Practical FAQs for Implementing the provisions of Section 206AB (TDS) and Section 206CCA (TDS) w.e.f. 1st July 2021
In order to tighten the grip on non-filers of Income Tax Returns, Finance Act, 2021 has introduced Section 206AB and 206CCA to the Income Tax Act, 1961. Section 206AB provides for deduction of tax at higher rate of TDS for non-filing of ITRs in certain cases. Similarly, section 206CCA provides for collection of TCS at a higher rate. Both these sections are applicable subject to fulfilment of specified conditions.
Provisions of Section 206AB and 206CCA in brief:
|Particulars||TDS u/s 206AB||TCS u/s 206CCA|
|Responsible Person||Deductor of Tax||Collector of Tax|
|Applicable on||TDS required to be deducted under any provisions of Income Tax Act except section 192, 192A, 194B, 194BB, 194LBC or 194N||TCS required to be collected under any of the provisions of the Income Tax Act|
|Rate||Higher of the following:
||Higher of the following:
1. What are the conditions prescribed for the applicability of section 206AB and 206CCA?
Conditions prescribed for the applicability of section 206AB and 206CCA are as follows:
2. For deduction/ collection of tax as on 01-07-2021, which of the two year’s ITRs should have been filed by the deductee/ collectee for avoiding applicability of section 206AB and 206CCA?
One of the conditions for applicability of section 206AB and 206CCA is that the deductee/ collectee has not filed his for 2 years immediately prior to previous year in which TDS is required to be deducted or TCS is required to be collected for which time limit for filing the ITR u/s 139(1) has expired. As on 01-07-2021, two immediately preceding FYs of which due date of filing ITR has expired are FY 2018-19 and FY 2019-20. You may please note that the ITR for FY 2020-21 has not been considered as its due date has not yet expired.
3. What shall be answer, if the date of deduction / collection is 30-11-2021?
As on 30-11-2021, the due date of filing ITR for FY 2020-21 has already expired. As such, the two relevant financial years for non-applicability of section 206AB/ 206CCA shall be FY 2019-20 and 2020-21.
4. What if such a person has filed his ITR for only one of such financial year viz, FY 2019-20 and all other conditions for applicability of section 206AB and 206CCA have been satisfied?
In such a case, section 206AB/ 206CCA shall not be applicable as for applicability of these sections, ITRs of both these years should not have been filed.
5. Whether section 206AB and 206CCA shall be applicable if a person has not filed his ITRs but his TDS and TCS in one of such years is less than ₹ 50,000/-?
One of the basic conditions for applicability of section 206AB and 206CCA is that aggregate of TDS and TCS of the deductee/ collectee case is ₹ 50,000/- or more in each of the two previous years for which due date for filing ITR has expired. Therefore, if the total TDS and TCS is less than ₹ 50,000/- in even one of these years, then, section 206AB and 206CCA would not be applicable.
6. How would the deductor/ collector identify whether a deductee/ collettee has filed his ITR for previous two years or not and whether his TDS/ TCS credit is higher than 50,000/- or not?
Tax deductor/collector is responsible for deducting/collecting TDS/TCS and hence the are required to identify the specified person which in turn lead to a compliance burden on them. To ease this compliance burden, CBDT has issued a Circular regarding use of functionality under Section 206AB and 206CCA of the Income-tax Act, 1961 vide Circular No. 11 of 2021 F. No. 3701331712021-TPL dated 21st June,2021 wherein a new functionality “Compliance Check for Section 206AB and 206CCA” is made available through reporting portal of Income Tax department.
The tax deductor/collector can feed the single PAN (PAN search) or multiple PANs (bulk search) of the deductee/coIIectee and can get a response from the functionality if such deductee/collectee is a specified person. For PAN Search, response will be visible on the screen which can be downloaded in the PDF format. For Bulk Search, response would be in the form of downloadable file which can be kept for record. The logic of how the functionality works has also been explained in detail in the said circular (given at Appendix-1).
Further the format of declaration and covering email are also given at Appendix – 2 & 3.
7. Whether an employer can deduct TDS of his employee u/s 206AB if he has not filed his ITR for 2 preceding financial years and his TDS in such FYs has exceeded ₹ 50,000/-?
The charging sub-section of section 206AB excludes TDS deductible u/s 192, 192A, 194B, 194BB, 194LBC or 194N. Therefore, employee’s TDS will not be deducted at higher rates as section 206AB will not be applicable on it.
