In-depth analysis of Sections 206AB & 206CCA

Sections 206AB & 206CCA were inserted in the Income Tax Act, 1961 vide the Finance Act, 2021

-Section 206AB: Special provision for deduction of tax at source (TDS) for non-filers of ITR.

-Section 206CCA: Special provision for collection of tax at source (TCS) for non-filers of ITR.

These sections mandate higher rate of TDS/ TCS for certain non-filers (specified persons).

Applicability: Sections 206AB & 206CCA, both are applicable to specified persons.

Specified person means a person who satisfies both of the following conditions:

i. A person who has not filed ITRs for both of the 2 A.Ys. relevant to the 2 P.Ys. immediately prior to the P.Y. in which tax is required to be deducted/ collected, for which the time limit of filing ITR under section 139(1) has expired.

ii. Aggregate of TDS & TCS is ₹50,000 or more in each of the 2 P.Ys.

Clarification: For the purpose of checking the fulfilment of above- mentioned conditions, during the present F.Y. 2021-22, we need to check the persons who have not filed ITRs and have aggregate of TDS/ TCS of ₹50,000 or more during the P.Ys.:

• 2018-19 (A.Y. 2019-20)
• 2019-20 (A.Y. 2020-21)

Note: Specified person shall not include a non-resident who does not have a permanent establishment in India.

Non- applicability: Higher rate of TDS/TCS is not applicable in the following cases:

• Section 206AB is not applicable in the following cases:

1.	Non-resident who does not have a permanent establishment in India
2.	Section 192	Salary
3.	Section 192A	Payment of accumulated balance due to an employee
4.	Section 194B	Winnings from lottery or crossword puzzle
5.	Section 194BB	Winning from a horse race
6.	Section 194LBC	Income in respect of investment in securitisation trust
7.	Section 194N	Payments of certain amount/amounts in cash

• Section 206CCA is not applicable in the following case:

1.	Non-resident who does not have a permanent establishment in India

Applicable w.e.f.: 1^st July, 2021

Rate of TDS/TCS: Higher of the following:

206AB	206CCA
Twice the rate as provided in the relevant provision	Twice the rate as provided in the relevant provision
Twice the rate in force	5%
5%

Sections 206AB & 206CCA vis-à-vis Sections 206AA & 206CC:

If the provisions of section 206AA/206CC is applicable to a specified person, in addition to the provisions of section 206AB/206CCA, the tax shall be collected at higher of the two rates provided.

Sections 206AA & 206CC talks about the requirement to furnish PAN and the rate of TDS/TCS to be applicable in case of non-furnishing.  

Self-declaration: The Act does not provide for any such declaration but as a good practice a deductee/collectee can furnish a declaration on the letterhead of the Company along with a copy of ITR acknowledgments of last 2 F.Ys. to the concerned tax deductor/collector about the non-applicability of Section 206AB/206CCA upon them.

(A sample format of Declaration is attached at the end of this document)

COMPLIANCE CHECK FUNCTIONALITY FOR SECTIONS 206AB & 206CCA

With the advent of sections 206AB & 206CCA, it is quite obvious that it can lead to extra compliance burden of tax deductors & collectors. Further, to ease this compliance burden, the CBDT vide Circular No. 11 of 2021 F. No. 3701331712021-TPL dtd. 21^st June, 2021. has come up with a new functionality which is named as “Compliance Check for Sections 206AB & 206CCA”. 

• This functionality is available through reporting portal of the Income Tax.
• The tax deductor/collector can feed the single PAN (PAN search) or multiple PANs (bulk search) of the deductee/collectee 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 PDF format.
• For Bulk Search, response would be in the form of downloadable file which can be kept for record.

Points to ponder:

1. List: A list of specified persons is prepared as on the start of the F.Y. 2021-22, taking P.Ys. 2018-19 & 2019-20as the two relevant P.Ys.

2. Names in the list: List contains name of taxpayers who did not file ITR for both A.Ys. 2019-20 and 2020-21and have aggregate of TDS & TCS of ₹50,000 or more in each of the two P.Ys.

