TDS/TCS at higher rates in case of non-filers of ITR: Section-206AB & 206CCA

Introduction

A new section 206AB & 206CCA has been introduced In Budget 2021-22 which will be effective from 1st July 2021.

The said section provides for a higher rate of TDS/TCS to be applied if the transactions are done with the non filers of the Income Tax Return.

To increase the taxpayer base in the country, the non filers are now obligated to file income tax return.

Applicability of Section 206AB & 206CCA

With effect from July 1, 2021, a person will have to pay TDS/TCS at a higher TDS/TCS rate if he/she has not filed Income Tax Returns for the last two years and has aggregate TDS/TCS credit of Rs. 50,000 or more in each of the two years.

Definition of Specified Persons (Non filers)

• A person who has not filed the income tax return for Two previous years immediately prior to the previous year in which tax is required to be deducted; and
• The time limit of filing of return of income under sub section (1) of section 139 is expired; and
• The aggregate tax deducted at source or tax collected at source, as the case may be is Rs. 50,000 or more in each of the two previous years.

Higher TDS / TCS Rates

Under Section 206AB of the Income Tax Act 1961, the new TDS rate levied would be the highest of:

• Double the rate specified in the relevant provision of the Income Tax Act; or
• Double the rate of rates in force; or
• At the rate of five per cent.

For TCS collection, the rate under section 206CCA of the Act will be higher of:

• Double the rate specified in the relevant section; or  
• At the rate of five per cent.

Exclusions from Section 206AB of Income Tax Act 1961

• Section 192 TDS on salary;
• Section 194A TDS on premature withdrawal of EPF;
• Section 194B TDS on winnings from lottery;
• Section 194BB TDS on winning from horse race;
• Section 194LBC TDS by securitization trust;
• Section 194N TDS on withdrawal of cash;
• Non resident not having permanent establishment in India.

Action Points

• Assesses need to take the declarations from the vendors whether the Return of Income of Last 2 Years are furnished & whether the aggregate TDS TCS Credit is Rs. 50,000/ or more.  
• IT Team to make necessary changes in the software for enabling higher rate of TDS.

Conclusion

Looking at the new proposals there is no doubt this will encourage filling of Income Tax Returns but for this taxpayer have to work for the government & this will fill the exchequer without pains.