TDS/TCS | Non-Filers of Income Tax Return: Analysis of Sections 206AB and 206CCA

 Analysis of Sections 206AB and 206CCA- Non-Filers of Income Tax Return:

The Finance Bill 2021 proposed new section 206AB and section 206CCA, according to the 1961 Income Tax Act, that would provide the higher rate of TDS and of TCS for the deductors who do not file their income tax return for both years in which tax has to be deducted or collected, immediately before the previous year.

Nonfilers' TDS/TCS will be deducted at a higher rate.

TDS/TCS | Non-Filers of Income Tax Return; Analysis of Sections 206AB and 206CCA;

Section 206AA:

Section 206AA of the Income Tax Act of 1961, as well as section 206CC of the Income Tax Act of 1961, already allows for a higher rate of TDS for non-furnishing of PAN.

When presenting Budget 2021, the government also suggested adding new sections 206AB and 206CCA to the Income Tax Act, 1961, as a specific provision providing for a higher percentage of TDS and TCS on non-filers of income tax returns.

The proposed section 206AB of the Act would apply to any quantity, income, or amount paid, payable, or credited to a specified person by a person (herein referred to as Deductor). This section's planned TDS rate is higher than the following rates.

• twice the rate specified in the relevant Act provision
• Twice the current rate or rates in force.
• The 5 percent rate.

Sections 206AB and 206CCA are special provisions for non-filers of income tax returns to deduct tax at source (TDS) and collect tax at source (TCS).

• Two new sections 206AB and 206CCA were added to the Finance Bill 2021. Non-filers of income tax returns are subject to a higher rate of TDS/TCS under the abovementioned clause. 
• TDS/TCS was already deducted or collected at higher rates for "NON-FURNISHING OF PAN" u/s 206AA & 206CC, respectively. 

Let's look at the differences between the 206AA and 206CC now:    

Section 206AA v. Section 206AB

Applicability of Section 206AA and 206AB.

• In addition, sections 206AB and 206CCA have been proposed in the Finance Bill, 2021, in accordance with the foregoing.
• The provisions of Section 206AB apply to the specified persons as defined in the provisions. The provision of sub-section (1) of 206AB provides for TDS to be applied if the amount paid or credited to a specified person is greater than the higher of the rates listed below.
• at twice the rate specified in the relevant Act provision. 
• at twice the rate or rates in effect. 
• at 5% rate.

• Subsection (1) of Section 206AB does not apply if tax is required to be deducted under Sections 1942, 192A, 194B, 194BB, 194LBC, or 194N.
• Furthermore, sub-section 2 of 206AB states that if both sections 206AA and 206AB apply, i.e. the identified person has not submitted a PAN or filed an income tax return, the tax will be deducted at the higher rate of the two sections.

However, if Tax is required to be deducted under the following provisions, this section will not apply.

• TDS on Salary (Section 192A).
• TDS on the early termination of EPF Section 194B.
• TDS on lottery earnings (Section 194BB).
• TDS on horse race winnings (Section 194LC).
• Section 194N TDS by securitization trust.
• TDS is levied on cash withdrawals.      

If the provisions of Section 206AA apply to a specific person, tax shall be deducted at the higher of the rates provided in this section and in Section 206AB, in addition to the provisions of this section.

• "Persons specified" means who meets the following requirements.

• A person who has not filed the Income Tax Return for the two previous years immediately preceding the previous year in which tax must be deducted.
• The time limit for filing an income tax return under sub-section (1) of Section 139 has passed.
• In each of the two previous years, the aggregate tax deducted at source or tax collected at source was Rs. 50,000 or more.
• However, a non-resident who is not a permanent establishment (PE) in India shall not be included in the individuals specified.

In addition to providing this paragraph, the tax is deducted by higher than both rates provided for in this section and in section 206AA of the Act if the provision in Section 206AA of the Act applies to a specified person.

