The Fundamentals of Sections 206 AB and 206 CCA
When you make a payment to someone who did not file an income tax return the previous year, Section 206 AB deducts the tax deducted at source at a higher rate than usual. At the same time, the 206 CCA section will collect tax on the amount received from such buyers at a higher rate than usual.
Sections 206AB and 206CCA are applicable :
Sections 206AB and 206 CCA apply to all types of payments except –
- TDS on lottery winnings (194B)
- TDS on withdrawals from provident funds (192A)
- Salary payments are subject to TDS (192)
- Investment securitization TDS income (194LBC)
- TDS on winnings from horse races (194BB)
- Cash withdrawal TDS (194N)
Rate of TDS If both sections 206AB and 206AA are attracted ?
According to U/s 206AB(2), tax deducted at source will be deducted at a higher rate from the following:
- TDS Rate determined in accordance with Section 206AA
- TDS Rate determined in accordance with Section 206AB
Sections 206AB and 206 CCA Exemptions
Non-residents who do not have a permanent address in India are not considered “specified persons.” Sections 192, 192A, 194B, 194BB, 194LBC, and 194N of the Income Tax Act are exempt from the restrictions of Sections 206AB and 206CCA.
The sections cover the following topics:
- 192 Section Section 192 AW
- Payment of an employee’s accumulated balance The lottery’s innings
- Section 194B Monetary victory in a horse race
- Section 194BB Income from a securitisation trust investment
- Section 194LBCCCash payments of certain amounts
- Section 194N
The provisions of Section 206AB are likely to affect people who do not file income tax returns. Such people will start filing income tax returns after learning that failing to do so will result in a higher tax deduction rate. The government has made every effort to ensure that everyone submits their income tax returns on time by requiring a higher TDS rate if certain conditions are met. The addition of sections 206AB and 206CCA would impose an additional compliance burden on the assessee, as they were previously required to furnish only their PAN.
Inserting sections 206AB and 206CCA would impose an additional compliance burden on the assessee, as they were previously required to furnish only their PAN. However, they will now be required to furnish their ITR for the immediately preceding two fiscal years as well and check whether their TDS/TCS liability during those two fiscal years was Rs. 50,000 or less. As a result of increased compliance, the assessee will be less careful when deducting TDS or collecting TCS.
Questions and Answers
Is Section 206AB applicable to NRIs?
Yes, section 206AB applies to a non-resident Indian NRI. It does not, however, apply to a non-resident taxpayer who does not have a permanent establishment in India. A permanent
establishment in India is a fixed place of business where a non-resident taxpayer can conduct business partially or entirely.
Is 206AB applicable to salaried workers?
Section 206AB does not apply to salary payments made under Section 192. It is, however, applicable to a salaried employee for any payment other than those exempted under sections 192A, 194B, 194BB, 194N, and 194LBC. As a result, if a salaried person receives any payment covered by other sections of TDS and fails to file their income tax returns, section 206AA applies.
Section 206AB defines specified persons.
The specified persons are taxpayers who have failed to file an income tax return for both of the two assessment years preceding the previous year in which tax is required to be deducted.
How do you know if someone has been named?
The compliance check functionality can be used to determine whether or not the payee or deductee is a specified person. You can conduct an individual search by providing your PAN and other information. You can also conduct a bulk search by uploading a CSV file.