Rationalization of provisions of section 206AB and 206CCA to widen and deepen tax-base
In order to widen and deepen the tax-base and to nudge taxpayers to furnish their return of income, Finance Act, 2021 inserted sections 206AB and 206CCA in the Act. The said sections provide for special provision for deduction and collection of tax at source respectively, in case of specified persons at higher rates specified therein.
2. “Specified person” has been defined to mean a person who has not filed the returns of income for both the two assessment years relevant to the two previous years immediately preceding the financial year in which tax is required to be deducted or collected, for which the time limit for 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. Government has provided online utility to taxpayers to check whether the person is specified person or not.
3. Further, the provisions of section 206AB are not applicable in relation to transactions on which tax is to be deducted under sections 192, 192A, 194B, 194BB, 194LBC or 194N of the Act.
4. In order to ensure that all the persons in whose case significant amount of tax has been deducted do furnish their return of income, it is proposed to reduce two years requirement to one year by amending sections 206AB and 206CCA of the Act to provide that “specified person” to mean as a person who has not filed its return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is to be deducted or collected, as the case may be, and the amount of tax collected and deducted at source is Rs. 50,000 or more in the said previous year.
5. However, in order to reduce the additional burden on individual and Hindu undivided family (HUF) taxpayers covered under section 194-IA, 194-IB and 194M of the Act for whom simplified tax deduction system has been provided without requirement of TAN, it is proposed that the provisions of section 206AB will not apply in relation to transactions on which tax is to be deducted under the said sections of the Act.
6. In addition to above, it is also proposed to rectify a drafting error in sections 206AB and 206CCA wherein the terms “deductor” and “collectee” respectively were used incorrectly. Further, since the returns are now being furnished electronically, it is also proposed that in place of ‘filing’ of return, the term ‘furnishing’ of return may be substituted.
7. Further, as a consequential amendment in section 194-IB it is also proposed to omit the reference of section 206AB from sub-section (4) of the said section.
8. These amendments will take effect from 1st April, 2022.
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Note on Clause 57, 61 and 63 of Finance Bill 2022
Clause 57 seeks to amend section 194-IB of the Income-tax Act relating to payment of rent by certain individuals or Hindu undivided family.
The said section provides for deduction of tax by an individual or Hindu undivided family (other than those referred to in second proviso of section 194-I) on the payment of any income by way of rent exceeding fifty thousand rupees for a month or part of a month to a resident at the rate of five per cent. of such income.
Sub-section (4) of the said section provides that where the tax is required to be deducted as per the provisions of section 206AA or section 206AB, such deduction shall not exceed the amount of rent payable for the last month of the previous year or the last month of the tenancy, as the case may be.
It is proposed to amend the said sub-section (4) to omit the reference of section 206AB. This amendment will take effect from 1st April, 2022.
Clause 61 seeks to amend section 206AB of the Income-tax Act relating to special provision for deduction of tax at source for non-filers of income-tax return.
Sub-section (1) of the said section provides the rates at which the tax shall be deducted in case of specified person.
It is proposed to amend the said sub-section (1) to,––
(i) include the reference of sections 194-IA, 194-IB and 194M; and
(ii) omit the brackets and words “(hereafter referred to as deductee)”.
It is further proposed to amend sub-section (3) of the said section to provide that for the purposes of the said section, “specified person” shall mean a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted, for which the time limit for furnishing the 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 the said previous year.
These amendments will take effect from 1st April, 2022.
Clause 63 seeks to amend section 206CCA of the Income-tax Act relating to special provision for collection of tax at source for non-filers of income-tax return.
Sub-section (1) of the said section provides for the rates at which tax shall be collected in case of specified person.
It is proposed to amend the said sub-section (1) to omit the brackets and words “(hereafter referred to as collectee)”.
It is further proposed to amend sub-section (3) of the said section to provide that for the purposes of the said section, “specified person” shall mean a person who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be collected, for which the time limit for furnishing of 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 the said previous year.
These amendments will take effect from 1st April, 2022.
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Extract of Clause 57, 61 and 63 of Finance Bill 2022
57. Amendment of section 194-IB.
In section 194-IB of the Income-tax Act, in sub-section (4), the words, figures and letters “or section 206AB” shall be omitted.
61. Amendment of section 206AB.
In section 206AB of the Income-tax Act,–– section 206AB.
(a) in sub-section (1),––
(i) for the figures, letters and word “194LBC or 194N”, the figures, letters and word “194-IA, 194-IB, 194LBC, 194M or 194N” shall be substituted;
(ii) the brackets and words “(hereafter referred to as deductee)” shall be omitted;
(b) in sub-section (3), for the portion beginning with the words “filed the returns of income” and ending with the words “each of these two previous years:”, the following shall be substituted, namely:––
“furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted, for which the time limit for furnishing the 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 the said previous year:”.
63. Amendment of section 206CCA.
In section 206CCA of the Income-tax Act,––
(a) in sub-section (1), the brackets and words “(hereafter referred to as collectee)” shall be omitted;
(b) in sub-section (3), for the portion beginning with the words “filed the returns of income” and ending with the words “each of these two previous years:”, the following shall be substituted, namely:––
“furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be collected, for which the time limit for furnishing the 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 the said previous year:”.
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