pri Higher TDS / TCS Rates for Non-Fillers Higher TDS / TCS Rates for Non-Fillers

Higher TDS / TCS Rates for Non-Fillers – Section 206AB / 206CCA read with 206AA

Before going into the details of the subject, let me first clarify that these provisions are applicable to ALL taxpayers who are required to deduct TDS or collect TCS. There is no threshold limit nor bifurcation of small taxpayers, large taxpayers etc. for its applicability.

Now, let us understand the above provisions in simple language.

The Finance Act, 2021 has introduced Section 206AB and 206CCA for higher deduction of TDS for non-fillers of income tax returns.

It will be applicable from 1st July 2021.

Section 206AB is reproduced as below:

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.]

Now, let us try to understand each part of the provision in simple manner:

1. Notwithstanding anything contained in any other provisions of this Act,

The section starts with the non-obstacle clause i.e. notwithstanding anything….It means it will have an overriding effect over the other provisions and thereby higher rates as prescribed in this section will prevail.

2. tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, 194LBC or 194N

So, it is applicable to all TDS deductions except below sections: (It means higher TDS rate is not applicable on below payments)

1. 192 – Salary

2. 192A – Premature withdrawal of employees provident fund

3. 194B – Winnings from lottery or crossword puzzle

4. 194BB – Winnings from horse race

5. 194LBC – Income from investment in securitization trust)

6. 194N – TDS on cash withdrawals.

3. to a specified person

To a specified person will mean that higher rates of TDS will be applicable only if you are making to a specified person and not to all persons.

Specified person would mean:

1. 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

2. 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:

The simple meaning would be that a person to whom you are making payment has not filed his income tax returns for previous 2 financial years and the time limit for filing original return has expired.

It looks like simple but it is very complex. For example, presently F Y 21-22 is running, so you need to check previous two F Y i.e. F Y 20-21 and 19-20. However, for F Y 20-21, the due date for filing of return has not expired and so it will not be counted and so two previous financial years will mean F Y 19-20 and F Y 18-19).

However, on 30th September, 2021, due date for filing ITR of non-company and non-audit case will expire. So, for those parties, from 1st October, 2021, previous 2 years will mean F Y 20-21 and F Y 19-20.

Further, on 30th November, 2021, due date for filing ITR of company and audit case will expire. So, for those parties, from 1st December, 2021, previous 2 years will mean F Y 20-21 and F Y 19-20.

Similarly, to be checked for assesses to whom transfer pricing provisions are applicable.

The second condition is that the aggregate of TDS and TCS is Rs. 50000 or more in both the years as mentioned above. Kindly note the limit of Rs. 50000 should be satisfied in both the years.

For easy understanding, let us understand with the help of an example:

Particulars Return filed within due date? TDS + TDS Amount is less than 50K Will he be specified person
Previous Fin. Year 1

Previous Fin. Year 2

?

 

 

?

?

 

 

?

If answer of all ‘?’ is NO then only he will be specified person and higher TDS is to be deducted.

If ans. Of any of ‘?’ is YES then he will not be specified person and higher TDS will not apply.

Special note: Kindly note that it has been mentioned that return should be filed within time limit provided u/s 139(1). It would mean that return should be filed within due date and it should not be belated return as provided u/s 139 (4).

This seems to illogical because when a person has filed the return even though belatedly but he should considered as return filers only as he has filed the return.

Also note that non-resident who does not have a permanent establishment in India will not be treated as specified person in any case. Reason is simple that they are already being governed by Section 195 and higher rates are prescribed there.

How to check this:

As filing of return and his TDS / TCS of a taxpayer is his person information, so it is not available in public domain to verify this.

Therefore, it was expected that Income Tax Department will provide a utility or a tool to verify whether a person has filed two income tax returns or not and what is his aggregate TDS / TCS in both the years.

However, neither new portal nor income tax department has provided any tool / utility for the same. And thereby, the assesses are required to verify all this information by their own.

For that, a declaration is to be taken from all the counter parties before deducting TDS / collecting TCS from each party. And inform that if no such declaration with supporting documents is received then we will deduct TDS / collect TCS at a higher rate only.

We are providing the format as below:

___________________________________

On the Letterhead

Declaration u/s Section 206AB / 206CCA of the Income Tax Act, 1961

To,

Write Your Company name and address before sending it

Dear Sir,

Subject: Declaration in connection with Section 206AB / 206CCA of the Income Tax Act effective from 1st July, 2021.

