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Changes in TDS and TCS Provisions by Finance Bill, 2021

changes-in-tds-and-tcs-provisions-by-finance-bill-2021

The Union Budget 2021 has proposed certain amendments in the existing TDS and TCS provisions, widened the scope of existing TDS provisions and introduced new TDS and TCS provisions vide Finance Bill, 2021. The changes in all the proposed provisions related to TDS and TCS for AY 2022-23 are listed in this article.


    Introduction


    The Finance Bill, 2021 contains many provisions relating to amendment and changes in various TDS and TCS provisions and further introduced many new TDS and TCS provisions in the statute. Besides, certain provisions of the Income Tax Act have been amended which are related to compliance of the TDS provisions.


    A snapshot of TDS and TCS provisions amended and introduced in the Finance Bill, 2021 are listed below-


    Amendment in Existing TDS Provisions:


    1.Section 194: Exemption of deduction of tax at source on payment of Dividend to business trust in whose hand dividend is exempt.


    2. Exemption from TDS on interest by infra debt fund.


    3. Higher rate of TDS for non-filers in case of TDS u/s 194-IB.


    4. Section 196D relating to income of Foreign Institutional Investors from securities.


    Introduction of New TDS Provisions:


    1. TDS on total income of senior citizens.


    2. TDS on sale of goods.


    3. Higher rate of TDS for non-filers of income-tax return.

    Introduction of New TCS Provisions:


    Higher rate of TCS for non-filers of income-tax return.



    The above TDS/TCS provisions as amended or introduced are detailed below.


    Amendment in Section 194 to exempt TDS on payment of Dividend to a Business Trust


    Section 194 provides for deduction of income tax from the payments of dividend @ 10% if the amount of payment of dividend exceeds Rs. 5,000 if the payee is an Individual. However, if the payee is not an Individual, there is no threshold limit and even payment of a dividend of Re 1 is subject to TDS. 


    The amount of dividend also become subject to TDS in the hands of a business trust even if the income is exempt in their hands.


    The amendment has proposed to exempt from deduction of tax (TDS) in the on payment of Dividend to business trust in whose hand dividend income is exempt.


    Clause 44 of the Finance Bill, 2021 seeks to amend section 194.


    Amendment of section 194.


    44. In section 194 of the Income-tax Act, in the second proviso, after clause (c), the following clauses shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2020, namely:––


    ‘(d) a “business trust”, as defined in clause (13A) of section 2, by a special purpose vehicle referred to in the Explanation to clause (23FC) of section 10;


    (e) any other person as may be notified by the Central Government in the Official Gazette in this behalf.’.



    Clause 44 of the Bill seeks to amend section 194 of the Income-tax Act relating to dividends.


    The said section provides for deduction of tax at source on payment of dividends by an Indian company including dividends on preference shares within India. The second proviso to the said section provides that the provisions of that section shall not apply to such income credited or paid to certain insurance companies or insurers.


    It is proposed to amend the second proviso to the said section to provide that the provisions of that section shall not apply to such income credited or paid to a business trust as defined in clause (13A) of section 2 by a special purpose vehicle referred to in the Explanation to clause (23FC) of section 10 or any other person as may be notified by the Central Government in this behalf.


    Section 194 of the Act provides for deduction of tax at source (TDS) on payment of dividends to a resident. The second proviso to this section provides that the provisions of this section shall not apply to such income credited or paid to certain insurance companies or insurers. It is proposed to amend the second proviso to section 194 of the Act to further provide that the provisions of this section shall also not apply to such income credited or paid to a business trust by a special purpose vehicle or payment of dividend to any other person as may be notified.


    This amendment will take effect retrospectively from 1st April, 2020.


    Amendment in Section 194A for payment of interest without deduction of tax by an infrastructure debt fund


    Section 194A provides for deduction of income tax from the payments of interest other than interest on securities. 


    Section 194A(3) provides for certain circumstances and payment of interest by certain persons without deduction of tax under section 194A(1).


    Clause 45 of the Finance Bill, 2021 seeks to amend section 194A.


    Amendment of section 194A.


    45. In section 194A of the Income-tax Act, in sub-section (3), in clause (x), after the words “infrastructure capital fund or”, the words “infrastructure debt fund or” shall be inserted.


