February 10, 2024

NRI Not Converted Status as Non-Resident: Beware of These TDS Compliances

Sections 206AB and 206CCA of the Income Tax Act, 1961, introduced through the Finance Act, 2021, have significant implications for non-resident Indians (NRIs) who haven't converted their status to non-resident with banks or concerned authorities. These provisions aim to ensure tax compliance by imposing higher rates of tax deduction/collection at source for specified persons, including NRIs who fail to file their income tax returns.

Effective Date and Scope

Effective from July 1, 2021, Sections 206AB and 206CCA hold paramount importance within the Income Tax Act, overriding any conflicting provisions. They mandate higher rates of tax deduction/collection on sums paid or received by specified persons. For Section 206AB, the tax rates are twice the specified rates or 5%, while for Section 206CCA, it's twice the specified rates or 5%.

Conditions for Applicability

These sections apply to specified persons who meet three conditions:

They haven't filed income tax returns for the preceding two years.
The time limit for filing returns under Section 139(1) has expired.
The aggregate tax deducted/collected at source in each of the two preceding financial years is INR 50,000 or more.

Non-Applicability/Exemptions

NRIs without a permanent establishment in India are exempt from Sections 206AB and 206CCA. Additionally, Section 206AB doesn't apply to specific payments already subject to tax deduction at source under Chapter XVIIB, including salary, winnings from lotteries or horse racing, and certain cash payments.

Urging NRIs for Compliance

It's imperative for NRIs who haven't converted their status to non-resident with banks or relevant authorities to be aware of these TDS compliances. Failing to file income tax returns in India could result in higher tax deductions or collections, potentially leading to financial implications.

Stay Informed, Stay Compliant

As we navigate through these tax provisions, let's prioritize compliance to avoid any unwanted consequences. Staying informed and fulfilling our tax obligations not only ensures regulatory adherence but also contributes to the larger economic framework of our nation.