Section 206AB changes as applicable from July 1,2021 -Declaration on filing of tax return for past years and linking of PAN with Aadhaar

Government of India vide Finance Act 2021, has introduced a new section 206AB under the Act wherein a buyer is responsible to deduct TDS at higher rate (i.e., twice the rate as specified under the relevant provision of the Income Tax Act or twice the rate/ rates in force; or at the rate of 5% whichever is higher) from the seller who is a specified person, in cases where any amount/ sum/ income is paid or payable or credited to the specified person:

1) who has not filed the returns of income for two assessment 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 of the Act has expired; and

2) where the aggregate of tax deducted at source and tax collected at source in the person’s case is INR 50,000 or more in each of these two previous years.

Accordingly, Buyer would have to deduct TDS at higher rate in thecase of a seller/vendor/supplier who has not filed income-tax returns for the immediately prior two years and aggregate of TDS and TCS in your case is more than INR 50,000 in each of the two years.

Note: The term ‘specified person’ doesn’t include a non-resident not having a permanent establishment in India but explanation added to section 206AB states as under — “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.”

Linking of PAN with Aadhaar: – to be linked on or before June 30,2021.

As per Section 139AA (2) of the Act, any person who has been allotted PAN as on 1 July 2017 and who is eligible to obtain Aadhaar number has to link/ intimate his/her Aadhaar in the manner prescribed. Further, it is provided that if a person fails to link/ intimate his/her Aadhaar, his/her allotted PAN would be rendered inoperative, and it shall be deemed that he/she has not provided the PAN. If PAN is not linked with Aadhar within the prescribed date, you are required to deduct TDS at higher rate as per income-tax law. Refer to Annexure A & B enclosed.

Based on the above new provisions, it would be prudent to request all sellers/vendors/suppliers to provide the below declaration (along with supporting document) on their letterheads, so that the Tax Payer can apply the correct TDS rates as per provisions of the law:

<<Declaration format on the letterhead of Seller/Supplier/Vendors>>

I/We ______<Legal Name and complete address >___________, PAN: ___<PAN no.>__________, TAN: ____<TAN no.>_______,referring to the provisions of 206AB of Income-tax Act, 1961 (‘the Act’), hereby declare the following to ……………………………………………………. (‘………….’) (Please provide correct answers and documents which is applicable):

Sr No Questions Answer Remarks Confirmation and Supporting Docs
1 Whether Income-tax return under section 139 of the Act for the Assessment Year 2019-20 has been filed? Yes/No/NA If yes, provide supporting. If NA then specify the reasons Supporting enclosed
2 Whether Income-tax return under section 139 of the Act for the Assessment Year 2020-21 has been filed? Yes/No/NA If yes, provide supporting. If NA then specify the reasons Supporting enclosed
3 Whether we will be filing the Income-tax return under section 139 of the Act for the Assessment Year 2021-22? Yes/No/NA Specify the date when it would be filed? If NA then specify the reasons Please provide one line declaration that IT return would be filed and confirmation of the same would be provided after filing on ITD portal.
4 Whether aggregate of aggregate of Tax deducted at Source (‘TDS’) and Tax collected at Source (‘TCS’) of Assessment Year 2019-20 has exceeded INR 50,000? Yes/No/NA If NA then specify the reasons
5 Whether aggregate of TDS and TCS of Assessment Year 2020-21 has exceeded INR 50,000? Yes/No/NA If NA then specify the reasons
6 I have linked my PAN with Aadhaar number or will link it before 30 Jun 2021 (or any further date as may be notified by CBDT) Yes/No/NA If Linked provide supporting Supporting enclosed

Note: Above is applicable to all other payments viz. -Section 206AB -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 of the Income Tax Act 1961.

We do here by declare that to the best of my/our knowledge and belief what is stated above is correct, complete and is truly stated. In case there is tax liability, interest or penal impositions which are levied on …………………………………………on account of this representation/ declaration, I/we undertake to fully indemnify ………………. for the same.

Thanks
Name of Authorized Signatory
(Designation)

Signature

Encl: 1. Annexure A – Aadhaar Linking Process

2. Annexure B – Rule 114AAA – Making PAN inoperative

Illustrative Table of TDS Rates arising out of non-compliance due to non-filing of ITR or non-linking of Aadhaar u/s 206AB w.e.f July 1,2021.(AY 2022/2023)

