A new section is introduced in the Finance Bill, 2021 for deduction and collection of tax at source at higher rates if an amount is paid or payable to the specified person who did not file the income tax return which will come into effect from 1st July 2021. Section 206AB for TDS is inserted after section 206AA of the income tax act. Section 206AB provides for deduction of TDS at higher rates for non-furnishing of Permanent Account Number (PAN). Similarly, section 206CCA for TCS is inserted after section 206CC of the income tax act.
Here is more about this section :
- Brief Description Section 206AB and 206CCA
- Applicability of this section on the type of transactions
- Conditions to deduct TDS or collect TCS
- Rates applicable for TDS
- Rates applicable for TCS
- Example
Brief Description Section 206AB and 206CCA
Section 206AB provides TDS or tax deduction at source on amounts paid or payable to the specified persons not filing their income tax return at rates higher than specified in the act.
Similarly, section 206CCA provides tax collection at source (TCS) on amounts received by a specified person at rates higher than specified in the act.
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Applicability of this section on the type of transactions
The nature of the transaction can be any transaction excluding the following:
- Salary
- Premature withdrawal of EPF
- Winnings from any lottery or card games or crossword puzzles
- Payments to contractor
- Income with respect to investment in securitization trust
- Winnings from any horse races
- TDS on cash withdrawals
Conditions to Deduct TDs or Collect TCS
The tax shall be deducted/collected at source if the payment/collection is made to/from the person satisfying the following conditions:
- The person does not file income tax return for both of the previous two Financial Years (FYs) immediately before the FY in which tax is required to be deducted,
- the income tax return (not belated return) filing due date is expired and
- The total amount of TDS and TCS is Rs.50,000 or more in each of these two previous years.
It does not apply to a non-resident who does not have a permanent establishment in India. Permanent establishment for this purpose includes a fixed place of business where the enterprise’s business is carried out wholly or partially.
Rates applicable for TDS
The tax shall be deducted at source (TDS) on higher of below:
- Twice at the rates prescribed in the relevant provisions of the income tax act.
- At five percent.
In addition to non-filing of income tax return, if the specified person does not furnish PAN, then the TDS rate shall be higher than the rates prescribed in this section or section 206AA of the income tax act.
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Rates applicable for TCS
The tax shall be collected at source (TCS) on higher of the following;
- Twice at the rates prescribed in the relevant provisions of the income tax act.
- At five percent.
In addition to non-filing of income tax return, if the specified person does not furnish PAN, then the TCS rate shall be higher than the rates prescribed in this section or section 206CC of the Income Tax Act.
Example
An ABC company or a Firm makes a Contractual payment of Rs. 80 lakhs to M/s XYZ for the preceding two previous years (FY 2019-20 and FY 2018-19). The tax was deducted at 1% (Rs. 80,000 each year) by the company.
M/S XYZ did not file him IT return for both the years and the due date of filing the return has expired.
Hence, when the company deducts tax in the FY 2020-21 and learns that the payee has not filed his ITR for the last two years, the TDS should be deducted at higher of the following:
- i. Twice the rate prescribed in the Act, i.e. 2% (twice of 1%), or
- 5%
Hence, the tax should be deducted at the rate of 5%.
Further, if PAN is not furnished, then TDS shall be deducted at the rate of 20%, which is higher than 5% or 2% (twice 1%).
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