Higher rate of TDS and TCS for Non-Filers of Income Tax Returns
There may be many taxpayers who are not filing income tax returns even if the Tax Deduction at Source (TDS) or Tax Collection at Source (TCS) is done on their transactions. The Income Tax Department has evolved a mechanism to penalise all such taxpayers by providing higher rates of TDS & TCS. This has been done by adding two new provisions, section 206AB & section 206CCA in the Income Tax Act-1961 which is effective from 1st July 2021. Let us know about this new mechanism evolved to regulate the non-filers.
Who are treated as Non Filer of Income Tax Returns:
Not all the non-filers will be subject to higher rate of TDS/TCS but only those persons who meet the specified criteria would be covered by this provision. The specified criteria for treating the person as Non – filers are as under:
- The person has not furnished income-tax return for two previous years immediately preceding the year in which TDS or TCS is required to be done
- The total amount of TDS / TCS is Rs. 50,000 or more in each of the previous years
Both the criteria need to be fulfilled simultaneously to be treated as “Non-Filers”. If the person has not filed the return in any one of the preceding two years but if the amount of TDS / TCS is not exceeding Rs. 50,000/- in any of the preceding two years then higher rate will not be applicable.
It may be noted that
- The Higher rate of TDS & TCS is applicable to all the categories of payment and not restricted to the newly introduced provision related to purchase of goods u/s 194Q or Sale of Goods u/s 206C(1H).
- Non-resident person who is not having a permanent establishment in India is not to be treated as Non – Filers for above purpose.
- If the firm or company is newly incorporated, then it cannot be treated as non-filers in the first two financial years.
- Similarly, if any person has just attained the age of 18 years, he cannot be treated as non-filers in the first two financial years.
- Higher TDS rate shall not be applicable in respect of payment done under following section:
- Section 192 – Tax deduction on salary;
- Section 192A – Tax deduction on premature withdrawal from employee’s provident fund;
iii. Section 194B – Tax deduction on winnings from crossword or puzzle or card game or lottery or any other game;
- Section 194BB – Tax deduction on winning from horse race;
- Section 194LBC – Tax deduction on income from the investment in a securitization trust;
- Section 194N – Tax deduction on specified cash withdrawal.
Applicable Higher Rate of TDS & TCS:
In case the person is treated as Non – Filers as discussed above, then the deductor will be required to do TDS at higher of the following:
- Twice the rate as specified under the relevant provisions of the Income Tax Act or at the rates in force; or
- At the Rate of 5%.
The new rule requires the payers to verify below two things to ensure the proper compliance with the TDS & TCS provisions:
- Whether the person from whom TDS is deductible has filed his return of income for the previous two years;
- Whether payee’s last two year’s tax deduction and tax collection was Rs. 50,000 or above.
Reckoning the period of 2 years
- If the due date of filing income tax return had expired, then immediately two preceding years would be considered for verifying the status of the person as filers vs. non-filers. For example, if any payment is to be done in the current FY 2021-22 on 31/12/2021 then the status of the FY 2019-20 & 2020-21 would be required to be ascertained as the due date of return for the FY 2020-21 would be over by that time.
- If the due date of filing income tax return had not expired, then two years would be reckoned preceding the previous year for which the date has expired would be considered for verifying the status of the person as filers vs. non-filers. For example, if any payment is to be done in the current FY 2021-22 today on 19/07/2021 then the status of the FY 2018-19 & 2019-20 would be required to be ascertained as the due date of return for the FY 2020-21 has not expired yet.
- There is no need to obtain the declaration form or ITR by the payers for verifying the ITR status. A utility has been provided at the reporting portal of income tax site wherein a person can verify the status of the non- filers by submitting the PAN. The same would be accessible at
TDS if the PAN of the person is not furnished to the payer:
In case the deductee fails to furnish Permanent Account Number (i.e., PAN), then, the deductor is liable to deduct TDS @ 20%. In such a case, the provisions of section 206AA & 206AB cannot be applied.
The objective for higher TDS / TCS rate is to make the taxpayer file their income tax returns without fail. This provision might be an additional burden on the Deductor/ Collector but will be an additional step taken by the Government to catch people who do not file their ITRs even when their tax has been deducted/collected and is shown in Form 26AS.