Double Rate of TDS or TCS for Non-filers of ITR

Section 206AB and 206CCA of the Income-tax Act, 1961 (effective from 1st July 2021)

A new category of “Specified Persons” whose TDS is to be deducted from 1st July 2021 has been mentioned under section 206AB for whom TDS is to be deducted at twice the regular rate or 5 percent, whichever is higher. These persons are categorized as the persons in whose case the TDS/TCS deducted from them from all the sources is high in but they are defaulters in filing their returns regularly. Here defaulters mean persons who are not filing their ITRs for continuous 2 years in spite of the fact that in each of both these 2 years the TDS/TCS deducted and/or collected is more than Rs.50000.00.

Let us try to understand this provision of higher deduction of TDS under section 206AB with the help of a case study on the date when the provision will be applicable i.e., on 1st. July 2021: –

X is a person whose TDS is to be deducted. During the Financial year ended on 31st March 2019 and 31st March 2020, in each year the TDS+TCS deducted/Collected from X was more than Rs.50000.00. Please note that for both the financial years the TDS/TCS should be more than Rs. 50000.00. If in one year out of these two the TDS/TCS is less than Rs. 50000.00 then there is no need to for searching whether X is filing his return or not since the provision of section 206AB are not applicable in that case.

Since for both the years the TDS/TCS figures are more than Rs. 50000.00 then we have to see whether X has filed his ITR for the year ending on 31/03/2019 or not. If he has filed then since the return of one year is field out of these two years then again, the provisions of section 206AB are not applicable but if the ITR for the year ending on 31/03/2019 is not filed by X then we have to see the ITR for the year ending on 31/03/2020. If this return is filed then also the provisions of section 206AB will not be applicable and the rate of TDS will be normal but the if the return for the year ending with 31/03/2020 was also not filed then section 206AB is applicable and the rate of TDS will be twice the rate applicable or 5% whichever is higher.

Now precisely we have to go for two previous years for which the date of filing of return under section 139(1) is expired. Since the date of filing of ITR for the financial year ending 31/03/2021 is not yet expired then we have to go for financial years ending with 31/03/2019 and 31/03/2020 and if for these two years the TDS/TCS is more than Rs. 50000.00 in each of these two years and the person has not filed his ITRs for both of these two years then the rate of TDS will be increased. If return for one year out of these two is filed then the TDS rate will be normal rate.

Let us in this provision, when will be related to the return of assessment year 2021-22 i.e., the year ending 31st March 2021, then remember that on the day the date prescribed under section 139(1) of this return expires then financial years ending with  31st March 2020 31st March 2021 will be considered  and the TDS/TCS deducted on these persons and ITRs filed for these two Financial Years will determine the rate of TDS for a  particular person and the year of 31st March 2019 will be omitted from this calculation at that point of time.

Since at present the date under section 139(1) is not expired year hence at present we have to consider the TDS/TCS and ITRs for the Financial Years 31/03/2019 and 31/03/2020.

Please note that for categorizing the “specified person” for higher rate of TDS the date under section 139(1) is the criteria only for selection of financial year taken for consideration but if returns for that financial years are filed after that date will also make the filer eligible for Normal rate of TDS.

The same provision will now be applicable on TDS of section 194Q as well and in these circumstances the tax rate will be 5% instead of 0.1%.