Finance Act, 2021 inserted two sections 206AB - tax deduction and 206CCA - tax collection which came into effect from 1 July, 2021. These sections were amended through the Finance Act, 2022.
What does Section 206AB and 206CCA say?
Section 206AB and 206CCA mandate tax deduction and tax collection, respectively, at a higher rate in case of Specified Persons.
Who are Specified Persons?
Specified persons are those persons who satisfies both the conditions stated below:
- 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 or collected and the due date for filing the return of income under section 139(1) of the Income Tax Act, 1961 has expired.
- The aggregate of tax deducted and collected exceeds Rs. 50,000 in that previous year.
For example - If tax is required to be deducted or collected in the financial year 2022-23 and he has not furnished the return of income for the financial year 2021-22 (the due date for filing of return has expired) and the aggregate amount of tax deducted or collected exceeds Rs. 50,000 in the financial year 2021-22, then section 206AB and 206CCA will be applicable.
What is the higher rate of tax specified?
Higher rate of tax specified is-
- Twice the rate of tax prescribed in the section or
- 5%
Whichever is higher.
What are the sections/provisions that are not covered under the provision of higher TDS under Section 206AB?
The provision for higher deduction of TDS is not applicable on tax to be deducted under section 192, 192A, 194B, 194BB, 194LBC, 194N, 194-IA, 194-IB and 194M.
Further, it has been provided that provisions of section 206AB will not apply in case of deduction of tax on transfer of virtual digital asset (VDA) under section 1945 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 one crore rupees in case of business or fifty lakh rupees in case of 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'·.
How to check if the person is a Specified Person?
In order to ease this compliance burden the Income-tax Department came out with functionality "Compliance Check for Section 206AB & 206CCA", which was made available through the 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 functionality then gave a response if such deductee or collectee was a specified person. For PAN Search, response was visible on the screen which could be downloaded in the PDF format. For Bulk Search, response was in the form of a downloadable file which could be kept for record. The logic of this functionality was explained through paragraph 3 of circular no 11 dated 21st June 2021.
It may be noted that as per the provisions of Section 206AB & 206CCA, the specified person shall not include a non-resident who does not have a permanent establishment (PE) in India. Since the functionality does not have the visibility of non-resident having PE in India, there is the likelihood that non-residents having PE in India may not get reflected in this list. Tax Deductors & Collectors are expected to carry out necessary due diligence in respect of non-residents about the applicability of section 206AB and section 206CCA on them.
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