SECTION 206CC of Income Tax Act

Introduction

The Income Tax Act of 1961 includes newly added section 206CC. The provision takes effect on July 1st, 2021. This section is a special provision that requires a higher rate of tax collection or deduction for failure to file returns during the previous two fiscal years.

Similar to TDS, a lot of transactions call for Tax Collected at Source (TCS) to be paid at the appropriate rate for the kind of products being sold. Every taxpayer is required by the Income Tax Department to provide their PAN to the TCS collector. Simply put, the department won’t be able to connect the transaction with the taxpayer if the taxpayer fails to provide the PAN.

It’s Form 26AS will not show the TCS earned as a tax credit. A higher rate of tax will need to be withheld by the tax collector. The Income Tax Act of 1961 requires the PAN to be provided in order to save the department, tax collector, and taxpayer from difficulty. By imposing a higher TCS rate for any noncompliance, the Income Tax Act of 1961 aims to promote compliance. The scope of section 206CC, the TCS rate, and the applicability of lower collection certificates have all been discussed in this article.

How does Section 206CC work?

Every taxpayer who is a buyer must provide their PAN to the seller who is in charge of collecting TCS, as required by Section 206CC. A higher TCS rate will be applied if the buyer doesn’t submit their PAN. Both resident and non-resident taxpayers are subject to the provisions of Section 206CC.

TCS under section 206CC

The tax shall be collected at source (TCS) on higher of the following:

 

  • 2 times the rate given in the Income Tax Act or Finance Act 5%

  • In addition to non-filing of income tax return, if the specified person does not give their PAN, then tax shall be collected at 20% or rates applicable as per the section, whichever is

Non-applicability of section 206CC

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.

Does the 206CC apply to NRIs?

Yes, the 206CC applies to NRIs (Non-Resident Indian). It does not, however, apply to

non-resident taxpayers who do not have a permanent establishment (PE) in India, or a fixed location in India where they conduct all or part of their company.

Things to Keep in Mind

  • In all correspondence, bills, vouchers, and other documents the vendor and customer exchange, they must both include their

  • Non-residents without a permanent establishment in India are not subject to Section In India, a permanent installation is a physical location where a company conducts all or part of its operations.

  • It will be assumed that the buyer has not provided the PAN at all if it finds out that the PAN provided by the buyer is invalid, erroneous, or does not belong to the Section 206CC will therefore be relevant.

  • The assessing officer may approve a reduced or zero TCS rate if they are confident that the buyer’s total income is lower and that doing so justifies a lower TCS rate. Only if a valid PAN is provided will the assessing officer issue a lower or nil collection certificate in

the buyer’s name. However, the certificate will be void if the PAN is false, erroneous, or does not belong to the customer.

  • The buyer might make a statement to the seller stating that the goods are being used for manufacturing, processing, or producing items or objects, or for the generation of electricity, and not for trading. As a result, the seller will not receive Nevertheless, if the PAN is omitted from such a declaration, the declaration will be void. TCS will therefore be collected at a higher rate and section 206CC will be applicable,