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Section 206AB & section 206CCA inserted in the Income-tax Act, 1961 via Finance bill, 2021 will be effective from the 1st day of July, 2021.
Section 206AB contains special provisions for (TDS) deduction of tax at source for non-filers of the income tax return, whereas, section 206CCA provides for special provision for (TCS) collection of tax at source for non-filers of the income tax return.
Section 206AB & section 206CCA of the Income-tax Act, 1961 imposes a higher rate of TDS (deduction of tax at source) / TCS (collection of tax at source) if the transactions are done with the non-filers of income tax return (ITR).
Also Read: RBI Due Diligence Report
Applicability of section 206AB
Where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than sections 192, 192A, 194B, 194BB, 194LBC, or 194N on any sum/income or the amount paid/payable or credited, by a deductee to a specified person, the tax shall be deducted at the higher of the following rates, namely:
- At twice the rate specified in the relevant provision of the Income-tax Act, 1961 or
- Twice the rate /rates in force or
- At the rate of 5%.
*If the provisions of section 206AA are applicable to a specified person, in addition to the provision of section 206AB, the tax shall be deducted at the higher of the two rates provided in section 206AB and section 206AA.
Applicability of section 206CCA
Where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum /amount received by the collectee from a specified person, the tax shall be collected at the higher of the following two rates, namely:
- At twice the rate specified in the relevant provision of the Income-tax Act, 1961 or
- At the rate of 5%.
*If the provisions of section 206CC are applicable to a specified person, in addition to the provisions of 206CCA, the tax shall be collected at higher of the two rates provided in 206CCA and in section 206CC.
Specified Person for the purpose of section 206AB & 206CCA
The “Specified person” for the purpose of section 206AB & section 206CCA, means a person:
- Who has not filed the ITR for 2 previous years immediately prior to the previous year in which tax is required to be collected/deducted and
- The time limit of ITR filing under sub-section (1) of section 139 is expired and
- The aggregate TDS or TCS is Rs. 50,000 or more in each of the 2 previous years.
“The specified person shall not include a non-resident who does not have a permanent establishment in India“.
Example: For the Previous year 2021-22, specified personal shall be:
The Person who has not filed the income tax return for the previous year 2019-20 & 2020-21 and the time limit of ITR filing under sub-section (1) of section 139 has been expired and the aggregate TDS/TCS was Rs 50,000 (example: 30,000 TDS and 20,000 TCS) in his case in each of the 2 previous years.
Declaration under section 206AB & 206CCA
The deductor/collector can ask for a declaration on the letter head of the specified person or use the ITR acknowledgment to check if the person has filed the ITR or not.
If the specified person does not furnish the declaration or required details, the TDS/TCS should be deducted /collected at a higher rate as per the provisions.
What is the rate of TDS to be deducted under section 206AB?
Sub-section (1) of Section 206AB gives the applicable TDS rate if the amount is paid/ credited to a specified person, being highest than the below rates:
(A) At twice the rate specified in the relevant provision of the Act; or
(B) Twice the rate /rates in force; or
(C) At the rate of 5%.
(D) If the provisions of section 206AA are applicable to a specified person, in addition to the provision of section 206AB, the tax shall be deducted at the higher of the two rates provided in section 206AB and section 206AA.
What is the rate of TCS to be deducted under section 206CCA?
Sub-section (1) of Section 206CCA gives the applicable TCS rate if the amount is received from a specified person, being higher than the below rates
(A) At twice the rate specified in the relevant provision of the Act; or
(B) At the rate of 5%.
(C) If the provisions of Section 206CC are applicable to a specified person, in addition to the provision of section 206CCA, the tax shall be collected at the higher of the two rates provided in section 206CCA and Section 206CC.
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