; or
3. 5%
If the provision of section 206AA (i.e. non availability of PAN) of the IT Act is also applicable to a ‘specified person’, in addition to the provision of proposed section 206AB to the IT Act, the tax shall be deducted at higher of the following:
1. rates provided in proposed section 206AB to the IT Act; or
2. rates provided in section 206AA of the IT Act
Higher rate of TCS for non-filers of income tax returns – Section 206CCA
As per section 206CC of the IT Act, higher rate of TCS for non-furnishing of PAN. The Finance Bill has proposed to insert section 206CCA to the IT Act as a special provision for providing for higher rate of TCS for non-filers of income-tax return. The proposed section 206CCA to the IT Act would apply on any sum or amount received by a person from a ‘specified person’.
The proposed TCS rate under this section is higher of the following rates:
1. twice the rate specified in the relevant provision of the IT Act; or
2. 5%.
If the provision of section 206CC of the IT Act is applicable to a ‘specified person’, in addition to the provision of the proposed section 206CCA to the IT Act, the tax shall be collected at higher of the following:
1. rates provided under proposed section 206CCA to the IT Act; or
2. rates provided under section 206CC of the IT Act.
Notes:
1. These amendments shall be made effective from 1 July 2021.
2. The ‘specified person’ is defined to mean a person who has not filed the return of income for the two fiscal years which are immediately before the fiscal year in which tax is required to be deducted and the time limit for filing tax return under section 139(1) of the IT Act has expired for both these fiscal years. A non-resident who does not have a PE in India is excluded from the scope of ‘specified person’.
3. The other condition is that the aggregate amount of tax withholding and tax collected at source is INR 50,000 or more in each of these two fiscal years.
4. The new provision is applicable to the nature of payments such as interest, contract, professional services, rent, etc. However, this provision will not be applicable for such types of transactions where the full amount of tax is required to be deducted. Hence, the list of transactions that are excluded are given below:
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- Salary
- Premature withdrawal of employees provident fund
- Winnings from any lottery or crossword puzzles or card games
- Winnings from any horse races
- Income from investment in securitisation trust
- TDS on cash withdrawal
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