TDS at a higher rate on non-filer of Income Tax return (Section 206AB of Income Tax Act, 1961)

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Background:

Section 206AA of the Act provides for higher rate of TDS for non-furnishing of PAN. Similarly, section
206CC of the Act provides for higher rate of TCS for non-furnishing of PAN. Such provisions have served
their purpose in ensuring obtaining and furnishing of PAN by various person.

However, there is need to have similar provisions to ensure filing of return of income by those persons
who have suffered a reasonable amount of TDS/TCS. Hence, a new section 206AB in the Act as a special
provision providing for higher rate for TDS for the non-filers of Income-Tax Return. Similarly, a section
206CCA in the has been introduced in the Act as a special provision for providing for higher rate of TCS for
non-filers of income-tax return.

(Source: Memorandum Explaining the Finance Bill, 2021)

Analysis of newly Inserted provision:

  1. Applicability from?
    The provision of the Section is applicable from 1st July,2021.
  2. Applicability on?
    The provision is applicable on everyone liable to deduct TDS.
  3. Condition for applicability of Section?
    Deductor is required to deduct TDS at a higher rate if both the conditions are satisfied:
    • the Deductees have not filed their Income Tax returns and time for filing return as mentioned in section 139(1) has expired,
  1. and
  • TDS deduction on their PAN is more than INR 50,000 in the last two preceding years immediately prior to the financial year 21-22.
  1. Applicability must be checked in each financial year for every vendor.
  2. Applicable rate of TDS?The Rate of TDS shall be higher of the following: –
  3. Twice at the rates specified in the relevant provisions of the income tax act.
  4. Twice the rates in force.
  5. At the rate of 5 per cent.

5. Exception:
Provisions of the sections are not applicable in the below mentioned circumstances/sections: –

1. If the deductee is a person who does not have a permanent establishment in India,
2. TDS deductible under Section 192 (TDS on Salary), 192A (Payment of accumulated balance due to an employee),
3. TDS deductible under Section 194B (Winnings from lottery or crossword puzzle), Section 194BB (Winnings from horse race),
4. TDS deductible under Section 194LBC (Income in respect of investment in securitization trust),
5. TDS deductible under Section 194N (Payment of certain amounts in cash).

Our Comment:
How to Safeguard from the penal provision of this section?
Every Assessee must at the beginning of Financial Year seek a declaration from its vendor as attached below in Annexure 1 regarding non applicability of the section on them and the TDS at higher rate is not required to be deducted.

Annexure 1: Format Seeking Declaration from the vendor for non-deduction of TDS at higher rate
                                                                    <<<>>>
              Undertaking pursuant to Section 206AB and Section 206CCA of the Income-tax Act, 1961

To,
…………… (Entity Name)
                Subject: Declaration confirming filing of Income Tax Return for immediate two preceding years
This is to declare that _________________________(Name of entity) having PAN _____________________, registered office address at _____________________________________ , have filed Income Tax Returns for immediately last 2 preceding Financial Years for which due date to file return of income has expired as per sub-section (1) of section 139 of the Income-tax Act, 1961 and the aggregate of tax deducted at source and tax collected at source in our case is rupees fifty thousand or more in each of these two previous years (i.e. FY 2018-19 and FY 2019-20). Details of ITR filed for immediately last 2 preceding Financial Years is as under:

Accordingly, higher TDS/TCS rate as per section 206AB/ 206CCA of the Act is not applicable on us.
I/we hereby certify that the declaration made above is true and correct.
I/we hereby undertake to indemnify Entity Name for any loss/liability fully including any Tax, interest, penalty, etc. that may arise due to incorrect reporting of above information.
For _______________________________
Signature:
Name:
Designation:
Place:
(*Strike off whichever is not applicable)

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