Section 206AB and 206CCA Special Provisons for Deduction of Tax at Source (TDS) and Collection of Tax at Source (TCS) for Non-Filers of Income Tax Return

♦ The Finance Bill 2021, inserted two new section 206AB & 206CCA. The said section provide for higher rate of TDS/TCS to be applied for the non-filers of income tax return.

♦ TDS/TCS was already deducted or collected at higher rates u/s 206AA & 206CC respectively for “NON-FURNISHING OF PAN”.

♦ Now, let us learn the difference between the 206AA & 206CC:

Tax is required to be deducted Tax is required to be collected
(i) at the rate specified in the relevant provision of this Act; (i) at twice the rate specified in the relevant provision of this Act;
(ii) at the rate or rates in force; or (ii) at the rate of 5%:
(iii) at the rate of 20%:  

♦ Further, in line with the above sections 206AB & 206CCA have been proposed in Finance Bill, 2021.

♦ The section 206AB is applicable to specified person as defined in the provisions. The provision of sub-section (1) of 206AB provides for TDS rate to be applied if the amount is paid or credited to a specified person being higher of the below rates:-

    • at twice the rate specified in the relevant provision of the Act; or
    • at twice the rate or rates in force; or
    • at the rate of 5%.

♦ The provision of sub-section (1) of section 206AB does not apply in case where tax is required to be deducted under 1942, 192A, 194B, 194BB,194LBC or 194N.

♦ Further, sub-section 2 of 206AB provides that where both the section 206AA & 206AB are applicable i.e. the specified person has not submitted PAN as well as not filed the Income tax return , the tax shall be deducted at higher rate amongst the both section respectively.

♦ “Specified Persons” means who satisfies the following conditions:

    •  A person who has not filed the Income Tax Return for two previous years immediately prior to the previous year in which tax is required to be deducted;
    • The time limit of filing return of income under sub-section (1) of section 139 is expired; and
    • The aggregate tax deducted at source or tax collected at source, as the case maybe, is Rs. 50,000 or more in each of the two previous years.
    • However, the specified persons shall not include a Non-resident who does not have Permanent Establishment (PE) in India.

Pictorial Chart for applicability of Section 206AA and 206AB.

Applicability of 206AA & 206AB

Similarly, 206CCA is proposed to be inserted which provides for TCS rate were tax is required to be collect from the specified person being higher of the rates:

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

(ii) at the rate of 5%.

Further, the sub-sections (2) & (3) of section 206CCA are similar to the provision of sub-sections (2) & (3) of section 206AB as explained above.

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