Section 206AB & 206CCA Higher Rate of TDS/TCS in Case of Non-Filers of Return

Non- Applicability of the Section 206AB

1. If specified person is non-resident who does not have permanent establishment in India.

2. The section has overriding effect on all provisions of Chapter XVIIB of the Income Tax Act, 1961 except the below mentioned sections

S. No.	Section	Particulars
1	192	TDS on Salary
2	192A	TDS on Payment of Accumulated Balance Due to an Employee
3	194B	TDS on winnings from Lottery, Game Shows, and Puzzle etc.
4	194BB	TDS on winning from Horse Race
5	194LBC	TDS on Income in Respect of Investment in Securitization Trust
6	194N	TDS on cash withdrawal

Applicable Tax Rate

The tax shall be deducted at the higher of the following rates, namely :–

a. at twice the rate specified in the relevant provision of the Act; or

b. at twice the rate or rates in force; or

c. at the rate of five per cent.

In case, 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.

 Table Representing Applicability of Section 206AB

Case	TDS/TCS in Financial Year		ITR Filing status	Whether Sec 206AB applicable
	In 2019-20 Rs. 50,000 or more	In 2020-21 Rs. 50,000 or more
A	No	Yes	Not filed for both the years	No
B	Yes	No	Not filed for both the years	No
C	Yes	Yes	Filed for both the years	No
D	Yes	Yes	Not filed for both the years	Yes
E	Yes	Yes	Filed only for PY 2019-20	No
F	Yes	Yes	Filed only for PY 2020-21	No

Important Points

From the perusal of above section, the following points are to be noted:

• This punitive rate on the payee will be in addition to the interest, penalty, prosecution and other consequences of non-filing of ROI.
• Credit will be available to the payees for the higher taxes paid while filing his return of income Interpretation of the threshold condition:
• To compute threshold of INR 50,000 or more, both TDS and TCS of respective FY needs to be aggregated. For example: I Co is making FTS payment to Mr. A of Rs. 1 Lac on which TDS is required to be deducted u/s. 194J @10%. He had not filed ITR for last 2 PY and due date u/s. 139(1) has also expired. For each of the last 2 PY, tax deducted of Mr. A was Rs. 20,000 and Rs. 35,000 respectively and TCS collected was Rs. 30,000 and Rs. 40,000 respectively.
• Aggregate of TDS and TCS in year 1 – 20,000 + 30,000 = 50,000
• Aggregate of TDS and TCS for year 2 – 35,000 + 40,000 = 75,000
• The condition of having TDS & TCS of Rs. 50,000 or more in each of the 2 FY is satisfied in the given case.

Meaning of specified person  

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 subsection (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.

Provisions of this section shall not apply to non-resident who does not have a permanent establishment in India. The expression permanent establishment includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.

Which are the two previous years immediately prior to previous year 2021-22 for which the Return of Income filing status is required to be examined in case of the  deductee?

The definition of the term “specified person” includes 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. If a person wants to deduct tax on 25.08.2021,then the returns to be considered for two previous years will be as under:

Particulars	Individuals	Company/Person to whom Tax Audit is applicable	Person to whom Transfer pricing is applicable
Due date of filling return	31 July	31 October	30 November
PY to be considered	PY 2019-20 PY 2020-21	PY 2018-19 PY 2019-20	PY 2018-19 PY 2019-20

If tax is required to be deducted for transactions undertaken in the previous year 2021-22, which of the two previous years should the deductor consider for examining the return filing status of the deductee. The definition requires that the status should be examined for 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 section 139(1) has expired

Let’s take the following previous years:

Previous year	Time limit of filing ROI expired
2020-21	No
2019-20	Yes
2018-19	Yes

From the above table, it can be seen that though the two previous years immediately prior to the previous year 2021-22 are 2020-21 and 2019-20, the time limit for filing ROI has not expired for previous year 2020-21 and hence, previous year 2020-21 cannot  be considered.