8. In case, the provisions of section 206AB and 206CCA are applicable on a person, and he also fails to furnish his PAN to the deductor/ collector, whether tax shall be deducted/ collected either as per higher rates prescribed by section 206AB/ 206CCA or as per higher rates prescribed by section 206AA/ 206CC?
Sub-section (2) of section 206AB provides that If the provisions of section 206AA are applicable to a specified person then, in addition to the provision of section 206AB, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA. As such, in case, a person is a candidate for applicability of section 206AB and he also fails to furnish his PAN to the deductor, his tax shall be deducted at higher of the rates prescribed by section 206AA and 206AB.
Similar provisions are provided in sub-section (2) of section 206CCA. Therefore, for collection of TCS also, in case, a person is a candidate for applicability of section 206CCA and he also fails to furnish his PAN to the collector, his tax shall be collected at higher of the rates prescribed by section 206CCA and 206CC.
Appendix – 1
Government Of India
Ministry Of Finance
Department Of Revenue
Central Board Of Direct Taxes
Circular No. 11/2021; Dated: June 21, 2021
Sub.: Circular regarding use of functionality under Section 206AB and 206CCA of the Income-tax Act, 1961- reg.
Finance Act, 2021 inserted two new sections 206AB and 206CCA in the Income-tax Act 1961 (hereinafter referred to as “the Act”) which takes effect from 1st day of July, 2021. These sections mandate tax deduction (section 206AB) or tax collection (section 206CCA) at higher rate in case of certain non-filers (specified persons) with respect to tax deductions (other than under sections 192, 192A, 194B, 194BB, 194LBC and 194N) and tax collections. Higher rate is twice the prescribed rate or 5%, whichever is higher. Specified person means a person who satisfies both the following conditions: –
(i) He has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately before the previous year in which tax is required to be deducted /collected. Two previous years to be counted are required to be those whose return filing date under sub-section (1) of section 139 has expired.
(ii) Aggregate of tax deducted at source and tax collected at source is rupees fifty thousand or more in each of these two previous years.
2. It can be seen that the tax deductor or the tax collector is required to do a due diligence of satisfying himself if the deductee or the collectee is a specified person. This can lead to extra compliance burden on such tax deductor or tax collector. To ease this compliance burden the Central Board of Direct Taxes is issuing a new functionality “Compliance Check for Sections 206AB & 206CCA“. This functionality is made available through reporting portal of the Income-tax Department. The tax deductor or the collector can feed the single PAN(PAN search) or multiple PANs (bulk search) of the deductee or collectee and can get a response from the functionality if such deductee or collectee is a specified person. For PAN Search, response will be visible on the screen which can be downloaded in the PDF format. For Bulk Search, response would be in the form of downloadable file which can be kept for record.
3. The logic of the functionality is as under:
4. The deductor or the collector may check the PAN in the functionality at the beginning of the financial year and then he is not required to check the PAN of non-specified person during that financial year. To illustrate, let us assume that a deductor has 10,000 vendors that he deals with. He can use the functionality in the bulk search mode and can get the result of all these 10,000 PANs at one go. Let us assume that the functionality has shown that out of these 10,000 PANs, 5 PANs are specified persons for the purposes of sections 206AB and 206CCA of the Act. Now with respect of the remaining 9,995 PAN, it is clear that they are not in the list of specified persons for that financial year. Since no new name would be added in the list of specified persons during the financial year, the deductor or collector can be assured that these 9,995 PANs would remain outside the list of specified persons during that financial year. Thus, deductor or collector need not check again with respect to these 9,995 PANs during that financial year. There are chances that the 5 PANs which are of specified persons may move out of the list during the financial year and for that there will be need to recheck at the time of making tax deduction or tax collection.
5. The list would be drawn afresh at the start of each financial year and the above process would have to be repeated. For example, at the beginning of the financial year 2022-23 a fresh list would be prepared with previous years 2019-20 and 2020-21 as the two relevant previous years. Then, no name would be added to the list of specified persons during the financial year and only name would be removed based on the logic given in the 3rd to 6th bullets of paragraph 3 above.