    Clause 45 of the Bill seeks to amend section 194A of the Income-tax Act relating to interest other than “Interest on securities”.


    Sub-section (3) of the said section provides that the provisions of sub- section (1) of that section relating to deduction of tax on income by way of interest other than interest on securities, shall not apply.


    It is proposed to include infrastructure debt fund also within the purview of clause (x) of the said sub-section so as to provide that tax shall not be deducted on income in relation to a zero coupon bond issued by infrastructure debt fund. 


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


    Amendment in Section 194-IB to provide for higher rate of TDS for non-filers of ITR


    Section 194-IB provides for deduction of income tax from the payment of rent by certain individuals or Hindu undivided family. 


    Section 194A(3) provides for payment of interest without deduction of tax under section 194A(1).


    Clause 46 of the Finance Bill, 2021 seeks to amend section 194-IB.


    Amendment of section 194-IB.


    46. In section 194-IB of the Income-tax Act, in sub-section (4), for the words, figures and letters “section 206AA, such”, the words, figures and letters “section 206AA or section 206AB, such” shall be substituted with effect from the 1st day of July, 2021.


    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 194- I), 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. 


    New Section 194P - Deduction of tax in case of specified senior citizen


    In order to provide relaxation to senior citizens from filing of return of income, it is proposed to insert a new section 194P in the Act. This section provides relaxation for certain categories of senior citizens from filing return of income-tax.


    For this purpose, a new section 194P is introduced in the Income Tax Act, 1961 vide clause 47 in the Finance Bill,  2021 as follows-


    Insertion of new section 194P.


    Deduction of tax in case of specified senior citizen


    47. After section 194-O of the Income-tax Act, the following section shall be inserted, namely:––


    ‘194P. (1) Notwithstanding anything contained in the provisions of Chapter XVII-B, in case of a specified senior citizen, the specified bank shall, after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A, compute the total income of such specified senior citizen for the relevant assessment year and deduct income-tax on such total income on the basis of the rates in force.


    (2) The provisions of section 139 shall not apply to a specified senior citizen for the assessment year relevant to the previous year in which the tax has been deducted under subsection (1).


    Explanation.–– For the purposes of this section,––


    (a) “specified bank” means a banking company as the Central Government may, by notification in Official Gazette, specify;


    (b) “specified senior citizen” means an individual, being a resident in India––


    (i) who is of the age of seventy-five years or more at any time during the previous year;


    (ii) who is having income of the nature of pension and no other income except the income of the nature of interest received or receivable from any account maintained by such individual in the same specified bank in which he is receiving his pension income; and


    (iii) has furnished a declaration to the specified bank containing such particulars, in such form and verified in such manner, as may be prescribed.’.



    Section 194P: Relaxation for certain category of senior citizen from filing return of income-tax


    Section 139 of the Act provides for filing of return of income. Sub-section (1) of the section provides that every person being an individual, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income.


    In order to provide relief to senior citizens who are of the age of 75 year or above and to reduce compliance for them, it is proposed to insert a new section to provide a relaxation from filing the return of income, if the following conditions are satisfied:-


    (i) The senior citizen is resident in India and of the age of 75 or more during the previous year;


    (ii) He has pension income and no other income. However, in addition to such pension income he may have also have interest income from the same bank in which he is receiving his pension income;


    (iii) This bank is a specified bank. The Government will be notifying a few banks, which are banking company, to be the specified bank; and


    (iv) He shall be required to furnish a declaration to the specified bank. The declaration shall be containing such particulars, in such form and verified in such manner, as may be prescribed.


    Once the declaration is furnished, the specified bank would be required to compute the income of such senior citizen after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A of the Act, for the relevant assessment year and deduct income tax on the basis of rates in force. Once this is done, there will not be any requirement of furnishing return of income by such senior citizen for this assessment year.


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


    Clause 47 of the Bill seeks to insert a new section 194P of the Income-tax Act relating to deduction of tax in case of specified senior citizen.


    Sub-section (1) of the said section seeks to provide that notwithstanding anything contained in the provisions of Chapter XVII-B, in case of a specified senior citizen, the specified bank shall, after giving effect to the deduction allowable under Chapter VI-A and rebate allowable under section 87A, compute the total income of such specified senior citizen for the relevant assessment year and deduct income-tax on such total income on the basis of the rates in force.