Consequently, the deductor will have to consider return filing status for previous years 2019-20 and 2018-19 to examine whether the deductee qualifies as “specified person” or not, This is also clarified in para 3 of Circular No. 11 dated 21 June 2021 issued by the CBDT.

For specified persons covered in the list as on the start of  the  financial year 2021-22 in the functionality of the income-tax department, the deductor will have to once again verify the Return filing status for previous  year 2020-21 as mentioned in para 3 of the Circular to check whether his name has been removed from the list.

The method of examining the Return filing status for previous year 2020-21 only in the case of specified persons (as mentioned in the Circular) appearing in the list of the income-tax portal gives a major relief to the deductors and reduces their burden of checking the income tax portal for non-specified persons. Though technically such non-specified persons could fall in the definition of the term “specified persons”. This can be understood with the help of the following example:

The Return of Income filing status of Mr. B is as under:

Previous year	Return filing status	Aggregate TDS and TCS (INR)
2018-19	Filed before 1 April 2021	–
2019-20	Not filed before 1 April 2021	60,000
2020-21	Not filed by due date applicable under section 139(1) (say 30 September 2021)	70,000

Mr. B’s name would not appear in the list as on 1 April 2021. If any amount is payable by XYZ Ltd. to Mr. B on 15th October 2021, though Mr. B falls in the definition of the term “specified persons”, Mr. B’s name will not be added in the list of the defaulters. In para 4 of the Circular, it is assumed that Mr. B would remain outside the list of specified persons during that financial year. The rationale adopted for such an approach as discussed in para 3 of the Circular is that “this is a taxpayer friendly measure to reduce the burden on tax deductor and collector of checking PANs of non-specified persons more than once during the financial year”

Now a question arises that section 206AB(3) uses the words ‘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’. Whether these words require that only Return of Income filed under section 139(1) shall be considered and not Return of Income filed under section 139(4)? The answer to that is No. This is for the reason that the section nowhere states that the Return of Income for the previous years is to be filed under 139(1) of the Act. In this context, it is to be noted that the phrase ‘for which the time limit of filing return of income under sub-section (1) of section 139 has expired’ is used to determine the two preceding previous years which should be considered to examine the Return filing status.

Implications of Sec 206AB when certificate u/s 197 has been obtained

The section starts with a non-obstante clause i.e. ‘Notwithstanding anything contained in any other provisions of this Act’ which means that it will override all the other provisions of the Act.

The question that arises is whether it will also override the provisions of section 197 which enables the taxpayer to obtain a Nil/ lower withholding certificate.

Rule 28AA deals with certificate for deduction at lower rates or no deduction of tax from income other than dividends. One of the conditions to be tested by the AO for issuing the certificate is tax payable by the applicant on the assessed or returned or estimated income, as the case may be, for last four previous years. Further, para 2(xiii) and (xiv) of Form 13 requires the applicant to give the following details:

“(xiii) Where return of income for any of the four previous year preceding to the previous year referred to in (vii) has not been filed, please upload a computation of estimated total income of the previous year for which return of income has not been filed.

(xiv) Where return of income for any of the four previous year has been filed in paper form, please upload the copy of such returns”

It is pertinent to note that the section does not require that certificate should not be issued to applicant who has not furnished ROI for the past years. Hence, a lower/ Nil withholding certificate could still be issued in the case where no ROI is filed for the immediately two preceding previous years.

Hence, the implications of section 206AB will have to be kept in mind while applying the rate of tax given in the certificate issued under section 197. If the provisions of section 206AB are not complied with by the deductor, it can be argued that tax officer has authorised him to deduct tax at a particular rate and the same has been complied with by the deductor.

The provisions of Section 206AB overrides all other provisions of the Income-tax Act. It will apply even if the assessee has lower or nil TDS certificate or he has filed a declaration under Section 197A for non-deduction of tax or he is otherwise not liable to file the return of income. However, this provision will be attracted only if the tax is otherwise deductible under Chapter XVII-B.

Higher Rate of TCS as per Section 206CCA :

As per sub-section (1) of the 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 :–

(i) at twice the rate specified in the relevant provision of the Act; or

(ii) at the rate of five per cent.

