Applicability & Analysis Section 206AB and 206CCA of Income Tax Act, 1961
Introduction: Section 206AB and 206CCA are newly inserted sections in the Income Tax Act,1961 vide Finance Act, 2021. These sections are special provision for deduction/collection of tax at source at a higher rate for certain non-filers (specified person) of Income Tax Return.
Section 206AB deals with deduction of tax (TDS) at higher rate whereas Section 206CCA deals with collection of tax (TCS) at higher rate. Since both the sections are similar in nature, efforts have been made to discuss both the section in tandem.
Effective Date: Section 206AB and 206CCA are effective from 1st July 2021.
Section 206AB and Section 206CCA are non-obstante sections having overriding effect to any other provision/section contrary to this under the Income Tax Act.
Sub-section (1) of Section 206AB/206CCA states that, where tax is required to be deducted/collected at source on any sum or income or amount paid/received or payable or credited by any person to/from the specified person, then tax shall be deducted/collected at higher of the following rates:
|For Section 206AB||For Section 206CCA|
|(i) At twice the rates specified in the relevant provisions of the act||(i) At twice the rates specified in the relevant provisions of the act|
|(ii) At twice the rate or rates in force||(ii) At the rate of 5%|
|(iii) At the rate of 5%|
Further, Sub-section (2) of Section 206AB/206CCA provides that on Non-furnishing of PAN by the specified person, Section 206AA/206CC shall be applicable in addition to this section respectively and the tax shall be deducted/collected at higher of two rates provided in Section 206AB/206CCA and in Section 206AA/206CC.
Who are ‘Specified Person’/ Conditions for Applicability of Section 206AB/206CCA
Section 206AB/206CCA are applicable to Specified person.
Now, ‘Specified person’ means a person satisfying all the below mentioned conditions but shall not include a non-resident who does not have a permanent establishment in India:
Condition 1 – Person has not filed their Income Tax Return for two previous years immediately preceding the previous year in which tax is required to be deducted/collected
Condition 2 – The time limit for filing of such return of income U/s 139(1) has expired.
Condition 3 – Aggregate of Tax deducted/collected at source in each of these two financial year is INR 50,000/- or more
Therefore, For FY 2021-22 effective 1st July 2021, specified person shall mean those persons who has not filed their Income Tax Return for both the FY 2018-19 & FY 2019-20 and whose total tax deducted/collected during each of FY 2018-19 & FY 2019-20 were INR 50,000/- or more.
How to Identify ‘Specified Person’ by Tax Deductors/Collectors
Since tax deductor/collector is responsible for deducting/collecting TDS/TCS, it becomes their responsibility to identify the specified person which in turn lead to an additional burden on their part. To ease this compliance burden, CBDT has issued a Circular regarding use of functionality under Section 206AB and 206CCA of the Income-tax Act, 1961 vide Circular No. 11 of 2021 F. No. 3701331712021-TPL dated 21st June,2021. Wherein a new functionality “Compliance Check for Section 206AB and 206CCA” is made available through reporting portal of Income Tax department.
The tax deductor/collector can feed the single PAN (PAN search) or multiple PANs (bulk search) of the deductee/coIIectee and can get a response from the functionality if such deductee/collectee is a specified person. For PAN Search, response will be visible on the screen which can be downloaded in the PDF format. For Bulk Search, response would be in the form of downloadable file which can be kept for record. The logic of how the functionality works has also been explained in detail in the said circular.
Additionally, Deductee/Collectee can give self-declaration to their respective tax deductor/collector about the non-applicability of Section 206AB/206CCA upon them.
Sample format of Self-Declaration is mentioned below:
“ (On the letter-head of entity)
Dear XXXX (Deductor’s/Collector’s Name)
Sub: Declaration regarding filing of Income Tax Returns for past years
This letter is to inform you that Finance Act 2021 has introduced new provision w.e.f. 1st July 2021 vide section 206AB/206CCA under Income Tax Act 1961 for deducting/collecting TDS/TCS at higher rate for non-filing income tax return (ITR) which is otherwise required to be furnished under section 139 (1) of the Income Tax Act,1961.
In this regard, I/We , having PAN: , hereby declare that I/We have duly filled our Income Tax Return for two previous years immediately preceding the previous year in which tax is required to be deducted/collected for which time limit for filing u/s 139(1) has expired and hence TDS/TCS should not be deducted/collected at a higher rate.
Details of ITR filling has been mentioned below
|Assessment Year||Acknowledgement Number||Date of Filing|
Further, we do hereby declare that what is stated above is true and correct to the best of my/our knowledge and belief. In case there is any tax liability, interest or penal impositions upon you or your organisation on account of this representation/declaration, I/we undertake to fully indemnify you/organisation for the same.
Name of Authorized Signatory with Designation & Signature ”
Non-Applicability/Exemptions under Section 206AB/206CCA
Both Section 206AB/206CCA are not applicable to a non-resident who does not have a permanent establishment in India.
Further, provisions of section 206AB does not apply to any sum or income or amount paid or payable or credited on which tax is otherwise deducted at source under below mentioned provision of Chapter XVIIB: