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).

Article contains Analysis of Section 206AB, Analysis of Section 206CCA, Sample format of Declaration To Be Obtained From Parties For Not Imposing Higher TDS/ TCS Rates As Per Section 206AB/ 206CCA of the Income Tax Act) and Sample Content for Sending Mailers to Vendors Customers asking them to submit Declaration for Not Imposing Higher TDS/ TCS Rates as per Section 206AB/ 206CCA of the Income Tax Act, 1961. Further article also contains extract of Section 206AB/ 206CCA of the Income Tax Act, 1961 with Extract from Memorandum to Finance bill 2021 which explains why these sections been introduced.

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

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.

*****

Sample format of Declaration To Be Obtained From Parties For Not Imposing Higher TDS/ TCS Rates As Per Section 206AB/ 206CCA of the Income Tax Act)

(TO BE PRINTED ON THE LETTERHEAD)

To,

Accounts Team

M/s…………………(Write Your Entity’s Details)

DECLARATION

(For Not Imposing Higher TDS/ TCS Rates As Per Section 206AB/ 206CCA of the Income Tax Act)

In relation to my/ our business transactions and the requirements of Section 206AB/ 206CCA of the Income Tax Act, I/ we hereby confirm my/ our particulars/ affirm as under:

1. Name of Entity :
2. PAN no :
3. Registered Address :
4. I/ We are tax resident of India for the Indian financial year beginning 1st April 2021 YES/ NO
5. I/ We are non-resident for the Indian financial year beginning 1st April 2021 and have a permanent establishment in India YES/ NO
6. I/ We are non-resident for the Indian financial year beginning 1st April 2021 and DO NOT HAVE a permanent establishment in India YES/ NO
7. I/ We further declare that :

a. I/ We have duly filed return of income, as per the provisions of the Income Tax Act, 1961, for both of the latest 2 financial years, immediately preceding the current financial year and for which the time limit of filing return of income under section 139(1) of the ITax Act has expired as on date of this declaration and the details of tax returns filed are as follows: YES/ NO

Financial Year (Asstt Year) ITR Acknowledgement No. Date of filing ITR
2018-19 (AY 2019-20)
2019-20 (AY 2020-21)
2020-21 (AY 2021-22)

b. the aggregate of tax deducted at source and tax collected at source in my/ our case is less than INR 50,000 in each of the aforesaid 2 latest financial years (for which details of ITR filing given above) : YES/ NO

8. I/ We hereby confirm that in case your entity is required to collect and furnish any proof of filing of income tax returns by me/ us, 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
9. I/ We declare that the information stated above is true and correct and I/ we further undertake to indemnify your entity for any costs, damages and/ or any penal consequences arising to you by relying on my/ our declaration.

Yours faithfully,

For & On Behalf Of ………………..

Name:

Designation:

Date:

*****

Sample Content for Sending Mailers to Vendors Customers asking them to submit Declaration for Not Imposing Higher TDS/ TCS Rates as per Section 206AB/ 206CCA of the Income Tax Act

Dear Sir/ Madam,

Finance Act 2021 has inserted new 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 non- filing of Income Tax Return (ITR) for specified period.

These provisions shall apply and the tax shall be deductible/ collectible at higher rates prescribed under these newly inserted sections if the following conditions are satisfied:

1) 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;

2) The due date to file such return of income, as prescribed under Section 139(1), has expired; and

3) The aggregate amount of TDS and TCS of deductee/ collectee is Rs. 50,000 or more in each of these 2 financial years.

The higher rates in such cases can go upto:

TDS u/s 206AB : upto 20%

TCS u/s 206CCA : upto 5%

Hence in this regard, in order that we deduct/ collect TDS/ TCS at normal rates instead of higher rates prescribed u/s 206AB/ 206CCA, we request you to please share the following by latest 25th Jun 2021 :

  1. Declaration on letterhead, duly signed & stamped, in attached format
  2. Screen shot of the ITR filed u/s 139(1) from ITD portal for last 2 FYs, whose details furnished in such declaration

In case of non-receipt of the declaration/ documents in appropriate manner stated above, we shall be obligated to deduct/ collect TDS/ TCS at higher rates in accordance with the applicable provisions of the Income Tax Act, 1961 on or after 1st July 2021.