Section 206CC provides for higher rate of TCS in case of non-furnishing of PAN. Sub-section (2) of the section 206CCA provides that 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.

Sub-section (3) of section 206CCA provides that 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.

However, the specified person shall not include a non-resident who does not have a permanent establishment in India.

Now, let us try to understand the above with the help of an example. Let us assume M/S ABC  Ltd, pays a monthly rent of INR 2 LaCS to Mr. B. Under normal circumstances TDS @ 10% would be deductible u/s 194-I. However, let us understand how the same may work out in different situations in the present year.

The tax is to be deducted in FY 2021-22 (Previous Year). Let us assume that the time limit for filing IT Return u/s 139(1) for Mr. B is 31st July 2021 only and there are no extensions. In such a case, let us see how Mr. B may become a specified assessee in various cases.

Rent for the month	Date of Payment /Deduct- ion	Relevant Previous Years (PY)	TDS & TCS during FY			Status of filing ITR for FY			Specified Assessee?
			18-19	19-20	20-21	18-19	19-20	20-21
June	10-07-21	18-19 & 19-20	20000	25000	30000	Yes	Yes	No	NO
June	10-07-21	18-19 & 19-20	58000	60000	65000	Yes	Yes	No	NO
June	10-07-21	18-19 & 19-20	58000	60000	65000	Yes	No	No	NO
June	10-07-21	18-19 & 19-20	48000	60000	65000	No	No	No	NO
June	10-07-21	18-19 & 19-20	58000	60000	65000	No	No	No	YES
July	10-08-21	19-20 & 20-21	20000	25000	30000	Yes	Yes	No	NO
July	10-08-21	19-20 & 20-21	50000	60000	65000	Yes	No	No	YES
August	10-09-21	19-20 & 20-21	50000	60000	65000	Yes	No	Yes	NO

Steps to identify Specified Assessee as provided by Circular No. 11/2021 dated 21/06/2021

Section 206AB and 206CCA requiring higher rate of TDS & TCS are applicable from 1st July 2021 requiring deduction of TDS (other than salary, horse racing, etc) or TCS at twice the normal rates or 5% whichever is higher, in case, deductee or collectee are specified persons ie not filed ITRs for 2 years, total of TDS and TCS is Rs 50,000 or more.

Considering the fact that it is practically impossible for the deduction or collector to identify the specified persons, the new functionality has been issued by CBDT ‘Compliance check for 206AB and 206CCA’.

As per the functionality, Single or multiple search of PAN can be made to identify the specified persons and bulk data can in fact be downloaded in pdf format.

A list of specified persons would be prepared at the start of the FY and no new specified person would be added during the FY.  If a specified person fulfils the conditions specified above, he would be removed from the list during the FY.

So as a rule, new specified persons list on the portal would be drawn at the start of the FY and no new person would be added during the year even if he becomes a specified person. So we just have to check at the start of the FY for specified persons. Only while adding a new vendor during the year, we might have to look if he is a specified person. Also, if the status of specified person gets converted into a non-specified person, we might have to update in our records.

Section 206AB and Section 206CCA

Extract of Section 206AB of Income Tax Act, 1961

Special provision for deduction of tax at source for non-filers of income-tax return.

206AB. (1) 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:—

(i) at twice the rate specified in the relevant provision of the Act; or

(ii) at twice the rate or rates in force; or

(iii) at the rate of five per cent.

(2) 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.

(3) 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.

Explanation.—For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.]

Extract of Section 206CCA of Income Tax Act, 1961

[Special provision for collection of tax at source for non-filers of income-tax return.

206CCA. (1) 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:—

(i) at twice the rate specified in the relevant provision of the Act; or

(ii) at the rate of five per cent.

(2) 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.

(3) 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.

Explanation.—For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.]

For the applicability of the section 206AB, the following all the conditions must be satisfied:

1. A person is required to deduct tax under any of the provision of chapter XVIIB

2. Transaction is with specified person. Specified Person means a person who has not filed his return of income of immediately two preceding previous years, for which due date u/s 139(1) has expired.