    Sub-section (2) of the said section seeks to provide that the provisions of section 139 shall not apply to a specified senior citizen for the assessment year relevant to the previous year in which the tax has been deducted under sub-section (1).


    Explanation to the said section seeks to define the following expressions for the purposes of the said section,––


    (a) “specified bank” means a banking company as the Central Government may, by notification in Official Gazette, specify;


    (b) “specified senior citizen” means an individual, being a resident in India–


    (i) who is of the age of seventy-five years or more at any time during the previous year;


    (ii) who is having income of the nature of pension and no other income except the income of the nature of interest received or receivable from any account maintained by such individual in the same specified bank in which he is receiving his pension income; and


    (iii) has furnished a declaration to the specified bank containing such particulars, in such form and verified in such manner, as may be prescribed.


    New Section 194Q - Tax Deduction at Source (TDS) on purchase of goods


    In order to widen the scope of TDS, it is proposed to levy a TDS of 0.1% on a purchase transaction exceeding  Rs. 50 lakh in a year. In order to reduce the compliance burden, it is also proposed to provide that the responsibility of deduction shall lie only on the persons whose turnover exceeds Rs. 10 crore.


    Chapter XVIIB of the Act relates to deduction of tax at source. The provisions of this chapter provide for TDS on various payments at rates contained therein. It is proposed to provide for TDS by person responsible for paying any sum to any resident for purchase of goods. The rate of TDS is kept very low at 0.1%. To ensure that compliance burden is only on those who can comply with it, it is proposed that the tax is only required to be deducted by those person (i.e ―buyer‖) whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out. Central Government is proposed to be empowered by notification in the Official Gazette to exempt a person from obligation under this section on fulfilment of conditions as may be specified in that notification. Tax is required to be deducted by such person, if the purchase of goods by him from the seller is of the value or aggregate of such value exceeding fifty lakh rupees in the previous year. It is also proposed to provide that the provisions of this section shall not apply to,-


    (i) a transaction on which tax is deductible under any provision of the Act; and 

    (ii) a transaction, on which tax is collectible under the provisions of section 206C other than transaction to which sub-section (1H) of section 206C applies.


    This means, if on a transaction a TDS or tax collection at source (TCS) is required to be carried out under any other provision, then it would not be subjected to TDS under this section. There is one exception to this general rule. If on a transaction TCS is required under sub-section (1H) of section 206C as well as TDS under this section, then on that transaction only TDS under this section shall be carried out.


    Board with the approval of the Central Government has been empowered to issue guidelines for removing difficulty in giving effect to the provisions of this section.


    Every guideline issued by the Board is required to be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax


    It is also proposed to consequentially amend sub-section (1) of section 206AA of the Act and insert second proviso to further provide that where the tax is required to be deducted under section 194Q and Permanent Account Number (PAN) is not provided, the TDS shall be at the rate of five per cent.


    These amendments will take effect from 1st July, 2021.


    For this purpose, a new section 194Q is introduced in the Income Tax Act, 1961 vide clause 48 in the Finance Bill,  2021 as follows-


    Insertion of new section 194Q.


    48. After section 194P of the Income-tax Act, the following section shall be inserted with effect 1st day of July, 2021, namely:––


    Deduction of tax at source on payment of certain sum for purchase of goods.


    ‘194Q. (1) Any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent. of such sum exceeding fifty lakh rupees as income-tax.


    Explanation.––For the purposes of this sub-section, “buyer” means a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.


    (2) Where any sum referred to in sub-section (1) is credited to any account, whether called “suspense account” or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be the credit of such income to the account of the payee and the provisions of this section shall apply accordingly.


    (3) If any difficulty arises in giving effect to the provisions of this section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.


    (4) Every guideline issued by the Board under sub-section (3) shall, as soon as may be after it is issued, be laid before each House of Parliament, and shall be binding on the incometax authorities and the person liable to deduct tax.


    (5) The provisions of this section shall not apply to a transaction on which––


    (a) tax is deductible under any of the provisions of this Act; and


    (b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.’.


    Clause 48 of the Bill seeks to insert a new section 194Q in the Income-tax Act relating the deduction of tax at source on payment of certain sum for purchase of goods.


