TDS & TCS under Section 206AB & 206CCA for not filling of ITR

What is TDS & TCS under Section 206AB & 206CCA?

The Central government has recently introduced TDS Under Section 206AB & TCS Under Section 206CCA in the Finance Act, 2021 of the Income Tax Act, 1961 mandated the person to deduct TDS and collect TCS at a higher rate in case of non-filing of Income Tax Return (ITR) within the time limit of Section 139(1). The motive behind introducing these sections is to bring more people into the tax net and include those who hold a Permanent Account Number(PAN) card and have taxable income.

Applicability of TDS & TCS under Section 206AB & 206CCA

TDS under Section 206AB and TCS under Section 206CCA states that where tax is required to be deducted or collected at source on any sum or income or the amount paid or received by any person to or from the specified person, then tax will be deducted or collected at higher rates.

Effective Date: These sections will be applicable w.e.f 1st July 2021

Rates of TDS & TCS under Section 206AB & 206CCA

*At the rate of 20% (in case of non-furnishing of PAN Section 206AA & 206CC)

Who will be the Specified person?

The ‘Specified person’ means a person satisfying all the below criteria:

• The time limit for filing such a return of income u/s 139(1) has expired.
• Person has not filed their income tax return for the last two previous years.
• Aggregate of Tax deducted or collected at source in each of these two financial year is INR 50,000 or more.

Due Date & Penal Provisions:

There are no changes in the due date & enforceable as usual it was applicable for the TDS deduction and payment earlier.

In the case of TDS or TCS provisions, the primary responsibility is on the deductor or collector to deduct or collect TDS/TCS provisions at applicable rates. Otherwise, he is considered as “assessee in default”.

The Income Tax Law levies penalties for non-compliance with the TDS or TCS provisions.

The tax deductor will face the following consequences if they fail to deduct or collect TDS/TCS as per the provisions:

• Disallowance of expenditure
• Interest on late payment
• Penalties

For an instance: For FY 2021-22 effective 1st July 2021, a specified person shall mean those persons who have not filed their Income Tax Return for both the FY 2018-19 & FY 2019-20 and whose total tax deducted/collected during each of FY 2018-19 & FY 2019-20 were INR 50,000 or more.

Not Applicability of TDS & TCS under Section 206AB & 206CCA

Both the sections 206AB/206CCA are not applicable to a non-resident who does not have a permanent establishment in India. Further, provisions of section 206AB do not apply to any sum or income or the amount paid or payable on which tax is otherwise deducted at source under below mentioned provision of chapter XVIIB.

For an example:

A deductor has 10,000 vendors. He can use the functionality to check. Functionality has shown that out of these 10,000 PANs. 5 Pans are specified persons. Now with respect to the remaining 9,995 PAN, it is clear that they are not on the list of specified persons for that financial year. Since no new name would be added to the list of specified persons during the financial year, the deductor or collector can be assured that these 9,995 PAN would remain outside the list of specified persons during the financial year. The list would be drawn afresh at the start of each financial year and the above process would have to be repeated.

Compliance Check for Section 206AB & 206CCA

In view of the above, Income Tax Department has facilitated a new functionality ‘Compliance Check for Section 206AB & 206CCA’ to facilitate tax deductors or collectors to verify whether a person is a “specified person” as per TDS under section 206AB & TCS under section 206CCA. This functionality is made available through reporting portal of the Income-tax-department. Click the link for Compliance Check.

Declarations

Deductee or Collectee can give self-declaration to their respective tax deductor or collector about the non-applicability of Section 206AB/206CCA upon them.

You can find the declaration Formats given below:

Declaration for not imposing TDS & TCS rate as per Section 206AB/206CCA of the Income Tax Act, 1961

Dear Channel/ Business Partner

As the Finance Act, 2021 comes into force with Presidential assent on 28th March 2021. In this Act, two new sections have been introduced with effect from 01st July 2021 for non-filers of Income Tax Return (ITR). As per these TDS under section 206AB & TCS under section 206CCA, the rate of TDS and TCS shall be at the double of the normal rate or 5%, whichever is higher for all the payments to be made to the vendors who have not filed Income Tax Return (ITR) for the immediately two previous years and total TDS and TCS deducted/collected for each year was Rs. 50,000/- or more. Therefore, we are sending this mail because we need to get confirmation and collect the ITR acknowledgment number.

Request you to fill the form given below and submit the same without failing by 15th June 2021 so that the correct TDS and TCS rate as per Income Tax Act shall be mapped against the future payments against the respective pan numbers.

Kindly also note that if we don’t get any response from you within the due date as mentioned above, we will be left with no option but to map the TDS and TCS rate as per section 206AB/206CCA w.e.f. 01st July 2021 or effective date as may be announced by CBDT and under any circumstances, we will not be able to give a refund of tax so deducted.