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.
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.
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.e. 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%).