    Sub-section (1) of the proposed new section seeks to provide that any person, being a buyer who is responsible for paying any sum to any resident (hereafter in this section referred to as the seller) for purchase of any goods of the value or aggregate of such value exceeding fifty lakh rupees in any previous year, shall, at the time of credit of such sum to the account of the seller or at the time of payment thereof by any mode, whichever is earlier, deduct an amount equal to 0.1 per cent. of such sum exceeding fifty lakh rupees as incometax.


    The Explanation to the proposed sub-section (1) seeks to define “buyer” to mean a person whose total sales, gross receipts or turnover from the business carried on by him exceed ten crore rupees during the financial year immediately preceding the financial year in which the purchase of goods is carried out, not being a person, as the Central Government may, by notification in the Official Gazette, specify for this purpose, subject to such conditions as may be specified therein.


    Sub-section (2) thereof section seeks to provide that where any sum referred to in subsection (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such credit of income shall be deemed to be a credit of such income to the account of the payee and the provisions of this section shall apply accordingly.


    Sub-section (3) thereof seeks to provide that if any difficulty arises in giving effect to the provisions of the said section, the Board may, with the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty.


    Sub-section (4) thereof seeks to provide that every guideline issued by the Board under sub-section (3) shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and the person liable to deduct tax.


    Sub-section (5) thereof seeks to provide that the provisions of the proposed section shall not apply to a transaction on which––


    (a) tax is deductible under any of the provisions of this Act; and


    (b) tax is collectible under the provisions of section 206C other than a transaction to which sub-section (1H) of section 206C applies.


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


    Amendment in Section 196D: Rationalisation of the provision concerning withholding on payment made to Foreign Institutional Investors (FIIs)


    Section 196D of the Act provides for deduction of tax on income of FII from securities as referred to in clause (a) of sub-section (1) of section 115AD of the Act (other than interest referred in section 194LD of the Act) at the rate of 20 per cent.


    Since the said section provides for TDS at a specific rate indicated therein, the deduction is to be made at that rate and the benefit of agreement under section 90 or section 90A of the Act cannot be given at the time of tax deduction. The situation is different in cases where the provision mandates TDS at rate in force. This is for the reason that the definition of the expression ―rate in force‖, in clause (37A) of section 2 of the Act, allows benefit of agreement under section 90 or section 90A in determining the rate of tax at which the tax is to be deducted at source. This principle of tax deduction has also been upheld by Hon‘ble Supreme Court in the case of PILCOM vs. CIT West Bengal (Civil Appeal No. 5749 of 2012).


    Representations have been received requesting that the benefit of agreements under section 90 or section 90A of the Act may be considered at the time of tax deduction on payments to FIIs. Accordingly, it is proposed to insert a proviso to subsection (1) of section 196D of the Act to provide that in case of a payee to whom an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A applies and such payee has furnished the tax residency certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A of the Act, then the tax shall be deducted at the rate of twenty per cent. or rate or rates of income-tax provided in such agreement for such income, whichever is lower.


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


    Clause 49 of the Finance Bill, 2021 seeks to amend section 196D.


    Amendment of section 196D.


    49. In section 196D of the Income-tax Act, in sub-section (1), the following proviso shall be inserted, namely:––


    “Provided that where an agreement referred to in subsection (1) of section 90 or sub-section (1) of section 90A applies to the payee and if the payee has furnished a certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A, as the case may be, then, income-tax thereon shall be deducted at the rate of twenty per cent. or at the rate or rates of income-tax provided in such agreement for such income, whichever is lower.”.


    Clause 49 of the Bill seeks to amend section 196D of the Income-tax Act relating to income of Foreign Institutional Investors from securities.


    Sub-section (1) of the said section provides for deduction of tax on any income referred to in clause (a) of sub-section (1) of section 115AD, not being income by way of interest referred to in section 194LD of the Income-tax Act, payable to a Foreign Institutional Investor, being the person responsible for making the payment, at the rate of twenty per cent.


    It is proposed to insert a proviso to the said sub-section so as to provide that where an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A applies to the payee and if the payee has furnished a certificate referred to in sub-section (4) of section 90 or sub-section (4) of section 90A, as the case may be, then, income tax thereon shall be deducted at the rate of twenty per cent. or at the rate or rates of income-tax provided in such agreement for such income, whichever is lower.


