Non Filer of Income Tax Returns: Another controlling provision in the Union Budget 2021

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Non Filer of Income Tax Returns: Another controlling provision in the Union Budget 2021

To widen the tax base, the Government often incorporates various provisions. Two such provisions at present are as under:

  1. For TDS:
    Presently, Section 206AAof the Act already provides for a higher rate of TDS for non-furnishing of PAN.
  2. For TCS:
    Section 206CC of the Act provides for higher rate of TCS for non-furnishing of PAN.

Though higher rate of TDS/TCS is done in above two cases, there have been instances where the people are not submitting their PAN for availing lower TDS/TCS rate.

To control it further, another provision is proposed by Union Budget 2021. It is almost on a similar line as was proposed last year for section 194N which provides for TDS on cash withdrawals from banks.

Union Budget 2021 has proposed to insert a new section 206AB in the Act as a special provision which is providing a higher rate for TDS for the non-filers of income-tax return.

On the same line, it has proposed to insert a section 206CCA in the Act as a special provision for providing for higher rate of TCS for non-filers of income-tax return.

Section 206AB:
New proposed section 206AB of the Act would apply on any sum or income or amount paid, or payable or credited, by a person (herein referred to as deductee) to a specified person. This section shall not apply where the tax is required to be deducted under sections 192, 192A, 194B, 194BB, 194LBC or 194N of the Act. The proposed TDS rate in this section is higher of the followings rates:-
a) twice the rate specified in the relevant provision of the Act; or
b) twice the rate or rates in force; or
c) the rate of five per cent

If the provision of section 206AA of the Act is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA of the Act.

Section 206CCA:
New proposed section 206CCA of the Act would apply on any sum or amount received by a person (herein referred to as collectee) from a specified person. The proposed TCS rate in this section is higher of the following rates:-
a) twice the rate specified in the relevant provision of the Act; or
b) the rate of five percent

If the provision of section 206CC of the Act is applicable to a specified person, in addition to the provision of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC of the Act.

The specified person is a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years which are immediately before the previous year in which tax is required to be deducted or collected, as the case may be. Further the time limit for filing tax returns under sub-section (1) of section 139 of the Act has expired for both these assessment years.

There is another condition that aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years. Specified person shall not include a non-resident who does not have a permanent establishment in India. Consequential amendment is proposed in sub-section (4) of section 194-IB of the Act

This amendment will take effect from 1st July, 2021.

 

The relevant part of the explanatory memorandum to the Finance Bill 2021 is produced hereunder:

Clause 46 of the Bill seeks to amend section 194-IB of the Income-tax Act, relating to payment of rent by certain individuals or Hindu undivided family.

Sub-section (1) of the said section provides that any person, being an individual or a Hindu undivided family (other than those referred to in the second proviso to section 194­I), responsible for paying to a resident any income by way of rent exceeding fifty thousand rupees for a month or part of a month during the previous year, shall deduct an amount equal to five per cent. of such income as income-tax thereon.

Sub-section (4) of the said section provides that in a case where the tax is required to be deducted as per the provisions of section 206AA, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.

It is proposed to amend the said sub-section (4) so as to insert section 206AB for the purposes of the said sub-section.

This amendment will take effect from 1st July, 2021.

Clause 51 of the Bill seeks to insert section 206AB of the Income-tax Act relating to the deduction of tax at source on non-filers of income-tax return.

Sub-section (1) of the proposed new section 206AB seeks to provide that notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than sections 192, 192A, 194B, 194BB, 194LBCor 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely, at twice the rate specified in the relevant provision of the Act; or at twice the rate or rates in force; or at the rate of five per cent..

Sub-section (2) thereof seeks to provide that if the provision of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.

Sub-section (3) thereof seeks to define the expression “specified person” to mean a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years.

Proviso to proposed sub-section (3) seeks to provide that the specified person shall not include a non-resident who does not have a permanent establishment in India.

Explanation to the said section seeks to provide that for the purposes of this sub-section the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.

This amendment will take effect from 1st July, 2021.

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