Higher TDS will be deducted upon non-filing of ITR
In the Finance Bill 2021, a new section 206AB has been inserted that provides for the deduction and collection of higher TDS if an amount is paid or payable to a “specified person” who has not filed an income tax return for the last two financial years. Section 206AB has been inserted into the Act after Section 206AA. Section 206AA provides for the deduction of TDS at a higher rate if the payee doesn’t furnish a Permanent Account Number (PAN). Similar to Section 206AB, Section 206CCA has been inserted into the act, requiring the deduction of TCS at a higher rate.
Let us discuss the provisions of the section in detail:
Applicability of Section 206AB & 206CCA
TDS/TCS shall be deducted at a higher rate on all payments made or to be made to a specified person. However, payments made against the following transactions are exempted from the scope of these sections:
- Salary (Section 192)
- Premature withdrawal of EPF (Section 192A)
- Winnings from any lottery, card game, or crossword puzzle (Section 194B)
- Winnings from any and all horse races (Section 194BB)
- Income from investment in a securitization trust (Section 194LBC)
- Cash withdrawals (Section 194N)
Post Budget, 2022, the following transactions have also been exempted from the purview of Section 206AB & Section 206CCA:
- Consideration paid for the sale of immovable property (Section 194-IA)
- Rent paid to the landlord in excess of Rs. 50,000 per month (Section 194-IB)
- Payments in excess of Rs 50 lakh for contractual or professional services (Section 194M)
Who is a Specified Person?
A specified person is a person who satisfies the following 2 conditions:
- A person who has not filed the income tax returns for the two previous financial years immediately before the previous year in which tax is required to be deducted or collected. For instance, for the financial year 2022–23, the previous years would be 2019–20 and 2020–21.
- A person whose total tax deducted at source (TDS) and/or tax collected at source (TCS) is 50,000 INR or more in each of the two previous years.
Note: A specified person does not include an NRI or a foreign entity that does not have a permanent establishment in India.
Rates of TDS and TCS
TDS under Section 206AB and TCS under Section 206CCA shall be deducted at the higher of the following rates:
- Twice of the rates prescribed in the relevant section of the Income Tax Act.
- At the rate prescribed in the Act.
- At five percent.
Note: If a specified person fails to provide PAN, the tax will be deducted or collected at the rate of 20% under Section 206AA or the rate applicable under this section, whichever is higher.
A company takes a premise on rent. The company was liable to pay a rent of Rs. 120,000 per month to the landlord after deducting TDS u/s 194-I of the Income Tax Act. However, the landlord has not filed the ITR for the past two financial years, and the last date of filing of ITRs has also expired. Please advise how much TDS the company should deduct.
The higher of the following rates shall be deducted as TDS:
- Twice the rate prescribed u/s 194-I of the Act, i.e., 20% (twice of 10%).
- At the rate or rates in force, i.e., 10%
Therefore, the tax should be deducted at a rate of 20%.
Sections 206AB and 206CCA of the Income Tax Act require all individuals whose TDS collection in the two preceding fiscal years exceeds Rs. 50,000 to file an income tax return for at least one of the two preceding fiscal years. Otherwise, higher TDS/TCS will be deducted/collected by the person making the payment.