6. It may be noted that as per the provisos of sections 206AB & 206CCA of the Act, the specified persons shall not include a non-resident who does not have a permanent establishment in India. Tax deductors & collectors are expected to carry out necessary due diligence in respect of a specified person established by the above referred functionality to consider him as non-specified, if the fall under these provisos.
Under Secretary to the Govt. of India
F. No. 225/67/2021/ITA.II
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, the 21st June 2021
Order under section 138(1)(a)(i) of the Income-tax Act,1961
The Central Board of Direct Taxes(‘CBDT’), in exercise of powers conferred under section 138(1)(a)(i) of Income-tax Act, 1961 (‘Act’), hereby directs that Director General of Income-tax (Systems), New Delhi shall be the specified income-tax authority for furnishing information to the ‘Tax Deductor/Tax Collector’, having registered in the reporting portal of the Project Insight through valid TAN, to identify the ‘Specified Persons’ for the purposes of section 206AB and 206CCA of the Act through the functionality “Compliance Check for Section 206AB & 206CCA”.
2. The information to be furnished shall be:
a) Name: Name as per PAN Record (Masked)
b) PAN Allotment date: XX-XX-XXXX
c) PAN Aadhaar Link Status: Status of linking of PAN and Aadhaar for individual PAN Holders as below:
i. Linked: PAN and Aadhaar are linked.
ii. Not Linked: PAN & Aadhaar are not linked,
iii. Exempt PAN is exempted from PAN-Aadhaar linking requirements as per CBDT’s Notification No. 37/2017 dated 11th May 2017.
iv. Not – Applicable: PAN belongs to non-individual person.
d) Specified person u/s 206AB & 206CCA: (Yes/No)
3. To facilitate the process of furnishing information through the functionality, the Director General of Income-tax (Systems) would notify the procedure and format regarding the functionality“Compliance Check for Section 206AB & 206CCA”after taking approval from the CBDT.
4. A copy of Notification shall be forwarded to this division for record purposes.
DCIT(OSD), (ITA-D), CBDT
Copy forwarded to:-
1. PPS to FM/P TO MoS (F)/PS to RS/
2. PS to chairman, CBDT and all Members, CBDT
3. DGIT (Systems), New Delhi
4. All Pr. CCsIT/DGsIT for kind information
5. ADG (S)-4, New Delhi, for placing on the website: www.incometaxindia.gov.in
6. Guard File
DCIT(OSD), (ITA-D), CBDT
Appendix – 2
Finance Act, 2021 has introduced two new Sections in the Income-tax Act, 1961 namely, section 206AB and 206CCA, which provide for deduction of TDS or collection of TCS at higher tax rates with effect from 01st July 2021. The aforesaid provisions shall be applicable on the receipts/debits proposed to be made from you by our Company on or after 1st July 2021. These provisions shall be applicable in your case if the following 2 conditions are satisfied:
Accordingly, you are requested to provide the attached declaration latest by ________. In case, such declaration is not received by us on or before ________, we would be obliged to collect TDS and TCS (as applicable) at the higher of the following two rates:
Appendix – 3
<Name of Company>
<Address Line – 1>
<Address Line – 2>
<Address Line – 3>
Kind Attn.: ………………
Declaration in accordance with Section 206AB/206CCA of the Income Tax Act, 1961
I, __________________, in the capacity of ___________________ (Director/ Partner/ Self/ etc.), of M/s. _____________________, having registered office/ permanent address at _____________________________ hereby provide declaration on the filing of income tax return of the said entity for the preceding two assessment years i.e., AY 2019-20 and AY 2020-21 i.e. as relevant for financial year (FY) 2018-19 and FY 2019-20 respectively, as follows:
|Relevant Year||Whether filed||ITR Form No.||ITR Filing Date||Acknowledgement No.|
|AY 2019-20 (FY 2018-19)||Yes / No|
|AY 2020-21 (FY 2019-20)||Yes / No|
Receipt from Income Tax Portal evidencing the filing of Income Tax Return are attached herewith.
We undertake that for AY 2021-22 (FY 2020-21), we shall file our ITRs as per the prescribed due dates.
We further undertake to indemnify you in case any income tax demand is raised upon you due to wrong information provided by us in this declaration.
Name of Entity: ___________________________________
PAN of Entity: ________________________________________
CA Dinesh Singhal | Partner- Tax & Regulatory | SNR & Company
CA Saurabh Panwar | Manager-Direct Taxes | SNR & Company