Section 206AB:– Special provision for deduction of TDS for non-filers of income Tax Return at Higher Rates (Sec-51 of Finance Bill:-After section 206AA of the Income-tax Act, the following section shall be inserted with effect from the 1st day of July, 2021)

Section 206CCA:– Special provision for collection of TCS for non-filers of income Tax Return at Higher Rates (Sec-52 of Finance Bill:- After section 206CC of the Income-tax Act, the following section shall be inserted with effect from the 1st day of July, 2021)

The main purpose of the section 206AA and Section 206CC was to encourage the person to obtain the PAN.The new Section 206AB and 206CCA are proposed to be added in the Income Tax Act, 1961 by the Finance Bill, 2021 with effect from the 1st day of July, 2021. These Sections impose a higher rate of TDS / TCS if the transactions are done with the non-filers of income tax return (ITR).

Section 206AB: Special provision for deduction of TDS for non-filers of income Tax Return at Higher Rates (Applicable with effect from 1st day of July, 2021)

1) 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, other than sections 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely:––

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

(ii) at twice the rate or rates in force; or

(iii) at the rate of five per cent.

ANALYSIS :-Rate of deduction under Sub-section (1) of Section 206AB

Sub-section (1) of Section 206AB gives the applicable TDS rate if the amount is paid/ credited to a specific person being higher than the below rates:

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

b) twice the rate /rates in force; or

c) the rate of 5%.

2) If the provisions of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA

3) For the purposes of this section “specified person means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous 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 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:

Provided that the specified person shall not include a non resident who does not have a permanent establishment in India

Explanation.––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.

ANALYSIS :Applicability of Section 206AB

Sub-section (2) of Section 206AB states that if both Section 206AA and 206AB are applicable i.e. the “specified person” has not submitted the PAN and not filed the return; TDS is deducted at the higher rates amongst Section 206AA and 206AB.

This section applies to any sum or income or the amount paid, or payable or credited, by a person (deductee) to a “specified person”.

Sub-section (3) of Section 206AB gives a list of conditions to be considered as “specified person”:

  • Person who has not filed the Income Tax Return (ITR) for 2 previous years immediately before the previous year in which tax is required to be deducted;
  • The time limit of ITR filing under sub-section (1) of Section 139 is expired; and
  • The aggregate tax deducted at source (TDS) or tax collected at source (TCS), is Rs. 50,000 or more in each of the 2 previous years.

Note: The non-resident who does not have a permanent establishment is excluded.

Non-Applicability of Section 206AB :

Deduction under Section 206AB does not apply if tax is deducted under the following sections:

  • 192: TDS on Salary
  • 192A: TDS on Premature withdrawal from EPF
  • 194B: TDS on Lottery
  • 194BB: TDS on Horse Riding
  • 194LBC: TDS on Income in respect of investment in secularization trust
  • 194N: TDS on cash withdrawal in excess of 1 crore

FOLLOWING SECTION IS ALSO INTRODUCED FOR TCS WHICH IS SIMILAR TO ABOVE NEW SECTION OF TDS

Section 206CCA – Special provision for collection of tax at source for non-filers of income-tax return (Applicable with effect from 1st day of July, 2021)

(1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person (hereafter referred to as collectee) from a specified person, the tax shall be collected at the higher of the following two rates, namely:–

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

(ii) at the rate of five per cent.

(2) If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC.

(3) For the purposes of this section “specified person” means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be collected, for which the time limit of 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:

Provided that the specified person shall not include a nonresident who does not have a permanent establishment in India.

Explanation.––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.’

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