Section Nature of Payment Existing Rate New TDS rates due to above noncompliance – twice the existing applicable rate or 5% whichever is higher
Regular TDS compliances applicable to all whenever applicable
194C Contractors and Sub contractors’ payments 1% (Non-Corporate) /2% (Corporates) 5%
194J Fees for Professional or technical services 2%/10% 5%/20%
194I Rent 2% (Movable) /10% (Immovable) 5% (Movable) /20% (Immovable)
194A Interest Other Than Interest on Securities 10% 20%
194A Interest Other Than Interest on Securities – Form 15G/15H No TDS is deducted by if they have not filed their ITR then TDS needs to be deducted 20%
194H Commission or Brokerage 5% 10%
TDS compliances applicable to specific segments only
193 Interest on Securities 10% 20%
194 Income by way of Dividends 10% 20%
194D Insurance Commission 5% 10%
194DA Payment in respect of life insurance policy w.e.f. 1/9/2019, the tax shall be deducted on the amount of income comprised in insurance pay-out 5% 10%
194EE Payment in respect of deposit under National Savings scheme 10% 20%
194F Payment on account of repurchase of unit by Mutual Fund or Unit Trust of India 20% 40%
194G Commission, etc., on sale of lottery tickets 5% 10%
194IA Payment on transfer of certain immovable property other than agricultural land 1% 5%
194IB Payment of rent by individual or HUF not liable to tax audit 5% 10%
194IC Payment of monetary consideration under Joint Development Agreements 10% 20%
194K Income in respect of units payable to resident person 10% 20%
194LA Payment of compensation on acquisition of certain immovable property 10% 20%
194LBA Business trust shall deduct tax while distributing, any interest received or receivable by it from a SPV or any income received from renting or leasing or letting out any real estate asset owned directly by it, to its unit holders. 10% 20%
194LBB Investment fund paying an income to a unit holder [other than income which is exempt under Section 10(23FBB) 10% 20%
194M Payment of commission (not being insurance commission), brokerage, contractual fee, professional fee to a resident person by an Individual or a HUF who are not liable to deduct TDS under section 194C, 194H, or 194J –

Tax shall be deducted under Section 194M with effect from 1/09/2019 when aggregate of sum credited or paid during a financial year exceeds Rs. 50 lakhs.

5% 10%
194O Payment or credit of amount by the e-commerce operator to e-commerce participant 1% 5%
194P Deduction of tax by specified bank in case of senior citizen having age of 75 or more Tax on total income as per rate in force

 

In our opinion not applicable but clarification should be provided by CBDT.
194Q Payment to resident for purchase of goods of the aggregate value exceeding Rs. 50 lakhs

Note: TDS is deductible on sum exceeding Rs. 50 lakhs

0.1% 5%

Note: Above mentioned provisions not applicable to the following sections –Section 192(Salary), Section 192A (Premature withdrawal from the accumulated balance of Provident Fund which is taxable in the employee’s hands.), Section 194B – Winning from the card game, crossword, lottery, puzzle or any other games, Section 194BB- Winning from horse race., Section 194LBC- Income against investment in the securitization trust & Section 194N – Payments of certain amount/ amounts in cash and Non Residents in general.

Note: Above is applicable to all other payments viz. -Section 206AB -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 of the Income Tax Act 1961.

Step 1: Login to Income-tax portal though login credential

Step 2: Click on ‘View e-Filed Returns/ Form in ‘My Account’

Step 2

Step 3:Select‘Income-tax Returns’ form the drop down and click on submit

Step 3

FAQs – Section 206AB of the Income Tax Act 1961 & Aadhaar Linking

(Applicable from July 1,2021 -(AY 2022/23))

Sr No Questions Suggested Answers
1 What is the objective of introducing above provisions? In my view, objectives of introducing above provisions are as under: –

1. to widen the tax base of compliant Taxpayers

2. to increase the revenue from tax collections from the Taxpayers who are complying with the tax provisions

3. to capture the details of the Taxpayers who are non-compliant and to initiate appropriate inquiries and look into the affairs of such tax payers;

4. to increase the tax compliance monitoring;

5. To plug the revenue leakages in general;

6. to tackle the menace of fake and bogus transaction trails.

2 Will it increase the tax compliance in the hands of tax payers? Yes, it will increase in short term, but it would benefit all in the long run if the set objectives are achieved.
3 If above provisions are not complied with by the Taxpayers, what would be the implications of such non-compliance? If above provisions are not complied with, the non-compliant Taxpayers would be termed as defaulters and consequentially, provisions pertaining to Demand and Recoveries along with short recovery of TDS, Interest and Penalties would be recovered as per the provisions of the Income Tax Act, 1961.
4 Will it impact genuine tax payers either as recipient or as payers? Initially it will. However, in the longer long run, genuine taxpayers either as recipients or payers need not worry as the intention is to target non-compliers of law, so that they are compelled to streamline their compliance behavior.
5 If Recipient has commenced the business for the first time, then whether above provisions will impact their affairs? Technically no, but we need to examine the new features of ITD portal that would be introduced w.e.f June 7,2021.
6 If Recipient was not required to file the Income Tax Returns earlier or is it required to file their Income Tax Returns for the first time. Then, whether above provisions will impact their affairs? Technically no, but we need to examine the new features of ITD portal that would be introduced w.e.f June 7,2021.
7 TDS Returns filing utilities are to be made available from the quarter ending 30th September 2021. Will it provide the mechanism to verify such withholding taxes compliance? To my understanding, such an enabling, effective mechanismfor compliance would be provided in the TDS Returns filing validation tool, so that all prima facie apparent issues are notified to the tax payers.
8 Will TDS due date compliance provisions be rationalized or extended further due to introduction of above changes? Yes, I don’t see any due dates getting extended in the future unless practical difficulties prompt such extensions. We need to wait and watch for practical issues which emanate atthe grass root level.
9 Will applicability of the above provisions be extended further? We need to wait and watch based on practical issues atthe grass root level. I am sure CBDT will provide suitable clarifications for modifying/extending the scope.
10 If PAN Number is disabled/cancelled/suspended due to non-linking of Aadhaar from July 1,2021, what would be the implications? Illustrative Implications