In case there is any doubt, please feel free to call us for further guidance and/ or write up on these new provisions.

******

A. relevant paras from the Memorandum of the Finance Bill, 2021 explaining the necessity of insertion of section 206AB :

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.

B. 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.

C. Section 206CCA as inserted vide the Finance Act 2021 and effective from 1st July 2021, is reproduced as under :

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.]

*****

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

Qualification: CA in Practice
Company: R K D S & Associates
Location: New Delhi, Delhi, India
Member Since: 16 Jun 2021 | Total Posts: 3

My Published Posts

More Under Income Tax

10 Comments

  1. Prashant Gupta says:

    Dear Sir

    Does the TDS deducted by us as a company for the employees salary will also be considered for this Rs.50K range or only for the third parties/our sellers ? Actually not clear on what all should we consider as “to take” & “not to take” for calculating Rs.50K….could you please explain it further ?

    1. Shiv Kumar Lath says:

      All TDS to be seen, i.e. whether the aggregate of tax deducted at source, incl TDS on Salaries and tax collected at source is Rupees 50,000/- or more or not in each of the two previous years…

  2. Yash Keshari says:

    Whether TDS/TCS to be deducted/collected at higher rates in case if Assesse’s PAN is not linked with Aadhar? Also, how can we share the proof that we’ve applied for aadhar pan linking, since it’s under process of linking and not showing Aadhar linked in profile section on e-filing portal.

    1. Shiv Kumar Lath says:

      Technically speaking if PAN not linked with Aadhaar till 30th Jun21, PAN becomes invalid on 1st July21, i.e. case of NO PAN. Hence higher rates become applicable for deductor/ collector to apply.

      If such linking applied but not done, it will surely get done in due course of another few days; deductor/ collector can be informed of this situation to hold on since he will in anyway deposit such TDS/ TCS as deducted/ collected in July21 mth by upto 7th Aug21.

  3. Hk says:

    Sir,
    Is the Limit of Rs 50,000 TDS in each FY for one single deductor or it consist of total TDS from all deductors? This is not very clear.

  4. Rajat Gupta says:

    Dear Sir,
    My question is that if the Seller is under obligation from section 206C(1H) and is adding [email protected]% in his invoice would the above provision be applicable if the Buyer is not filing ITR in past 2 FYs and also the seller has already collected TCS greater than Rs.50,000 from the buyer?

    1. SHIV KUMAR LATH says:

      Yes, the new provision of applying higher TCS will get applicable in this case. But just check that TCS of Rs.50000 as said to be already collected, is so collected in each of those 2 years for which ITRs not filed by buyer.

  5. S Nath says:

    The clrification promoted is note very clear.
    a) It implies for those who have not submited their (IT) return for the privious two Financial year within the due period.
    b) Does it implies for those person also ,who had submitted due tax return within the specified period and the same has been verified and found Ok?
    c) Is it also implied to the person who has fulfilled the condition (b) and their total TDS dection is +50000.00 ( for each of above two fincial year).

    Request for a clarification.

    1. SHIV KUMAR LATH says:

      Pl note my reply as under:

      a) It implies for those who have not submited their (IT) return for the privious two Financial year within the due period.

      Reply: Yes, applicable if not filed (now also check 2nd condition of 50000 as both are cumulatively to be seen)

      b) Does it implies for those person also ,who had submitted due tax return within the specified period and the same has been verified and found Ok?

      Reply: New provision of higher TDS/ TCS not applicable in this case.

      c) Is it also implied to the person who has fulfilled the condition (b) and their total TDS dection is +50000.00 ( for each of above two fincial year).

      Reply: Both conditions cumulatively to be checked before applying higher rates under this new section. Since both years ITRs already filed, checking of this 2nd condition not reqd and higher TDS/ TCS not required.

      I hope i have been able to clarify your doubts.

Cancel reply

Leave a Comment to Prashant Gupta

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

Search Posts by Date

September 2021
M T W T F S S
 12345
6789101112
13141516171819
20212223242526
27282930