206AB and 206 CCA

Two new sections—206AB and 206 CCA

206AB and 206CCA have been added to the Income Tax Act of 1961 by the Finance Bill 2021. For the higher rate of TDS/TCS that must be applied to non-filers of income tax returns, see the aforementioned section. For the purpose of imposing higher rates, Sections 206AA and 206CC are already applicable if a Permanent Account Number is not provided.

What are Sections 206AB and 206CCA

Section 206AB – If you pay someone who hasn’t filed a tax return in the past year, you must deduct TDS at a larger rate than usual.

Section 206CCA – Increase the rate at which TCS is collected from payments received from buyers.

Which is higher the TDS rate under Section 206AB or the TCS rate under Section 206CCA?

TDS according to Section 206AB

If a payment is made to the above-mentioned specific individual, tax will be withheld at source (TDS) at the higher of the following rates:

  • 2 times the rate specified in the Finance Act or the Income Tax Act
  • 5% If the indicated person fails to furnish a PAN in addition to failing to file an income tax return, tax will be withheld at a rate of 20% or the highest applicable rate under the section.

TCS under section 206CCA

Under section 206CCA, TCS The higher of the following must be the basis for tax at source (TCS) collection:

  • 2 times the rate specified in the Finance Act or the Income Tax Act.
  • 5% In addition to failing to file an income tax return, the designated person must also provide their PAN in order to avoid paying tax at the higher of 20% or the appropriate sectional rates.

What is a “specified person” as defined under section 206AB?

The Person Specified is the one:

  • Who has not submitted an income tax return (ITR) for the prior fiscal year (FY), the income tax return filing deadline has passed.
  • The total tax deducted or collected (TDS and TCS) in the most recent FY was at least Rs. 50,000.
  • A non-resident who does not have a permanent establishment in India is not covered by it. For this reason, a fixed location of business where the enterprise does business is considered a permanent establishment.

Section 206AB’s applicability

Any sort of transaction, such as contract payments, professional fees, rent, etc., shall be subject to a larger amount of TDS deduction, with the following types of payments being an exception:

Salary (Section 192)

EPF withdrawal before due date (Section 192A)

Any lottery winnings, card game winnings, or crossword puzzle winnings (Section 194B)

The proceeds of any horse racing (Section 194BB)

A return on an investment in a securitization trust (Section 194LBC)

Withdrawal of money (Section 194N)

Those who are not Indian residents and do not have a PE there.

Additionally, the Union Budget 2022 adds more transactions to which increased TDS cannot be deducted: –

Consideration received for the sale of real estate (Section 194-IA)

Over Rs. 50,000 in rent is due to the landlord (Section 194-IB)

Payment for professional or contractual services exceeding Rs. 50 lakh (Section 194M)

Virtual digital asset transfer (Section 194S) to:

Individual or HUF with an annual gross business revenue of less than Rs 1 crore or annual gross professional revenue of less than Rs 50 lakhs, or

A person or HUF without “revenue from business or profession.”

absence of section 206CCA’s influence

A non-resident who does not have a permanent establishment (PE) in India but does not have an established business location there cannot have TCS collected at a higher rate.

What is the 206AB and 206CCA compliance check facility under sections 206AB and 206CCA, how does the IT department identify the people who are designated?

Step 1: At the start of the fiscal year, a list of “designated persons” is created. For instance, a list of people who haven’t filed their PY 2020–21 returns or who paid TDS/TCS of at least Rs. 50,000 in PY 2020–21 is created at the beginning of FY 2022–23.

There are no additional names added to the list. However, their names will be crossed off the list on the return filing date if the identified individual files his return for PY 2020–21.

Step 2: The names of such individuals would be deleted from the list of designated persons if their combined TDS and TCS for the PY 2021–22 is less than Rs. 50,000. This would be done on July 31, 2022, which is the first return filing deadline for the fiscal year 2022–23.

For the purpose of deleting names from the list of designated persons, revised and belated TCS/TDS returns submitted during the financial year 2022–23 will also be taken into consideration.