3. No addition of new names:During the F.Y. 2021-22, no new names are addedin the list of specified persons. This is to reduce the burden of tax deductor/ collector from checking PAN of non-specified person more than once during a F.Y.

4. Removal of name from the list:

a. If any specified person files ITR (filed & verified) for A.Ys. 2019-20 and 2020-21during the F.Y. 2021-22, his name would be removedfrom the list of specified persons. This would be done on the date of filing of ITR.

b. If any specified person files ITR (filed & verified) for A.Y. 2021-22, his name would be removed from the list of specified persons. This would be done on the:

• • due date of filing of ITR for A.Y. 2021-22 or
  • date of actual filing of ITR (filed & verified)

whichever is later.

c. If the aggregate of TDS & TCS, in the case of a specified person, in the P.Y. 2020-21,is less than ₹50,000, his name would be removed from the list of specified persons. This would be done on the first due date under section 139(1) of the Act. For the A.Y. 2021-22, the due date is30^th September, 2021.

d. Belated and revised TCS & TDSreturns of the relevant F.Ys. filed during the F.Y. 2021-22 would also be considered for removing persons from the list of specified persons.

5. Compliance check:The deductor/ collector may check the PAN in the functionality at the beginning of the F.Y. and then he is not required to check the PAN of non-specified person during that F.Y.

For instance: Let us assume that a deductor has 1000 vendors that he deals with. He can use the functionality in the bulk search mode and can get the result of all these 1000 PANs at one go. Let us assume that the functionality has shown that out of these 1000 PANs, 5 PANs are specified persons for the purposes of sections 206AB and 206CCA of the Act. Now with respect of the remaining 995 PANs, it is clear that they are not in the list of specified persons for that F.Y. Since no new name would be added in the list of specified persons during the F.Y., the deductor or collector can be assured that 995 persons would remain outside the list of specified persons during that F.Y. Thus, deductor or collector need not to check again with respect to 995 PANs. There are chances that the 5 PANs which are of specified persons may be removed from the list during the F.Y. and for that, there will be need to recheck at the time of making tax deduction or tax collection.

6. Fresh list: The list would be drawn afresh at the start of each F.Y. and the above process would have to be repeated.

Disclaimer: The author is based in Jabalpur and is a Practicing Company Secretary dealing in Corporate, Legal & Taxation services. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Author recommends that professional advice is sought before taking any action on specific issues.

The author can also be reached at [email protected]

SAMPLE FORMAT

Date:    

To,

_____________

_____________

_____________

Subject: Declaration regarding non-applicability of Sections 206AB/206CCA of the Income Tax Act, 1961.

Dear Sir/Ma’am,

This letter is to inform you that two new sections, namely, Section 206AB & 206CCA are inserted in the Income Tax Act, 1961 vide the Finance Act, 2021 for deducting TDS/collecting TCS at higher rate from specified persons. The said sections are applicable w.e.f. 1^st July, 2021.

Specified person means a person who has not filed Income Tax Returns (ITRs) for last 2 assessment years. immediately prior to the previous year in which tax is required to be deducted/ collected, for which the time limit of filing ITR under section 139(1) has expired and the aggregate of TDS & TCS is ₹50,000 or more in each of the 2 previous years.

In this regard, I/we_____________, having PAN: _________, hereby declare that I/we have duly filed my/our ITRs for the two previous years immediately preceding the previous year in which tax is required to be deducted/collected and hence the provisions of Sections 206AB & 206CCA are not applicable on me/us.

The acknowledgment receipts as received from the Income Tax Department are hereby attached as Annexure-I.

Further, I/we do hereby declare that the information contained in this letter (including annexures), is true and correct to the best of my/our knowledge and belief. I/we undertake to indemnify you/your entity for any tax liability, interest or penal consequences that may arise due to incorrect reporting/declaration.

Yours Sincerely,

For and on behalf of (name of the organization)

(Name of the authorized signatory)

(Designation)

(Signature)