Effective from July 1, 2021, higher TDS/TCS rates apply if the deductee hasn’t filed their ITR. Check for compliance and use the CBDT’s reporting portal for verification.
Very Important : To Check whether Higher TDS Deducted/ TCS Collected During FY 2022-23 where Deductee Didn’t File his ITR [Ref Sec 206AB and 206CCA of Income Tax Act effective from 1st July 2021]
1. We’d like to invite your attention to our trailing email, informing you of an important change brought by the Finance Act 2021 : Insertion of 2new sections 206AB and 206CCA, w.e.f. 1st July 2021 under Income Tax Act, 1961 for deducting TDS/ collecting TCS at higher rate(s), in case of deductee/ collectee NOT- FILING Income Tax Return (ITR) for specified period.
These provisions shall apply and the TDS/ TCS shall be deductible/ collectible at higher rates prescribed under these newly inserted sections if the following conditions are satisfied:
i) The Deductee/ Collectee has not filed the return of income tax for 2 assessment years relevant to the financial years immediately prior to the financial year in which tax is required to be deducted/ collected;
ii) The due date to file such return of income, as prescribed under Section 139(1), has expired; and
iii) The aggregate amount of TDS and TCS of deductee/ collectee is Rs. 50,000 or more in each of these 2 financial years.
in which case, the deductee/ collectee qualifies as “specified person” in terms of these regulations.
The higher rates in such cases can go upto:
TDS u/s 206AB : upto 20%
TCS u/s 206CCA : upto 5%
We attach herewith our detailed compilation on these new provisions as came into effect from 1st July 2021 and shared on this forum earlier also. Pl go through the same carefully.
2. To ease this compliance burden on taxpayers, CBDT had issued a new functionality, made available through reporting portal of the Income-tax Department, for “Compliance Check for Sections 206AB & 206CCA” – Deductors/ Collectors need to register at https://report.insight.gov.in/ after which they can feed the single PAN (PAN search) or multiple PANs (bulk search) of the deductee or coIIectee and can get a response from the functionality if such deductee or collectee is a specified person, in which case higher rate of TDS/ TCS applicable : refer to attached CBDT Circular.
Hope you’ve been taking all steps to ensure compliance to these sections as effective from 01.07.2021.
3. Why this compliance being reminded again now :
There are increasing number of litigations arising in course of income tax scrutinies these days wherein it is alleged that expenses paid to a particular vendor would be disallowed as the vendor is bogus/ not filing ITR, etc. FY 2022-23 has concluded recently and relevant statutory filings are mostly pending. Hence, we strongly recommend that :
i. Your accounts department does a thorough check of all the vendors/ service providers, with whom business done and where TDS/ TCS applicable, whether he or she qualifies as a “specified person” detailed above, using the aforesaid functionality link;
ii. Apply increased rate of TDS/ TCS for FY 2022-23 immediately if any such case found, after checking with the vendor for their reaction, so that such TDS/ TCS can be deposited now (with applicable interest) and factored in the eTDS return as to be filed for Mar 2023 quarter (due on 31.05.2023);
iii. In case no PAN available because transactions do not require TDS/ TCS, will suggest to still insist for obtaining of PAN no. unless transaction amounts are very small, say Rs.50000/- in a year type…or else need to seriously consider whether business should be continued with such vendors. These days PAN of vendor(s) are becoming very important KYC requirement for almost any financial transaction, to establish identity of vendor.
TDS/ TCS on Non- filers of ITRs at Higher Rates U/s 206AB and 206CCA of the Income Tax Act, 1961 (effective from 01.07.2021)
→ We quote relevant paras from the Memorandum of the Finance Bill 2021 explaining the necessity of insertion of such provisions :
Section 206AA of the Act provides for higher rate of TDS for non-furnishing of PAN. Similarly section 206CC of the Act provides for higher rate of TCS for non-furnishing of PAN. It is seen that while these provisions have served their purpose in ensuring obtaining and furnishing of PAN by various person, there is need to have similar provisions to ensure filing of return of income by those person who have suffered a reasonable amount of TDS/ TCS.
Hence, it is proposed to insert a new section 206AB in the Act as a special provision providing for higher rate for TDS for the non-filers of income-tax return. Similarly it is proposed to insert a section 206CCA in the Act as a special provision for providing for higher rate of TCS for non-filers of income-tax return.
This amendment will take effect from 1st July, 2021.
→ Section 206AB as inserted vide the Finance Act 2021 and effective from 1st July 2021, is reproduced as under :
[Special provision for deduction of tax at source for non-filers of income-tax return.
206AB. (1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely:—
(i) at twice the rate specified in the relevant provision of the Act; or
(ii) at twice the rate or rates in force; or
(iii) at the rate of five per cent.
(2) If the provisions of section 206AA 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.
(3) For the purposes of this section “specified person” means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the 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:
Provided that the specified person shall not include a non-resident who does not have a permanent establishment in India.
Explanation.—For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.]
