New Sections 206AB & 206CCA levying TDS/TCS at double rate

The Finance Act 2021 introduced new Sections 206AB and 206CCA levying TDS/TCS at double rate w.e.f. 1st of July 2021

Background, Relevance, Applicability & Rate:

The central government proposed Section 206AB (TDS) & Section 206CCA (TCS) consist of a special provision for the deduction of TDS at a higher rate for the non-filers of income tax return within the time limit of Section 139(1) and is applicable with effect from 1st day of July 2021.

These sections are basically an extension of Section 206AA (TDS) & 206CC (TCS) respectively & the purpose is to bring more people into the tax net. The move has come to include those who hold a PAN card and have taxable income but for some or other reason don’t file their ITRs.

The provisions give a list of conditions to be considered for a “specified person” who covered under these sections for higher deduction of TDS/ TCS:

– The non-filers of ITR of two previous years (e.g. FY 2018-19, 2019-20),

– The total amount of deduction and collection of tax (TDS and TCS) is Rs.50,000 or more in each of these two previous years.

– The respective due dates of their ITR filing of the previous years have expired

As per the new Section 206AB, any person making payment to a ‘specified person’ (explained below) shall be liable to deduct TDS at the higher of the following rates:

– Twice the specified rate as per relevant provisions of the Income Tax Act.

– Twice the rate/rates in force (if modified by CBDT).

– At the rate of 5%

– At the rate 20% (in case of non-furnishing of PAN – Section 206AA & 206CC)

Tax deductor has to maintain the list of deductees in the following manner to comply with the above provision of Section 206AB & 206CCA.

– List of Deductee, PAN-wise ITR filing status of the previous two FYs

– List of Deductee, PAN-wise amount of TDS/TCS remitted in past two FYs

It is anticipated that CBDT will shortly make available a facility to verify the ITR filing status of the deductee to make this smoothly workable.

In absence of such a mechanism to verify ITR filing data, it is suggested to obtain a declaration from the Deductee.

Exclusion:

It does not apply to a non-resident who does not have a permanent establishment in India.

It is applicable in all cases except the following:

– 192 Salary

– 192A Premature withdrawal from the accumulated balance of the provident fund, which is taxable in the employee’s hands

– 194B Winning from the card game, crossword, lottery, puzzle, or any other games

– 194BB Winning from a horse race

– 194LBC Income against investment in the securitization trust

– 194N Payments of certain amount/amounts in cash

Due Date & Penal Provisions:

There are no changes in the due date & enforceable as usual it was applicable for the TDS deduction and payment earlier.

In the case of TDS provisions, the primary onus is on the deductor/ payer to deduct TDS provisions at applicable rates. Otherwise, he is considered as “assessee in default”.

The Income Tax Law levies penalties for non-compliance with the TDS provisions under Section 201A. Also, late filing of TDS returns will be penalized.

The tax deductor will face the following consequences if they fail to deduct TDS as per the provisions:

– Disallowance of expenditure

– Interest on late payment and

– Penalties.

Conclusion:

Every person who is covered under these sections i.e. specified persons must file their ITRs to avoid the higher deduction of TDS.

Secondly, the onus of deduction at double rate of TDS lies on the deductor thus every deductor must do the extensive work and then deduct the TDS to avoid the consequences of disallowances of expenditure, interest on late payment & penalties.