  • All Tax Payers would deduct the TDS @ 20% invariably;
  • Recipient won’t be able to claim the credit for TDS deducted at source or TCS collected at source;
  • Such Taxpayers will not be able to file their Income Tax Returns as per the provisions of the Income Tax Act 1961 and consequential implications would arise.
  • Such Taxpayers will not be able to trade on stock exchanges or invest in securities.
  • Overseas remittances would pose challenges
  • IEC Number could be suspended.
  • GST Number would be termed as invalid as PAN Number is cancelled;
  • If such Taxpayers are carrying on business, then due to cancellation/suspension/disablement of PAN, even e way bills as per GST Act 2017 can’t be generated;
  • Will result in not having an important proof to establish identity of the person, a document which is used practically for various purposes by all.
  • DIN Number allotted under Companies Act 2013 would be invalidated; similarly for Designated Partners of LLP.
11 If PAN Number is disabled/cancelled/suspended due to non-linking of Aadhaar from July 1,2021, can it be restored and revoked? I am sure such a mechanism would be introduced with appropriate guidelines for restoration, as it has significant impact on one’s affairs and has far reaching implications.
12 Will such non-compliance result into disallowance of expenditure u/s 40(a)(ia) of the Income Tax Act 1961? Yes, such non- compliance will result into disallowance of such expenditure & also while determining total Income u/s 28 of the Income Tax Act 1961 – relevant extract of section 40(a) is as under: –

(ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :

Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid :

Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso.

Explanation. —For the purposes of this sub-clause, —

(i) “commission or brokerage” shall have the same meaning as in clause (i) of the Explanation to section 194H;

(ii) “fees for technical services” shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;

(iii) “professional services” shall have the same meaning as in clause (a) of the Explanation to section 194J;

(iv) “work” shall have the same meaning as in Explanation III to section 194C;

(v) “rent” shall have the same meaning as in clause (i) to the Explanation to section 194-I;

(vi) “royalty” shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;

13 Do statutory auditors need to report such non-compliance in the Statutory audit reports of the company? Yes, auditors need to report such non-compliances in the audit reports and qualify the Independent Auditors report accordingly.
14 Do Tax auditors need to report such non-compliance in the Tax Audit reports of the company? Yes, auditors need to report such non-compliances in the tax audit reports and qualify the Tax audit report issued u/s 44AB of the Income Tax Act 1961 accordingly.
15 Will compounding and Penalty provisions would apply due to above non-compliance? Yes, Compounding and Penalty provisions would apply due to such non compliances as per the provisions of the Income Tax Act 1961 under specified situations.

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18 Comments

  1. Suman says:

    What are the supporting document to show proof of ITR filed? I would not like to share my ITR -V as it discloses my income. Is it compulsory to share ITR-V?

    1. You need not share ITR – V. You can just share the snapshot of ITR filing page or declarations of ITR -V acknowledgement numbers and date of filing……………..it is an understanding between two undertakings or business enterprises

  2. Jared Antao says:

    Dear sir,
    For u/s 194H the normal rate of TDS is 5%. So the double of this is 10%. However the rate for non-filling of return is stated as 20%. Can you please clarify the reason for this.
    Regards,
    Jared Antao

  3. Gk says:

    The 50,000 tds limit for preceding two years, is it only in respect of tds by the respective deductor or is it total tds from all deductors?

  4. Gk says:

    The 50000 tds limit for preceding two years, is it only in respect of tds by the respective deductor or is it total tds from all deductors?

  5. Prashanth Kamth says:

    This is an excellent move from the CBDT. What they should do is like in GST portal we have the option of seeing whether the assessee has filed the returns or not , same facility must be provided in the IT portal , so that going back to the suppliers asking copy of the IT returns is very lengthy process. Secondly the govt can publish the list of PAN where the returns are not filed for the specified period. This will become a starting point for the buyer.

  6. Brahmpal says:

    It has been seen that when contents are in tabular form, the contents of second column which is important, is only visible partially
    Tax guru is requested to fix this problem

  7. V J Shah says:

    What are the provisions of Linking of NRIs PAN with Aadhar ?? The word used is “…who is eligible to obtain Aadhaar number”.

    Any idea If NRI is not eligible to obtain Aadhar how to intimate the same to the Department and how to ensure that PAN is not deactivated.

    1. NRI are not allowed to obtain aadhaar and no requirement to quote the same in ITR also if Residence status is declared as Non Resident. For them PAN won’t be disabled on account of aadhaar linking positively. But if aadhaar is obtained then it is required to be linked mandatorily.

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