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


    Amendment in Section 206AA: Higher rate of TDS for deduction u/s 196Q in case of non-PAN deductee


    It is also proposed to consequentially amend sub-section (1) of section 206AA of the Act and insert second proviso to further provide that where the tax is required to be deducted under section 194Q and Permanent Account Number (PAN) is not provided, the TDS shall be at the rate of five per cent.


    Clause 50 of the Finance Bill, 2021 seeks to amend section 206AA.


    Amendment of section 206AA.


    50. In section 206AA of the Income-tax Act, in sub-section (1), after the proviso, the following proviso shall be inserted with effect from the 1st day of July, 2021, namely:––


    ‘Provided further that where the tax is required to be deducted under section 194Q, the provisions of clause (iii) shall apply as if for the words “twenty per cent.”, the words “five per cent.” had been substituted.’.


    Clause 50 of the Bill seeks to amend section 206AA of the Income-tax Act relating to the requirement to furnish Permanent Account Number.


    Sub-section (1) of the said section provides that notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates namely, at the rate specified in the relevant provision of this Act; or at the rate or rates in force; or at the rate of twenty per cent.


    It is proposed to insert the second proviso so as to provide that where the tax is required to be deducted under section 194Q, the provisions of clause (iii) shall apply as if for the words “twenty per cent.”, the words “five per cent.” had been substituted.


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


    New Section 206AB: Higher rate for deduction of tax at source (TDS) for non-filers of income-tax return


    Section 206AA of the Act provides for a higher rate of TDS for non-furnishing of PAN. It is seen that while this provision has served its purpose in ensuring obtaining and furnishing of PAN by various person, there is need to have similar provisions to ensure filing of return of income by those person who have suffered a reasonable amount of TDS.


    Hence, it is proposed to insert 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. 


    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:-


    (i) twice the rate specified in the relevant provision of the Act; or


    (ii) twice the rate or rates in force; or


    (iii) 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.


    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 return 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.


    Clause 51 of the Finance Bill, 2021 seeks to amend section 206AB.


    Insertion of new section 206AB.


    Special provision for deduction of tax at source for non-filers of income-tax return


    51. After section 206AA of the Income-tax Act, the following section shall be inserted with effect from the 1st day of July, 2021, namely:––


    ‘206AB. (1) 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, 194LBC or 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:––


    (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 five per cent..


    (2) If the provisions 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.


    (3) For the purposes of this section “specified person” means 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:


    Provided that the specified person shall not include a nonresident who does not have a permanent establishment in India.


    Explanation.––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.’.


    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.


    New Section 206CCA: Higher rate for collection of tax at source (TCS) for non-filers of income-tax return


    Section 206CC of the Act provides for a higher rate of TCS for non-furnishing of PAN. It is seen that while this provision has served its purpose in ensuring obtaining and furnishing of PAN by various person, there is need to have similar provisions to ensure filing of return of income by those person who have suffered a reasonable amount of TCS.


    Hence, it is 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.


    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:-


    (i) twice the rate specified in the relevant provision of the Act; or


    (ii) 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 return 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


    Clause 52 of the Finance Bill, 2021 seeks to amend section 206CCA.


    Insertion of new section 206CCA.


    Special provision for collection of tax at source for non-filers of income-tax return. 


    52. After section 206CC of the Income-tax Act, the following section shall be inserted with effect from the 1st day of July, 2021, namely:––


    ‘206CCA. (1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person (hereafter referred to as 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 five per cent.


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


    (3) For the purposes of this section “specified person” means 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 collected, 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:


    Provided that the specified person shall not include a nonresident who does not have a permanent establishment in India.


    Explanation.––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.’.


    Clause 52 of the Bill seeks to insert section 206CCA of the Income-tax Act relating to specified provisions for the collection of tax at source on non-filers of income-tax return.


    Sub-section (1) of the proposed new section 206CCA seeks to provide that notwithstanding anything contained in any other provisions of this Act, where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person (hereafter referred to as collectee) from a specified person, the tax shall be collected at the higher of the following two rates, namely, at twice the rate specified in the relevant provision of the Act; or at the rate of five per cent.


    Sub-section (2) thereof seeks to provide, that if the provision of section 206CC 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.


    Sub-section (3) thereof seeks to define “specified person” tomean 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 collected, 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 the proposed sub-section (3) provides 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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