Applicability & Analysis Section 206AB and 206CCA of Income Tax Act, 1961

The Finance Bill 2021, has inserted two new sections in Income Tax Act 1961, which are related to TDS which are Section 206AB and Section 206 CCA which are applicable from 1^st July 2021.

Brief about Section 206AB

According to these provisions of the income tax act, TDS will be required to be deducted at higher of the following: –

1. At Twice rate of the TDS as specified in the relevant provision of the act; or
2. Twice the rate in force; or
3. At the rate of 5%

Applicability of the Section 206AB

This provision applicable on “Specified Persons”. Specified Persons means: –

• Person who has not filed the Income Tax Return (ITR) for 2 previous years immediately before the previous year in which tax is required to be deducted;
• The time limit of ITR filing under sub-section (1) of Section 139 is expired; and
• The aggregate tax deducted at source (TDS) or tax collected at source (TCS), is Rs. 50,000 or more in each of the 2 previous years.

What is the person does not have PAN not filed Income Tax Return

Sub-section (2) of Section 206AB states that if both Section 206AA and 206AB are applicable i.e. the “specified person” has not submitted the PAN and not filed the return; TDS is deducted at the higher rates amongst Section 206AA and 206AB.

Non-Applicability of 206AB of the TDS: –

1. The section 206AB is not applicable in case of TDS on Salary (192), TDS on Premature withdrawal from EPF (192A), TDS on Lottery(194B), TDS on cash withdrawal in excess of 1 crore (194N), TDS on Income in respect of investment in securitization trust (194LBC), TDS on Horse Riding (194BB)
2. Both Section 206AB/206CCA are not applicable to a non-resident who does not have a permanent establishment in India.

Example: –

M/s GEM Delhi LTD made a contract payment of Rs.80 lakhs to Mr. Akhsay Sinha for 3 consecutive years i.e. FY 2018-19, FY 2019-20 and FY 2020-21 and tax under Section 194C was deducted (Rs.90,000 every year) and remitted by GEM Delhi Ltd. Mr. Akshay Sinha however, did not file his Income Tax Return (ITR) for any of the years. Then, in the financial year 2021-22, From July Onwards GEM Delhi LTD, (the payer) must deduct tax at source (TDS) at the higher rates given above.

How can Tax Deductor/ Collector can identify such persons: –

Since tax deductor/collector is responsible for deducting/collecting TDS/TCS, it becomes their responsibility to identify the specified person of whom TDS at the higher rate is required to be deducted. In the absence of proper mechanism, CBDT has issued Circular No. 11 of 2021 F. No. 370133172021-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.

Additionally, Deductee/Collectee can give self-declaration to their respective tax deductor/collector about the non-applicability of Section 206AB/206CCA upon them. Format of the same is given below: –

 

Undertaking pursuant to Section 206AB and Section 206CCA of the Income Tax Act, 1961

TO WHOMSOEVER IT MAY CONCERN

Dear Sir/Madam,

Subject: Declaration confirming filing of the Income Tax Return for immediate two preceding years.

I,                                                                           (Authorized person name)in capacity of

Authorized Signatory of                                         (Company Name) having                                     PAN

And turnover or Rs.10 cr. or more _______________________(YES/NO)                 

Registered office at                                                                                                                             _ do

hereby declare, we have filed Income Tax Returns for Two previous years immediately prior to the previous year in which tax is required to be deducted for which due date filing of return of income under sub section(1) of section 139 of the Income Tax Act, 1961 has expired, the details of which are givenunder:

Financial for which Income Tax Return was due u/s 139(1)	Date of Filing	ITR Acknowledgement No.	TDS + TCS is greater than           Rs. 50000/- (Yes/No)
F.Y.2020-21 (If applicable on this date of declaration)
F.Y. 2019-20
F.Y. 2018-19

I hereby undertake to indemnify the entity for any loss/liability fully including any Tax, interest, penalty, etc. that may arise due to incorrect reporting of above information.

                                                                                                  For   (CompanyName)

Signature (Including Companyroundstamp)       :                                                       _________

Place                                                                    :                                          _______________

Date                                                                     :                                          _______________