New TDS/ TCS rules for NRIs: In the Union Budget 2021 speech, Finance Minister Nirmala Sitharaman announced new provisions related to TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) for taxpayers. These new TDS/TCS rules will be effective from 1st July 2021.
So far only individuals who didn’t have a PAN card were liable for a higher TDS rate. The Finance Act. 2021 has brought in two new changes in rules related to TDS and TCS. These rules will be applicable to residents as well as NRIs (Non-Resident Indians). From the 1st July 2021, a higher tax would be deducted if an individual has not filed Income Tax Returns (ITR) in the last two previous years. To enforce new rules, the Central Board of Direct Taxes has introduced a utility tool, known as the Compliance Check for Section 206AB (for TDS) and 206CCA (for TCS) in the Income Tax Act, 1961.
Note: Previous year is the Financial Year as per the Income Tax Act. Since the provisions are effective from 1 July 2020, the returns of previous Financial Years 2018-19 and 2019-20 will be considered. As the due date for filing the income tax return for FY 2020-21 has not expired yet, the new rules won’t be applicable to the FY 2020-21.
What are the new TDS/ TCS rules for NRIs and resident taxpayers?
The Central Board of Direct Taxes (CBDT) stated that people who have not filed income tax returns for two years will be liable for a higher rate of TDS or TCS. As per the new rules, TDS or TCS will be twice the tax rate specified in the relevant provision of the Income Tax Act. Or
- Twice the rate or rates in force
- Rate of 5%
Also Read: 5 Ways to save on the tax NRIs have to pay
Who is covered in this Section?
A higher rate of TDS will be applicable in the case of NRIs who have any permanent establishment in India. The provisions of the section will also be applicable to TDS deductions on resident payments like service payment to vendors, shareholder dividends, rent, etc.
Section of 206AB will not be applicable in the cases mentioned below:
- TDS on salary under Section 192
- PF withdrawal under Section 192A
- Winning from lottery or crossword, horse race, or other games under Section 194B or 194BB
- Cash withdrawal more than Rs. 1 cr under Section 194LBC
- Non-Resident Indians (NRIs) who don’t have any *Permanent Establishment in India
*Permanent Establishment: A fixed place of business from where the business of the enterprise is wholly or partly run.
How to verify if you are a specified person as per Section 206AB and 206CCA?
As mentioned above the CBDT has released a new tool known as ‘Compliance Check for Section 206AB and 206CCA’. Just log in to the Reporting portal of the income tax department to check if you are a specified person under the relevant Sections.
Due to a complicated tax system and recurrent amendments, understanding tax laws can be confusing and NRIs may be subject to additional fees or miss claiming deductions and other benefits. At SBNRI, we understand this struggle. You can download SBNRI App to connect with our NRI Tax Experts to know more about new TDS/ TCS rules for NRIs. You will also get end-to-end assistance related to NRI tax filing.