‘Specified Person’ Under Section 206AB & 206CCA

The Finance Act, 2021 has enacted special provisions namely Section 206AB and Section 206CCA, for deduction and collection of tax at source applicable to deductees who were non-filers of income tax returns, effective from 1st July 2021. While Section 206AB specifies the rate of deduction of tax applicable to a person who has been defined as “specified person” under the provision, Section 206CCA applies to collection of tax in respect of sales made to such “specified person”. The remainder of the provisions are par-materia insofar as the definition of “specified person” is concerned, as well as the applicability of the provisions of Section 206AA (requirement to furnish Permanent Account Number by deductee) and Section 206CC (requirement to furnish Permanent Account Number by collectee) are concerned.

The provisions appear to be targeted at persons who have been delinquent in the matter of filing of income tax returns for a consecutive period of a two years provided that the aggregate of the tax deducted at source and the tax collected at source of such persons during each of the two years is in excess of Rs. 50,000/-, by casting an obligation upon the persons responsible for paying to, or receiving from such specified persons, wherever the provisions of Chapter XVII-B (relating to deduction of tax at source) or Chapter XVII-BB (relating to collection of tax at source) are applicable, to deduct or collect tax as the case may be, at the higher of the otherwise applicable rate or 5%.

The features of Section 206AB may be summed up as follows:

a) The provisions applies wherever tax is to be deducted at source under the provisions of Chapter XVII B other than Sections 192, 192A, 194B, 194BB, 194LBC or 194N.

b) The provision applies to person who is defined as a specified person.

c) The rate of deduction of tax applicable to a specified person is the higher of twice the rate otherwise applicable or 5%

The features of Section 206CCA on the other hand may be summed up as follows:

a) The provisions applies wherever tax is to be collected at source under the provisions of Chapter XVII-BB

b) The provision applies to appear who is defined as a specified person.

c) The rate of collection of tax applicable to a specified person is the higher of twice the rate otherwise applicable or 5%.

The common and crucial aspect regarding the applicability of both the provisions involves ascertaining whether the payee in question is a “specified person” or not. A summary of the definition of “specified person” in either provision requires the satisfaction of the following conditions in order to be regarded as one:

a. The person has not filed ITR for the 2 immediately prior assessment years for which due date u/s 139(1) has lapsed;

b. Aggregate of TDS of such person in each of those 2 years is Rs.50,000/- or more;

c. Such person is not a non-resident without PE in India

The first condition is particularly important, which leads us to the understanding that the concept of “specified person” is a dynamic concept, and has to be reckoned with regard to each transaction, by reason of the fact that whether a person is a “specified person” or not will primarily depend on whether such person has filed his income tax returns or not and whether the due date in respect of the assessment year relevant to the immediately previous financial year has lapsed or not.

To better understand the dynamic nature of the concept of “specified person”, let us refer to the various examples in the table below. For the sake of ease of understanding, let us also presume that the mandatory requirement of the TDC / TCS for each of the two preceding assessment years being Rs.50,000/- or more, is also met:

In order therefore to determine whether a payee is a “specified person” or not, such payee’s ITR filing status as well as whether the due date u/s 139(1) for the immediately prior assessment year has lapsed or not, are essential factors to consider.

Taking cognizance of the practical difficulty involved in manually verifying whether a person is a “specified person” or not on a particular day, the Central Board of Direct Taxes vide its Notification No.01/2001 dated 22-06-2021 has notified a new functionality “Compliance Check for Sec.206AB and 206CCA” to facilitate tax deductors and collectors to verify if a person is a “Specified Person” under the aforesaid provisions, available on the Reporting Portal of the Income-tax Department. The link to such Reporting Portal is available on the new e-filing portal of the Income-tax Department, i.e. http://www.incometax.gov.in.

By CA Prathik P and CA Vamsi Krishna Boyapati