Higher TDS and TCS rates for Non-filers of Income Tax Return

The Finance Bill, 2021, presented on 1^st February 2021, has received presidential assent on 28^th March 2021. Notably, the Finance Act, 2021 introduced/ inserted the following two new sections into the Income Tax Act-

Section 206AB; and
Section 206CCA.

Section 206AB covers the provisions of higher deduction of TDS, whereas, section 206CCA covers the provisions of higher collection of TCS in case of non-filers of an income tax return. The provisions of both sections are briefly explained in the present article.

Meaning of the term ‘specified person’-

In order to understand the provisions of both the sections i.e., section 206AB and section 206CCA, it is important to understand the meaning of the term ‘specified person’. It is important to note here that ‘specified person’ has the same meaning under both sections. As per the term ‘specified person’, it means a person who satisfies all the below criteria-

Criteria 1	The person has not furnished income-tax return for two previous years immediately before the previous year in which TDS or TCS is required to be deducted or collected.
Criteria 2	The time limit for filing the income-tax return under section 139(1) is already expired.
Criteria 3	The total deduction of tax (TDS) and collection of tax (TCS) is INR 50,000 or more in each of the previous years.

The definition of the term ‘specified person’ doesn’t include within its ambit a non-resident person who is not having a permanent establishment in India. Accordingly, a non-resident having a permanent establishment is included within the term ‘specified person.

Higher deduction of TDS for non-filers of income tax return (section 206AB)-

Applicability of section 206AB- The deductor will be liable to deduct tax at source (TDS) under section 206AB when-

Deductor is already liable to deduct the TDS of the deductee under any provisions of the Income Tax Act; and
The deductee is a ‘specified person’ (as per the definition explained above).

Rate of deduction of TDS under section 206AB- In case of applicability of provisions of section 206AB, the deductor will be deducting TDS at higher of the following three rates-

Twice the rate as specified under the relevant provisions of the Income Tax Act; or
Twice the rate or rates as in force; or
Rate of 5%.

Exemption available under section 206AB- The following sections of TDS covered under the Income Tax Act are exempted from the provisions of section 206AB-

Section 192 – Tax deduction on salary;
Section 192A – Tax deduction on premature withdrawal from employee’s provident fund;
Section 194B – Tax deduction on winnings from crossword or puzzle or card game or lottery or any other game;
Section 194BB – Tax deduction on winning from horse race;
Section 194LBC – Tax deduction on income from the investment in a securitization trust;
Section 194N – Tax deduction on specified cash withdrawal.

Higher deduction of TCS for non-filers of income tax return (section 206CCA)-

As and when the collectee satisfies the criteria of a specified person, the collector would be liable to collect TCS as per provisions of section 206CCA. Here, the collector will have to collect TCS at higher of the following two prescribed rates-

At twice the rate as prescribed under the provisions of the Income Tax Act; or
At the rate of 5%.

The effective date of provisions of section 206AB and section 206CCA-

It is important to note that both the sections i.e., section 206AB and section 206CCA will be effective from 1^st July 2021.

Applicability of multiple sections to specified person-

In case the deductee fails to furnish Permanent Account Number (i.e., PAN), then, the deductor is liable to deduct TDS at higher rates as prescribed under section 206AA. The specified person may fail to furnish both PAN as well as filing an income tax return. In such a case, provisions of both the section i.e. 206AA and section 206AB get attracted. Here, the deductor will be liable to deduct TDS at the higher of the two rates prescribed under section 206AA and section 206AB. Similarly, in case the collectee fails to furnish PAN, the collector is liable to collect higher TCS as per the rates prescribed under section 206CC. Accordingly, in case both the section 206CC and 206CCA gets applicable, then, the collector will be liable to collect TCS at the rates higher of the two as prescribed under section 206CC and 206CCA.

Purpose of insertion of section 206AB and section 206CCA-

As seen above, both sections impose higher TDS and TCS against non-filers of an income tax return. Lining up the same, the main purpose behind the insertion of both the section is only to boost a large number of persons towards filing of their income tax return on regular basis.

Synopsis-

Particulars	Section 206AB	Section 206CCA
Effective date	1^st July 2021	1^st July 2021
Applicability	Deductee fails to furnish income tax return of specified period.	Collectee fails to furnish income tax return of specified period.
Rate of deduction/ collection of tax	Higher of the following- · 5%; or · Twice the rate/ rates in force; or · Twice the prescribed rate.	Higher of the following- · Twice the prescribed rate; or · 5%.
Exemption	Provision doesn’t apply to TDS deductible under section 192, section 192A, section 194B, section 194BB, section 194LBC and section 194N.	There is no exemption available under section 206CCA.