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TDS / TCS New Rules Applicable to Non Filers of Income Tax Returns

The Finance Act 2021 has introduced a new provision relating to withholding tax (Section 206AB) which provides for a higher withholding tax rate in case the vendor to whom the payment is to be made has not filed his tax return for the previous two financial years. This new provision is applicable from 1 July 2021 and will apply to any invoice on or after 1 July 2021. A similar Section 206CCA is also inserted for TCS. Gist of the new provision is as under –

TDS TCS new rules applicable

Withholding tax on certain payments to ‘specified persons’ to be higher of the following:

  1. Twice the rate specified; or
  2. Twice the rates in force; or
  3. Five percent

A ‘specified person’ is someone (excluding non-residents who do not have a Permanent Establishment in India) who has not filed an income tax return for the two preceding years and the aggregate of withholding tax in his case is INR 50,000 or more in each year. Certain Payments have been defined to mean all payments which are subjected to withholding tax except where the withholding tax is applicable in the following instances

  • Salary
  • Premature withdrawal of EPF
  • Winnings from any lottery or card games or crossword puzzles
  • Income with respect to investment in securitization trust
  • Winnings from any horse races
  • TDS on cash withdrawals

We recommend that in addition to the usual PAN numbers, you ask for income tax filing details in the form of acknowledgment numbers for the past two years before making the payments.

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