Higher Rate of TDS and TCS in case of Non-Compliance
Finance Ministry is bringing more stringent tax provisions with the dual objective of bringing more people into tax network and imposing additional tax rates for non-compliant person.
Table of Contents:
- What is Section 206AB of Income Tax Act?
- What is Section 206CC of Income Tax Act?
- Comparative analysis of Section 206AA and Section 206CC of Income Tax Act?
- What is Section 206AB of Income Tax Act?
- What is Section 206CCA of Income Tax Act?
- Comparative analysis of Section 206AA, Section 206CC, Section 206AB and Section 206CCA of Income Tax Act?
- Meaning of Specified Person under Section 206AB and Section 206CCA?
- Combined analysis of Section 194Q, 206C(1H), Section 206AB and Section of 206CCA of Income Tax Act?
Earlier, there was the provision of higher rate of TDS and TCC in case of non furnishing of PAN but the Finance Act 2021 brought new Section206AB and Section 206CCA, which are discussed here under along with its impact on Section 194Q and Section 206 C(1H) in a comparative form for better understanding:
Difference between Section 206AA and Section 206CC
Section 206AA | Section 206CC | |
Applicability | Requirement of furnishing Permanent Account number by the deductee | Requirement to furnish Permanent Account number by collectee |
Higher TDS Rate | Deductee shall furnish his Permanent Account Number to deductor and in case deductee fails to furnish his PAN then he shall be subject to TDS at the higher of the following rates, namely:— (i) at the rate specified in the relevant provision of this Act; or (ii) at the rate or rates in force; or (iii) at the rate of 20% For example : Mr. Sham does some Architect work for Mr. Singhal for Rs. 45000 and does not furnish his PAN to Mr. Singhal. In such case Mr Singhal has to deduct TDS @20% instead @10% as per Section 194J | Collectee shall furnish his Permanent Account Number to collector and in case collectee fails to furning PAN to collector then he shall be subject TCS at the higher of the following rates, namely:— (i) at twice the rate specified in the relevant provision of this Act; or (ii) at the rate of 5% For example : Mr. Sham is a tour operator. Mr. Singhal has booked a foreign tour from him and does not furnish his PAN to Mr. Sham. In such case Mr Sham has to collect TCS @10% instead of @5% as per Section 206C(1G). TCS rate as per Section 206C(1G) is 5%, therefore as per point (i) shall be twice the rate ,i.e., twice of 5% =10% or (ii) 5% whichever is higher. |
Exceptions of higher rate | The above said TDS rate of 20% is substituted with 5% in following two cases: 1.Section 194-O (Payment of certain sums by e-commerce operator to e-commerce participant) and 2.Section 194 Q (Deduction of tax at source on payment of certain sum for purchase of goods) | There are no relaxations |
Difference between Section 206AB and Section 206CCA | ||
| Section – 206AB | Sec Section – 206CCA |
Applicability | TDS in case of non-filers of income-tax return | TCS in case of non-filers of income-tax return |
Higher Rate | In case of non-filers of income tax return, TDS is required to be deducted on any sum or income or amount paid, or payable or credited, by a person (deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely:— (i) at twice the rate specified in the relevant provision of the Act; or (ii) at twice the rate or rates in force; or (iii) at the rate of 5% | In case of non-filers of income tax return, TCS is required to be collected at source on any sum or amount received by a person (collectee) from a specified person, the tax shall be collected at the higher of the following two rates, namely:— (i) at twice the rate specified in the relevant provision of the Act; or (ii) at the rate of 5% |
Specified Person | Meaning of Specified Person: Specified Person means the person who satisfies following two criteria- 1. He has not filed ITR for both of the last 2 financial years whose due date of ITR as per section 139(1) has expired. AND 2. Aggregate of TDS and TCS is more than Rs. 50,000 in each of these two years. | Meaning of Specified Person: Specified Person means the person who satisfies all the following two criteria- 1. He has not filed ITR for both of the last 2 financial years whose due date of ITR as per section 139(1) has expired. AND 2. Aggregate of TDS and TCS is more than Rs. 50,000 in each of these two years. |
Example | Example.- Suppose due date of filing ITR for FY 2020-21 has not yet expired and current due date is 30th November 2021. Therefore, two years for which non-filing of ITR is to check shall be 2018-19 and 2019-20 for the current due date of 30th November2021, As soon as the due date of 2020-21 expires, 2 years for non-filing of ITR shall be 2019-20 & 2020-21. | Example.- Suppose due date of filing ITR for FY 2020-21 has not yet expired and current due date is 30th November 2021. Therefore, two years for which non-filing of ITR is to check shall be 2018-19 and 2019-20 for the current due date of 30th November2021, As soon as the due date of 2020-21 expires, 2 years for non-filing of ITR shall be 2019-20 & 2020-21. |
Exceptions to specified person | Specified person shall not include a non-resident who does not have a permanent establishment in India. Note: “Permanent Establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on. | The specified person shall not include a non-resident who does not have a permanent establishment in India. Note: “Permanent Establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on. |
Default in both Sections | Where both Sections 206AA and 206AB are applicable ,i.e., if a person has not furnish PAN as well as has not filed ITR for the relevant two years then TDS rate will be higher of two rates provided in section 206AA and Section 206AB | Where both Sections 206CC and 206CCA are applicable ,i.e., if a person has not furnish PAN as well as has not filed ITR for relevant two years then TCS rate will be higher two rates provided in section 206CC and Section 206CCA |
Non-Applicability | Section 206AB is not applicable to : 1. Section 192- TDS on Salary 2. Section 192A- TDS on Premature withdrawal from EPF 3. Section 194B- TDS on winnings from lotteries 4. Section 194BB- TDS on winnings from horse races 5. Section 194LBC- TDS on investment in securitization fund 6. Section 194N- TDS on Payment of a certain amount in cash | |
Effective Date | It is applicable w.e.f. 01-07-2021 | It is applicable w.e.f. 01-07-2021 |
Combine Analysis of Section 194Q, 206C(1H), Section 206AB and Section of 206CCA
Combined study of Sections 194Q, 206C(1H), Section 206AB and Section of 206CCA is resulted in increased compliance burden for both buyer as well as seller. Henceforth, both deductor and collector in addition to other details have to keep track of ITR of Deductee as well as of collectee.
Person responsible for deducting /collecting of TDS/TCS should obtain following details:
- Last Year turnover
- Acknowledgement no. & date of filing of ITR of last two years.
- Total TDS & TCS deducted/collected during each of last two years.
- On 30th June, Track for which Customers transaction of more than Rs. 50 Lakhs has been done.
Note :
Whether TDS under section 194N is applicable or not, one can check it on Income Tax Portal by entering PAN. Similarly it is expected that same facility will be provided that by entering PAN/Aadhaar, one can check whether such PAN holder has filed his/her ITR of relevant two years. But till then, compliance burden has been increased for both deductor and collector.