55. Ins. by the Act No. 13 of 2021, w.e.f. 1-7-2021.
Analysis of Section 206AB
Note 1: This new section requires deduction of TDS at a higher rate (other than few prescribed sections), while making payment to a “Specified Person” as defined. TDS rates would be higher of the following –
-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 5%.
Note 2: Few prescribed sections to which this new section does not apply are:
1. Section 192 (i.e. Salary),
2. Section 192A (i.e. Premature withdrawal of employees PF),
3. Section 194B (i.e. Winnings from lottery or crossword puzzle),
4. Section 194BB (i.e. Winnings from horse race),
5. Section 194LBC (i.e. Income from investment in securitisation trust) or
6. Section 194N (i.e. Payment of certain amounts in cash)
Note 3: “Specified Person” means a person who has:
- not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under section 139(1) has expired; and
- The aggregate of tax deducted at source and tax collected at source in his case is Rupees 50,000/- or more in each of these two previous years
Provided that the specified person shall not include a non-resident who does not have a permanent establishment in India.
Note 4: If the “Specified Person” is not able to furnish PAN to the TDS deductor, then the TDS rate shall be higher of the rates mentioned above or 20% (except for TDS U/s 194-O and 194Q where maximum rate is capped at 5% only)
Note 5: The language of the section 206AB suggests that while making a particular payment, if the due date to file ITR u/s 139(1) of any of the 2 FYs, immediately preceding the current FY (in which TDS is required to be deducted) has not expired, there is no need to deduct tax at higher rates on that payment.
However, it may prove to be litigative if a contrary view is taken by the Income Tax authorities. Hence, in our opinion and in consonance with the spirit with which such change is brought about, it may be safe to check with the deductee for ITR filing of latest 2 FYs, prior to current FY (in which TDS is required to be deducted) whose due date to file ITR u/s 139(1) has expired.
Note 6: Further to be noted that the 2nd condition given in definition of “Specified Person” is a cumulative condition to be followed for TDS to be deducted at a higher rate, i.e. the payee must also has an aggregate of tax deducted at source and tax collected at source of Rupees 50,000/- or more in each of these two previous years, i.e. the 2 FYs for which ITR due date has expired and ITR not filed by him.
This confirmation of TDS & TCS is wrt all TDS/ TCS deducted/ collected in case of the payee from all sources and it has to be declared by him only.
Note 7: For making compliance with this section and Section 206CCA, an email needs to be sent to all vendors/ customers on whose payments TDS/ TCS is normally deducted/ collected, asking them to submit a written declaration to you on or before 30th June 2021, for not imposing higher TDS/ TCS under these sections : a proforma attached for your reference
→ Section 206CCA as inserted vide the Finance Act 2021 and effective from 1st July 2021, is reproduced as under :
77[Special provision for collection of tax at source for non-filers of income-tax return.
206CCA. (1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person (hereafter referred to as collectee) from a specified person, the tax shall be collected at the higher of the following two rates, namely:—
(i) at twice the rate specified in the relevant provision of the Act; or
(ii) at the rate of five per cent.
(2) If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC.
(3) For the purposes of this section “specified person” means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be collected, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the 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:
Provided that the specified person shall not include a non-resident who does not have a permanent establishment in India.
Explanation.—For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.]
77. Ins. by the Act No. 13 of 2021, w.e.f. 1-7-2021.
Analysis of Section 206CCA
Note 1: This new section requires collection of TCS at a higher rate, while receiving payment from a “Specified Person” as defined. TCS rates would be higher of the following –
-at twice the rate specified in the relevant provision of the Act; or -at the rate of 5%.
Note 2: “Specified Person” definition is exactly same as given u/s 206AB. It means a person who has:
- not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under section 139(1) has expired; and
- The aggregate of tax deducted at source and tax collected at source in his case is Rupees 50,000/- or more in each of these two previous years
Provided that the specified person shall not include a non-resident who does not have a permanent establishment in India.
Note 3: If the “Specified Person” is not able to furnish PAN to the TCS collector, then the TCS rate shall be higher of the rates mentioned above or rate as mentioned u/s 206CC. Since presently, even section 206CC prescribes maximum rate of 5%, hence 5% becomes the maximum rate of TCS in case of no PAN or no ITR for 2 years.
However, may be noted that TCS U/s 206C(1H) where maximum rate is capped at 1% only in case of PAN unavailability (refer its first proviso), but due to this section 206CCA, TCS maximum rate u/s 206C(1H) becomes 5% in case of no ITR for 2 years.
Note 4: Our explanations as given at Note 5, 6 & 7 to Section 206AB hold same for this section 206CCA also. Hence, not repeated here for sake of brevity.
Compliance Check functionality for Sections 206AB & 206CCA
************
Disclaimer: The information contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in future. No one should act on such information without appropriate professional advice after thorough examination of the particular situation. We neither accept nor assume any responsibility or liability to any reader of this newsletter in respect of the information contained in it or for any decisions he may take or decide not to or fail to take. No part of this document should be distributed or copied by anyone without our express written permission.
Author Bio