1. The status of filing Income Tax Return for two assessment years preceding the previous financial year is as under:

Financial Year Assessment Year Income Tax Return filed or not filed
 Yes / No ITR Ack. Copy
2018-19 2019-20 If answer is yes for any year then Furnish acknowledgement of filing ITR along with this letter.
2019-20 2020-21

If answer is yes to any of above year then no need to provide reply to Sr. No. 2 information.

However, if answer is No for both years then kindly provide following information as mentioned in Sr. No. 2:

2. Aggregate of TDS and TCS in two previous financial years preceding the previous financial year whether is 50,000/- or more p.a. or not.

Financial Year Assessment Year TDS + TCS is less than Rs. 50K in EACH year
 Yes / No 26AS Copy
2018-19 2019-20 Irrespective of your answer (i.e. whether YES or NO), Furnish copy of 26AS
2019-20 2020-21

3. I hereby assure that I will submit copy of ITR for F Y 2020-21 immediately after filing the same.

4. I hereby declare that I have complete knowledge that if I fall into the category of specified person as specified in Section 206AB / 206CCA then my TDS deduction / TCS collection would be at a higher rate.

5. In case our company is required to collect and furnish any proof of filing pursuant to the request made by any tax authorities, then I/ we undertake to furnish, promptly, the requisite proof of filing the returns or any further information that may be sought by the tax officer in support of above declaration.

6. We further declare that information furnished above is correct. In case any part of the above declaration is untrue / false, or the proofs were not furnished within reasonable time, we undertake to indemnify you for all costs and damages including interest, penalty, etc. imposed on our company.

For Firm / Company,

Signature

(Name)

Proprietor / Partner / Director

_________________________

4. the tax shall be deducted at the higher of the following rates, namely:—

The applicable TDS rate will be higher of the following:

(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.

5. If the provisions of section 206AA is applicable to a specified person:-

It means that if specified person is not providing his PAN (Sec. 206AA) then TDS rate will be higher of:

  • Rate determined as per Sr. No. 4
  • Rate determined as per Sec. 206AA (which is minimum 20%).

However, the language of Section 206AB (2) is making a twist. Said provision is mentioned below for your reference:

(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.

It has been written as ‘in addition to’. So can it be interpreted as total TDS will be (Higher rate of TDS u/s 206AB + higher rate of TDS u/s 206AA).

Certainly clarification is required on this from the department.

Section 206CCA – Special provision for collection of tax at source for non-filers of income-tax return.

It is to be understood in same manner as Section 206AB.

Illustrative Chart

Nature of Payment Applicable Section Normal Rate of TDS 206AB / CCA Rate
Contract 194C – Ind. / HUF 1% 5%
Contract 194C – Other than Ind. / HUF 2% 5%
Commission / Brokerage 194H 5% 10%
Rent 194I 10% 20%
Technical Services 194J 2% 5%
Professional Services 194J 10% 20%
TCS on Sales of Goods 206C(1H) 0.10% 5%
TDS on Purchase of Goods 194Q 0.10% 5%

So on and so forth. You may add the relevant section as per your requirement.

Author Bio

Name: Pinkesh
Qualification: CA in Practice
Company: P Chhajed And Co LLP
Location: Ahmedabad, Gujarat, India
Member Since: 07 May 2019 | Total Posts: 2
I have started my own practice immediately after completing the Chartered Accountancy course in the year 2011. Till 2017, it was the Proprietorship with the trade name as 'Pinkesh Chhajed And Co'. In the year 2017, it has been converted to P Chhajed And Co LLP. Since a decade we are prac View Full Profile

My Published Posts

More Under Income Tax

3 Comments

  1. Pinkesh112 says:

    We have opined in our above article that Department should come with a utility to verify ‘Specified Person’. CBDT has now clarified through circular No.11 dated 21st. June 21 that it will made available the search facility on the Portal for Non Filers under section 206AB for Higher deduction of TDS/TCS.

    Now the process collecting declaration can be avoided except for TDS (SECTION 194Q – Purchase of goods) V. TCS (SECTION 206C(1H) – Sales of goods).

  2. Jitesh Jarani says:

    Special Note regarding belated return seems wrong. If the return is filed under 139(4), it shall be considered filed return.

    1. Pinkesh112 says:

      Section 139(1) refers to the filing of return within due date. 139(4) refers to filing of return after due date. And Section 206AB(3) refers to only 139(1) and not 139 or 139(1) and 139(4). Hope it’s clear now.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

July 2021
M T W T F S S
 1234
567891011
12131415161718
19202122232425
262728293031