Section 206AB and 206CCA introduced in Finance Act 2021

Section 206AB/ 206CCA of Income Tax Act, 1961 – Introduced in Union Budget 2021

Article explains Applicability of Sections 206AB & 206CCA, Non – Applicability of Section 206AB, Rate of TDS to be deducted U/s 206AB, Rate of TCS to be collected U/s 206CCA, Declaration forms of Sections 206AB & 206CCA, Extract of Section 206AB and Extract of Section 206CCA

INTRODUCTION

• In order to penalize those who don’t file income tax returns (ITRs) despite being liable to, the government has proposed new Section 206AB and 206CCA in Union Budget 2021.
• These Sections impose a higher rate of TDS / TCS if the transactions are done with the non-filers of income tax return (ITR).
• Section 206AB & 206CCA as proposed in the Union Budget 2021 will come into effect from 1st July 2021.

APPLICABILITY OF SECTIONS 206AB & 206CCA

• The onus of deducting TDS/TCS at a higher rate lies with the deductor/collector on any amount paid to/ received from the “Specified Person”.
• Sub-section (3) of Section 206AB/206CCA defines  “Specified Person” as:
  • Person who has not filed the Income Tax Return (ITR) for 2 previous years immediately before the previous year in which tax is required to be deducted/collected;
  • The time limit of ITR filing under sub-section (1) of Section 139 is expired; and
  • The aggregate TDS or TCS is Rs. 50,000 or more in each of the 2 previous years.

NON- APPLICABILITY OF SECTION 206AB

• Deduction under Section 206AB does not apply if tax is deducted under the following sections

Section	Details
192	TDS on Salary
192A	TDS on Premature withdrawal from EPF
194B	TDS on Lottery
194BB	TDS on Horse Riding
194LBC	TDS on Income in respect of investment in securitization trust
194N	TDS on cash withdrawal in excess of  Rs. 1 crore

• The specified person shall not include a non-resident who does not have a permanent establishment in India.

RATE OF TDS TO BE DEDUCTED U/S 206AB

• Sub-section (1) of Section 206AB gives the applicable TDS rate if the amount is paid/ credited to a specified person, being highest than the below rates
  • at twice the rate specified in the relevant provision of the Act; or
  • twice the rate /rates in force; or
  • at the rate of 5%.
• If the provisions of Section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in Section 206AA.

RATE OF TCS TO BE COLLECTED U/S 206CCA

• Sub-section (1) of Section 206CCA gives the applicable TCS rate if the amount is received from a specified person, being higher than the below rates
  • at twice the rate specified in the relevant provision of the Act; or
  • at the rate of 5%.
• If the provisions of Section 206CC is applicable to a specified person, in addition to the provision of this section, the tax shall be collected at higher of the two rates provided in this section and in Section 206CC.

DECLARATION FORMS OF SECTIONS 206AB & 206CCA

• In the absence of a proper mechanism or platform to determine the applicability of sections, it will be challenging for the deductor/collector to check whether the person from whom TDS/TCS needs to be deducted/collected meets the two conditions or not.
• The deductor/collector can ask for declarations on the letter head of the specified person or use the ITR acknowledgement to check if the person has filed the ITR or not.
• If the specified person does not furnish the declaration or required details, the TDS/TCS should be deducted /collected at a higher rate as per the provisions.

EXTRACT OF SECTION 206AB

• Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely:
  • at twice the rate specified in the relevant provision of the Act; or
  • at twice the rate or rates in force; o
  • at the rate of five per cent.
• For the purposes of this section “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 rupees fifty thousand or more in each of these two previous years
• Provided that the specified person shall not include a non-resident who does not have a permanent establishment in India.

EXTRACT OF SECTION 206CCA

• Notwithstanding anything contained in any other provisions of this Act, where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person (hereafter referred to as collectee) from a specified person, the tax shall be collected at the higher of the following two rates, namely:—
  • at twice the rate specified in the relevant provision of the Act; or
  • at the rate of five per cent.
• If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC.
• For the purposes of this section “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 collected, 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 rupees fifty thousand or more in each of these two previous years:
• Provided that the specified person shall not include a non-resident who does not have a permanent establishment in India