According to the Finance Act of 2021, non-filers of the Income Tax Return (ITR) would be subject to a higher TDS/TCS rate beginning July 1. To facilitate effective income disclosure by every taxpayer, the Finance Act has increased the possibilities for tax collection from the source. If an individual has not submitted Income Tax Returns for the previous two years and has an aggregate TDS/TCS credit of Rs. 50,000 or more in each of the two years, he or she would be required to pay TDS at a higher rate beginning July 1, 2021. The Income Tax Department has stated on its official website that "After section 206AA of the Income-tax Act, the following section shall be inserted with effect from the 1st day of July 2021."
Regardless of anything else in this Act, where tax is mandated to be deducted at source under the provisions of Chapter XVIIB, other than sections 192, 192A, 194B, 194BB, 194LBC, or 194N on any amount or income or the amount paid, payable, or credited, by an individual (hereafter referred to as deductee) to a specified person, the tax shall be withheld at higher of the following rates, according to the Income Tax Department:
- 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.
If the provisions of section 206AA, in addition to the provisions of this section, relate to a specified person, the tax shall be deducted at the higher of the two rates stipulated in this section and in section 206AA. According to the official site of the Income Tax Department a "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 Rs 50,000 or more in each of these two previous years."
The rate under section 206 CCA of the Act is higher for TCS collection, or 5 percent of the rate stated in the relevant section. Also, Section 206AB shall not apply to deductee or collectee who are not non-residents and who do not have a permanent establishment in India, according to the Income Tax Department. And if both section 206AA and 206AB of the Act are applied, then the effective TDS rate will be above the aforementioned sections. The higher the TCS rates in accordance with Section 206CC and Section 206CCA of the Act shall also apply to TCS, in case of no PAN.