2. Section 206 CCA:

Any amounts received by the person (hereinafter referred to as the collector) from a specified person by the proposed Section 206 CCA of the Act would apply to that person. In this section, the proposed rate of TCS is higher than the rate below:

• Twice the rate set out in the relevant provisions of the Act.
• The 5% rate

Furthermore, the provisions of sub-sections (2) and (3) of section 206CCA are comparable to those of sub-sections (2) and (3) of section 206AB, as previously explained.

When both this section and Section 206CC apply, the tax is collected at the rate specified in this section or in Section 206CC, whichever is higher.

Section 206CC v. Section 206CCA

TDS/TCS rates are higher for non-filers of ITRs; a new section 206AB/206CCA has been added. 

3. THE WAY FORWARD

If the deductee or collectee has not filed a return of income for the designated time, these restrictions apply. Similar requirements can be found in Section 194N, which was replaced by the Finance Act of 2020. It allows for the deduction of tax at various rates from cash withdrawals if the assessee has not filed a return of income for the given time. The CBDT established a tool on the e-filing platform to check the applicable TDS rate under Section 194N to establish the rate for tax deduction under this provision. By entering the PAN of the person who withdraws cash, the Bank/Post Office can use this tool to learn about the applicable TDS rate according to section 194N. The Department then introduced a new 'ITR Filing Compliance Check' functionality to allow Schedule Commercial Banks (SCBs) to check the return reporting status of large PANs. The other deductor could use the similar tool to check the deductor's ITR filing status.

Since Section 194N (Rs. 20 lakhs/Rs. 1 Crore) has a high-threshold filter, verifying the accountholder's ITR status may not be necessary until a threshlal mark can be reached. This is necessary. However, according to new Section 206AB, it becomes mandatory for the deductor to verify the return required to file status of every deductee or collectee, even if the sum payable is as low as Rs. 5,000 under Section 194A, and it will now be a yearly exercise for the accounts department to verify the deductee and collectee's ITR status.

Furthermore, the ITR status can only be confirmed if the deductee or collectee provides the deductor with his PAN. In the absence of this, the deductor should apply the TDS/TCS rate specified in Section 206AA/206CC or Section 206AB/206CCA, whichever is higher, because the status cannot be confirmed.

4. SECTION 194-IB HAS BEEN AMENDED AS A RESULT.

Section 194-IB provides, where the rent is paid or credited in the financial year immediately preceding the financial year and where the rent is not greater than Rs. 1 crore in case of business and Rs. 50 lakhs in a case of profession, that all individuals or HUFs are required to pay at source any amount due via rent.

In general the tax must be deducted at the highest rate, as prescribed in Section 206AA, if the beneficiary fails to furnish its PAN. However, if the deductee fails to provide his PAN to the deductor, the tax will be deducted at the rate specified in Section 206AA, subject to the provision that the amount of TDS deducted somehow doesn't exceed the amount of rent due for the last month of the year or tenancy, as the case may be.

Because Section 206AB is similar to Section 206AA, a consequential amendment to Section 194-IB has been made to provide that if the tax is required to be deducted at the higher rates prescribed by Section 206AB, the amount of TDS cannot exceed the amount of rent payable for the last month of the year or the last month of the tenancy, as the case may be.

Conclusion:

Additional compliance burden has been imposed upon an assessee by inserting new sections 206AB and 206CCA. Previously, the assessee only requested the PAN from the deductee. TDS/TCS were produced at a higher rate when PAN was not available. However, the assessor will now have to check from 1 July 2021 whether he has submitted his ITR in the last two financial years. In addition, he needs to check whether the amount of TDS/TCS was Rs. 50,000 or more in such a 2 year period.

Therefore, you should be very careful to deduce TDS or collect TCS after insertion of these two sections. Prepare to obtain a copy of the party's ITR as well as Form 26AS in order to comply with Sections 206AB and 206CCA. Behind these sections there is no justification. The Government only has the additional responsibility to ensure that the ITR is filed by the individual in which TDS is deducted or TCS is collected. The government is certainly obligated to provide that person with the ITR.

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