All about new section 206AB & 206CCA

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All about fresh new section 206AB & 206CCA of the Income Tax Act applicable from 01.07.2021 

Applicability of section 206AB & 206CCA

The Finance Bill 2021, inserted two new section 206AB & 206CCA. The said section provide for higher rate of TDS/TCS against normal rate while deducting tax or collecting tax at source to be applied for the deductee who is non-filers of income tax return.

Please note higher rate of TDS/TCS u/s 206AA & 206CC was already there in the act for non furnishing of PAN.

206AB: TDS for Non-filers of Income Tax Return

After Section 206AA of the Income-tax Act 1961, the following section shall be inserted with effect from the 1st day of July, 2021, namely-

206AB. (1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely:—

(i)  at twice the rate specified in the relevant provision of the Act; or

(ii)  at twice the rate or rates in force; or

(iii)  at the rate of five per cent.

(2) If the provisions of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.

206CCA:Special provision for collection of tax at source for non-filers of income-tax return

206CCA. (1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person (hereafter referred to as collectee) from a specified person, the tax shall be collected at the higher of the following two rates, namely:—

 (i)  at twice the rate specified in the relevant provision of the Act; or

 (ii)  at the rate of five per cent.

(2) If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC.

(3) For the purposes of this section "specified person" means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be collected, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years:

Summary of the above sections are as follow:

1.Who is ‘Specified Person’ for application of Section 206AB & 206CCA?

The term ‘specified person’ includes the person who satisfies all the following criteria- 

a. The person has not filed income tax return of *previous years immediately before the previous year in which TDS is required to be deducted and the time limit of filing of income tax return as per section 139(1) is expired and;

b. The total TDS and TCS is INR 50,000 or more in such *previous year. 

However, that the specified person shall not include a non-resident who does not have a permanent establishment in India.

*Definition of specified person amended vide finance act 2022. Earlier two previous year were considered now only one previous year is to be check. 

2.What are the exclusions for non-applicability of 206AB?

This section shall not apply where the tax is required to be deducted under sections 192, 192A, 194B, 194BB, 194LBC, 194N, 194-IA, 194-18 and 194M of the Act.

3.What will be the rate of TDS under section 206AB?

TDS under section 206AB will be deducted at higher of the following rates-

    Twice the rate as specified under the relevant provision of the Income Tax Act; or 

    Twice the rate in force; 

    or At the rate of 5%.

4.What will be the rate of TDS under section 206CCA?

Tax is required to be collect from the specified person being higher of the rates

(i) at twice the rate specified in the relevant provision of the Act; or

(ii) at the rate of 5%.

5.What will be the effective date of applicability of section 206AB & 206CCA?

The newly inserted provisions of section 206AB of the Income Tax Act will be effective from 1 July 2021

6. What care needs to be taken by deductor or collector of tax ?

Declaration should be obtained from the deductee to the effect that he has filed the return of income for the previous two assessment years, where time limit under section 139(1) is expired, or the TDS/TCS amount is not equal or more than 50,000 rupees in each of the two previous years in case of non-filing of return. 

#However, CBDT vide circular 11/2021 dated 21st June 2021,  has launched utility to check compliance under section 206AB/206CCA. Using this functionality deductor can check status of deductee. I.e. whether person is specified or not as per section 206AB/206CCA , hence no need to obtain declaration.

#Also check Circular No. 10 of 2022 dated 17/05/2022 for more details.

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