TDS/ TCS Double Up for Non-Filers of Return of Income – Section 206AB and 206CCA

Section 206AB and Section 206CCA of the Income-tax Act, 1961 have been introduced vide the Finance Act, 2021. Section 206AB mandates the person to deduct higher rates of TDS in case of non-filing of an income tax return by the specified person while Section 206CCA mandates the person to collect higher rates of TCS in case of non-filing of an income tax return by the specified person.

To understand the sections, it is first important to study the meaning of specified person:

– Person hasn’t filed ITR for the past two years

– Time limit for filing the ITR is also over

– TDS of more than ₹50,000 was deducted in each of the past two years from that person.

It will be the deductors responsibility to ensure that the above mentioned conditions are fulfilled.

In respect of section 206AB, TDS shall be deducted on higher of below:

– Twice the rates prescribed in the relevant provisions of the Income-tax Act

– Twice the rates in force

– 5 percent

– If the specified person does not furnish PAN, then TDS rate prescribed in section 206AA.

For example:

You are required to make a contract payment of Rs. 60 lakhs to ABC Ltd. in FY 2020-21. In the past, you have deducted TDS of more than Rs. 50,000 in FY 2019-20 and FY 2018-19. However, you leaen that ABC Ltd. has not filed his Income Tax Return for the FY 2019-20 and FY 2018-19.

Hence, the TDS should be deducted at higher of the following:

– Twice the rate prescribed in the Act, i.e. 2% (twice of 1%)

– Twice the rates in force, i.e. 2% (twice of 1%)

– 5%

Hence, the TDS should be deducted at @ 5%.

In respect of section 206CCA, TCS shall be collected on higher of below:

– Twice at the rates prescribed in the relevant provisions of the Income-tax Act

– 5 percent

– If the specified person does not furnish PAN, then TDS rate prescribed in section 206CC.

This section shall not apply in the following cases:

– Section 192 – TDS on Salary

– Section 192A – TDS on Premature withdrawal of EPF

– Section 194B – TDS on winnings from lottery

– Section 194BB – TDS on winnings from horse races

– Section 194LBC – TDS by securitization trust

– Section 194N – TDS on cash withdrawal

Challenges to the application of these sections

In the absence of a mechanism or platform, it will be challenging for the deductor to check whether the person from whom TDS needs to be deducted meets the two conditions or not. Experts say that the deductor can ask for declarations or use the ITR acknowledgement to check if the person has filed the ITR or not.

Also, there is no clarity with respect to what happens in case the person from whom TDS needs to be deducted was not eligible to file tax return in the past two years.

Where the specified persons are not eligible for filing ITRs in the prior year’s such as newly incorporated companies or individuals having income below the basic exemption limit, the deductor may take necessary declaration from such specified persons that they were not required to file ITRs in the past two years. However, this approach should be clarified by the authorities to ensure that the deductor is not considered at fault.

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Location: Siliguri, West Bengal, India
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