Removal of higher TDS/TCS for non-filers of Income tax Return

Current Provisions

• Section 206AB (Higher TDS for Non-Filers)
  • If payment is made to a specified person as mentioned above, then tax shall be deducted at source (TDS) at higher of below rates:
  • 2 times the rate given in the Income Tax Act or Finance Act or
  • 5%
  • If the person provides the PAN but has not filed the return for the last assessment year, the due date for filing has expired, and the aggregate of TDS or TCS in his case is Rs. 50,000 or more, then the above rate shall apply. Just to save from this, if he doesn’t provide the PAN, then tax shall be deducted at 20% or a much higher rate as per section 206AA.
• Section 206CCA (Higher TCS for Non-Filers)
  • The tax shall be collected at source (TCS) on higher of the following: 
  • 2 times the rate given in the Income Tax Act or Finance Act or.
  • 5%
  • If the person provides the PAN but has not filed the return for the last assessment year and the due date for filing has been expired and the aggregate of TDS or TCS in his case is Rs. 50,000 or more then the above rate shall apply. Just to save from this, if he doesn’t provide the PAN then tax shall be collected at 20% or a much higher rate as per section 206CC.

Issues Faced

• Difficult for deductors/collectors to verify tax return filing status of the deductee/collectee at the time of deduction/collection.
• Leads to unnecessary application of higher TDS/TCS rates, blocking of capital, and increased compliance burden.

Proposed Amendment (Effective from April 1, 2025)

Impact of the Change

✅ Simplifies tax compliance for deductors & collectors.
✅ Reduces administrative burden and capital blockage.
✅ Encourages smoother business transactions.

This amendment aims to streamline the taxation process and ease operational challenges for taxpayers.

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