3. 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.

Read Also:-

SECTION	TAXGURU LINKS
192	Section 192 TDS on Salary- Analysis
192A	Section 192A | TDS on Payment of Accumulated balance due to an Employee
193	Section 193 TDS from Interest on Securities – Analysis
194	Section 194 TDS on payment of dividend
194A	Section 194A TDS on Interest (other than Interest on Securities)
194B	Section 194B TDS on winnings from Lottery, Game Shows & Puzzle etc
194BB	Section 194BB TDS on Winning from Horse Races
194C	Section 194C TDS on Payment to Contractor
194D	Section 194D TDS on Insurance Commission- Analysis
194DA	Section 194DA TDS on Payment in respect of Life Insurance Policy
194E	Section 194E TDS on Payments to Non-Resident Sportsmen or Sports Association
194EE	Section 194EE TDS on Payments in respect of Deposit under NSS
194F	Section 194F TDS on Payments on account of repurchase of units by Mutual Fund or UTI
194G	Section 194G TDS on Commission on Sale of Lottery Tickets- Analysis
194H	Section 194H TDS on Commission & Brokerage- Analysis
194I	Section 194I TDS on Rent – Analysis
194-IA	Section 194IA TDS on Purchase of Immovable Property
194-IB	Section 194IB TDS on Rent of Property
194-IC	Section 194IC TDS on Payment Made Under Specified Agreement
194J	Section 194J TDS on Professional or Technical Fees
194K	Section 194K TDS on Income In Respect of Units of Mutual Fund
194-LA	Section 194LA TDS on Payments of Compensation on Acquisition of certain Immovable Property
194-LB	Section 194LB TDS on Income by way of Interest from Infrastructure Debt Fund
194-LBA	Section 194LBA TDS on Certain Income from Units of a Business Trust
194-LBB	Section 194LBB TDS on Income in Respect of Units of Investment Fund
194-LBC	Section 194LBC TDS on Income in Respect of Investment in Securitization Trust
194-LC	Section 194LC | TDS on Interest Income from Indian Company or Business trust
194-LD	Section 194LD TDS on Interest Income on certain Bonds/Government Securities
194M	Section 194M TDS on payments of certain Sums by Individual & HUF
194N	Section 194N TDS on cash withdrawal from banks/post offices
194O	Section 194O TDS on E-commerce Operator- Analysis
194P	Section 194P Deduction of tax in case of specified senior citizen
194Q	Section 194Q Deduction of tax at source on payment of certain sum for purchase of goods
195	Section 195 TDS on Non-Resident Payments
195A	Section 195A Income Payable ‘Net of Tax’
196B	Section 196B TDS on long term capital gains from units referred to in section 115AB
196C	Section 196C TDS on Income from foreign currency bonds or GDRs
196D	Section 196D TDS on Income of foreign institutional investors from securities
197	Section 197 Certificate For TDS Deduction at Lower Rate
197A	Section 197A – No TDS Deduction – Form 15G & Form 15H
198	Section 198 Tax Deducted at Source shall be deemed to be income received
200 (1) & (2)	Section 200(1) & (2) Time Limit for Deposit of Tax Deducted at Source
200 (3)	Section 200(3) Forms & Time Limit for Submitting Quarterly TDS Returns
203	Section 203 TDS Certificate
200A	Section 200A Processing of Statements of Tax Deducted at Source
201	Section 201 Consequences of Non-Compliance to TDS
203A	Section 203A Tax Deduction And Collection Account Number
206AA	Section 206AA Mandatory Requirement of Furnishing PAN-TDS
206AB & 206CCA	Section 206AB & 206CCA Higher Rate of TDS/TCS in Case of Non-Filers of Return
206C	Section 206C Tax Collection at Source (TCS)
206CC	Section 206CC Mandatory Requirement of Furnishing PAN
40(a)(i)	Disallowance for Non deduction of Tax at Source