In the Finance Bill 2021, SECTION 206AB AND 206CC IN INCOME TAX, a new section provides for the deduction and collection of higher-rate tax at source if an amount is paid or receivable to a designated individual who did not submit an income tax return. TDS is covered under section 206AB of the Income Tax Act, which comes after section 206AA. It also specifies that if a Permanent Account Number (PAN) is not provided, TDS would be deducted at a higher rate. Similarly, section 206CCA of the Income Tax Act is introduced after section 206CC.
SECTION 206AB AND 206CC IN INCOME TAX
TDS or tax deduction at source is provided under Section 206AB on payments paid or receivable to certain people who do not file an income tax return at rates greater than those stated in the act.
The requirements of section 206AB apply to a specific person as stated in the provisions. If an amount is paid or credited to a particular person and the TDS rate is greater than the following rates, the provision of sub-section (1) of 206AB applies. –
at double the rate set out in the applicable Act provision; or
double the current rate or rates; or
at a rate of 5%
When tax is needed to be deducted under section 194, 192A, 194B, 194BB,194LBC, or 194N, the requirement of sub-section (1) of section 206AB does not apply.
Furthermore, sub-section 2 of 206AB states that if both sections 206AA and 206AB apply, i.e.If the specified person does not have a PAN or has not filed an income tax return, the tax will be deducted at a higher rate in both sections.
SECTION 206AB OF INCOME TAX ACT, 1961
The Finance Act of 2021 added a new section to the Income Tax Act of 1961 called Section 206AB, which requires the person paying the money to deduct TDS if the identified individual fails to file an income tax return.
SECTION 206AB APPLICABILITY
The following factors are covered under section 206AB’s provisions:
Section 206AB provides an exception.
TDS deduction rate
Section 206AB’s compatibility with Section 206AA
Section 192A of the Income Tax Act of 1961 is primarily concerned with TDS (Tax Deducted at Source) on provident fund withdrawals. This provision is very fresh, given it was just recently added to the Income Tax Act. The Indian Income Tax Act, section 192A, deals with tax deducted at source on PF withdrawals.
When a person deducting any amount (hereinafter referred to as deductor) under section 200 submits a statement of tax deduction at source, the statement must be handled in the following manner:
After making the following changes, the amount deductible under this Chapter are computed:
any mathematical error in the statement; or
a false assertion, as evidenced by any information in the statement;
if there is any interest, it will be calculated on the basis of the deductible sums as determined in the statement.
the sum payable by, or the amount of refund due to, the deductor shall be calculated after the amount computed under paragraph (b) has been adjusted against any amount paid under sections 200 and 201, as well as any other amount paid in tax or interest;
an intimation shall be written or created and given to the deductor, stating the amount decided to be payable by him or the amount of reimbursement due to him under subsection (c); and
the amount of the refund due to the deductor as a result of the determination made under subsection (c) is given to the deductor.
UNDER SECTION 206AB, WHO IS OBLIGATED TO DEDUCT TAX?
Under Section 206AB, every person who is liable for paying any sum or income, or who has paid or credited any amount, or by whom any amount is payable, must deduct the TDS.
The word “specified person” means:
The term “specified persons” refers to anyone who meets the following criteria:
A person who has not submitted an income tax return in the two years immediately preceding the year in which tax is due to be deducted;
The deadline for submitting a return of income under section 139, sub-section (1), has passed; and
In each of the preceding two years, the total tax deducted at source (or tax collected at source, as the case may be) was Rs. 50,000 or higher.
Non-residents without a Permanent Establishment (PE) in India are not included in the specified persons.
SECTION 206CC OF INCOME TAX ACT
Any person paying any sum or amount on which tax is collectible at source under Chapter XVII-BB shall furnish his Permanent Account Number to the person responsible for collecting such tax (herein referred to as collector), failing which tax shall be collected at the higher of the following rates namely:
at the rate stated in the relevant provision of this Act, whichever is greater.
at a five-percent
206CC(2) of the Income Tax Act
No declaration made under section 206C, subsection (1A), will be valid unless the individual includes his Permanent Account Number.
206CC(3) of the Income Tax Act
If a declaration is found to be invalid under sub-section (2), the collector is required to collect the tax at source in line with sub-section (3).
206CC(4) of the Income Tax Act
No certificate under sub-section (9) of section 206C will be given unless the application includes the applicant’s Permanent Account Number.
Income Tax Act, Section 206CC (5)
The collector must get the collectee’s Permanent Account Number, and both parties must include it in all communication, bills, vouchers, and other documents issued to each other.
206CC(6) of the Income Tax Act
When the collector receives a Permanent Account Number that is invalid or does not belong to the collectee, it is presumed that the collectee has not supplied his Permanent Account Number to the collector, and the rules of sub-section (1) apply.
SECTION 206CCA OF INCOME TAX ACT
The terms of section 206CCA, which mandates a greater TCS collection in the event that a specific person fails to file an income tax return. Section 206CCA of the Income Tax Act–
When the following criteria are met, the requirements of section 206CCA are initiated:
Condition 1: The person is already obligated to collect TCS from the specified person; and
Condition 2: The specified person does not file the requisite income tax return.
Once both of the aforementioned requirements are met, the individual will be obliged to collect TCS at the higher rates set out in section 206CCA of the Income Tax Act.
Section 206CCA allows for tax collection at source (TCS) on amounts received by a specific individual at rates that are greater than those set out in the act.
206CCA is proposed to be included, which provides for TCS rates when tax is necessary to be collected from a specified person at the higher of the following rates:
at double the rate established in the relevant section of the Act; or
at a rate of 5%.
Furthermore, the provisions of sub-sections (2) and (3) of section 206CCA are comparable to those of sub-sections (2) and (3) of section 206AB, as previously stated.
Any type of transaction is permitted, with the exception of the following:
Early Withdrawal of EPF benefits
Any lottery, card game, or crossword puzzle winnings
Income derived from a securitization trust investment
Winnings from horse races of any kind
TDS imposed on cash withdrawals.
Two new sections 206AB and 206CCA were added to the Finance Bill 2021. Non-filers of income tax returns are subject to a higher rate of TDS/TCS under these provisions. TDS/TCS was previously deducted or collected at higher rates for “NON-FURNISHING OF PAN” u/s 206AA & 206CC.