Section 206AB and Section 206CCA – Higher Rate of TDS/TCS for non-filers of ITR

Finance Act, 2021 inserted two new sections 206AB and 206CCA in the Income-tax Act 1961 (hereinafter referred to as “the Act”) which took effect from July 01, 2021.

Further, these sections were amended by Finance Act 2022. These sections mandated tax deduction (section 206AB) or tax collection (section 206CCA) at a higher rate in the case of certain non-filers of ITR (specified persons) with respect to tax deductions and tax collections.

(A) Section 206AB (For TDS deduction) and Section 206CCA (For TCS collection)

Section 206AB: Where any person is required to deduct TDS under various provisions of Income Tax Act, 1961 on any sum or income or the amount paid/payable/credited to a “specified person”

Section 206CCA: Where any person is required to collect TCS under various provisions of Income Tax Act, 1961 on any sum or amount received by that person from a “specified person

Then the TDS/TCS shall be deducted/collected at the higher of the following rates

  • At twice the rate specified in the relevant provision of the Act OR
  • At twice the rate or rates in force OR
  • At the rate of 5% OR
  • At 20% if the person fails to provide his valid PAN Number

Meaning of “Specified person” for Section 206AB and Section 206CCA

“Specified persons” means a person who satisfies the following BOTH conditions

  • He has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted, for which the time limit for furnishing the return of income under Section 139(1) has expired AND i.e He has not filed his Last year ITR (Income Tax Return) and time limit to file ITR for that year has already expired.
  • The aggregate of TDS and TCS in his case is Rs 50,000 or more in the said previous year.

Note 1: Situation before the amendment made by Finance Act 2022

  • He has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately before the previous year in which tax is required to be deducted/collected. Two previous years to be counted are required to be those whose return filing date under sub-section (1) of section 139 has expired and
  • The aggregate of tax deducted at source and tax collected at source is rupees fifty thousand or more in each of these two previous years.

Note 2: “Specified Persons” shall not include a non-resident who does not have a permanent establishment* in India.

* Explanation: For the purposes of this section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.

(B.) Non-applicability of Section 206AB

Section 206AB is not applied if TDS is required to be deducted under the following Sections

  • 192 (TDS on Salary),
  • 192A (TDS on the accumulated balance due to employee)
  • 194B (TDS on winning from Lottery of crossword puzzles),
  • 194BB (TDS on winning from Horse race),
  • 194-IA (TDS on Payment on transfer of certain immovable property other than agricultural land) (Added by Finance Act 2022)
  • 194-IB (Payment of rent by certain individuals or Hindu undivided family), (Added by Finance Act 2022)
  • 194LBC (TDS on Income in respect of investment in securitization trust),
  • 194M (TDS on Payment of certain sums by certain individuals or Hindu undivided family) (Added by Finance Act 2022)
  • 194N (TDS on Payment of certain amounts in cash)
  • Further, it has been provided that provisions of section 206AB will not apply in case of deduction of tax on the transfer of virtual digital asset (VDA) under section 194S of the Act to a person being an individual or Hindu undivided family, whose sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed Rs. 1 Crore in case of business or Rs 50 lakh in case of the profession, during the financial year immediately preceding the financial year in which such VDA is transferred or if such person does not have any income under the head “Profit and gains of business or profession. (Clarified by CBDT vide Circular No. 10 of 2022 dated May 17, 2022)

(C) Other Point of Consideration as per Circular issued by CBDT (Vide Circular No. 10 of 2022 dated May 17, 2022)

  • It shall be the responsibility of the tax deductor or the tax collector to do due diligence to satisfy himself that the deductee or the collectee is a specified person or not.
  • In order to ease this compliance burden, the Income-tax Department came out with the functionality “Compliance Check for Section 206AB & 206CCA”, which was made available through reporting portal of the Income-tax Department.
  • It enabled the tax deductor or the collector to feed the single PAN (PAN search) or multiple PANs (bulk search) of the deductee or collectee.
  • The Previous Year will be FY 2020-21 to check whether a person will be considered a specified person for Financial Year 2022-23 (CBDT vide Circular No. 10 of 2022 dated May 17, 2022)
  • Click here to read complete Circular No. 10 of 2022 dated May 17, 2022.
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