New Income Tax Provisions Penalising non-compliant businesses. Section 206AB and 206CCA Explained

Section 206AB and 206CCA are newly inserted sections in the Income Tax Act,1961 vide Finance Act, 2021. These sections are special provisions 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 a higher rate whereas Section 206CCA deals with the collection of tax (TCS) at a higher rate.

Section 206AB and 206CCA shall be applicable with effect from 1st July 2021. The deductor/collector will now have to request documentation validating proof of ITR submission in the previous 2 years.

TDS deduction u/s 206AB

Section 206AB states that, where tax is required to be deducted at source on any amount received by any person from a specified person, then tax shall be deducted at higher of the following rates:

Further, in case PAN is not furnished, the tax shall be deducted at twice the rates specified in the act or at the rate of 20%, whichever is higher.

The same provisions as above are applicable in case of Tax Collection under section 206CCA.

Who can be classified as a “Specified Person”?

Applicability of the section

Section 206AB/206CCA are applicable ONLY to a Specified person.

A ‘Specified person’ means a person satisfying all the below-mentioned conditions:

Therefore, For FY 2021-22 effective 1st July 2021, a specified person shall mean those persons who have 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.

Launch of Functionality on IT Portal to ease the compliance burden of Tax Deductors/Collectors.

To implement provisions of 206AB/206CCA, the tax deductor/collector was required to do a lot of due diligence to satisfy himself if the deductee/collectee is a specified person. This would have resulted in an extra burden on such tax deductor/collector.

To ease this burden the Tax Department has issued a new functionality "Compliance Check for Sections 206AB & 206CCA” which is made available through reporting portal of the Income Tax department.

The tax deductor/collector can search the single PAN or multiple PANs of the deductee/ coIIectee and can get a response from the functionality if such deductee/collectee is a specified person. The search response can be downloaded and kept for record. The logic of how the functionality works has also been explained in detail through CBDT Circular No. 11 of 2021 dated 21st June 2021 available at (https://www.incometaxindia.gov.in/communications/circular/circular_11_2021.pdf).

Alternatively, Deductee/Collectee can give self-declaration to their respective tax deductor/collector about the non-applicability of Section 206AB/206CCA upon them.

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, Section 206AB does not apply to any payments on which tax is otherwise deducted at source under the below-mentioned provision:

• Section 192 – Salary

• Section 192A – Withdrawal from PF

• Section 194B – Winnings from lottery

• Section 194BB – Winning from a horse race

• Section 194LBC – Income from investment in securitisation trust

• Section 194N – Cash Withdrawal in excess of Rs. 1 cr

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You can write to us at faeza@corpliance.in or send a WhatsApp message at +91 9773889862 in case you need more information regarding provisions of 206AB & 206CCA.

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