The addition of two new sections, 206AB and 206CCA, to the Income Tax Act demands a higher rate of tax deduction or collection for failure to file returns for the two prior fiscal years. Certain taxpayers who have been notified and are referred to as “Specified Persons” are subject to the higher rate. Section 206AB deals with the higher rate of TDS, while Section 206CCA deals with TCS. This clause will go into effect on July 1, 2021.

Let’s examine the intent and application of Sections 206AB and 206CCA of the Income Tax Act of 1961 explained by PhoenixTax- Tax consultants in Chennai in this blog post.

What does the Income Tax Act of 1961 sections 206AB and 206CCA mean?

For some notified taxpayers known as “Specified Persons,” Section 206AB and 206CCA demands TDS or TCS at a higher rate for failure to file returns in the prior two financial years. For TDS at a higher rate, see Section 206A, and for TCS at a higher rate, see Section 206CC.

Who is the designated individual?

A person who meets the following two criteria is referred to as a specified person: –

  • He failed to submit his income tax returns for the two previous fiscal years that came right before the year for which tax was supposed to be withheld or collected. For instance, prior years for the current fiscal year 2021–2022 would be 2018–2019 and 2019–2020.
  • In each of these two prior years, the sum of tax deducted at source (TDS) and tax collected at source (TCS) is 50,000 INR or higher.

Notably, a non-resident who does not have a permanent establishment in India is not considered to be the specified person. The term “permanent establishment” refers to a fixed location of business where the enterprise conducts all or a portion of its operations.

What is the higher tax rate that must be subtracted from or collected in accordance with sections 206AB and 206CCA?

Depending on which is higher, the higher rate is either double the prescribed rate or 5%. If a PAN is not provided or available, the current rate of 20% or the rates that apply under this section, whichever is higher, will apply.

On what kinds of transactions must the higher rate of tax be withheld or collected?

On all types of payments or commodities, including commission payments, brokerage fees, and payments to contractors, a higher rate under these provisions must be subtracted from or collected.

Is there a way to avoid paying the increased TDS and TCS rates?

According to the new section of the income tax act, the following are indeed excluded from the higher rate of tax.

TDS on wages (192)

TDS on the provident fund withdrawals (192A)

TDS on Lottery Winnings (194B)

TDS for Horse Race Winnings (194BB)

TDS Income in regard to Securitization Investment (194LBC)

TDS for Withdrawing Cash (194N)

How can a tax deductor or tax collector tell if the person being deducted from or collected from is a particular individual?

The income tax department’s reporting online now has a new feature called “Compliance Check for Sections 206AB & 206CCA” that allows you to search using your PAN and determine whether the person who deducts or the person who collects is a particular individual.

How can I locate the selected person using the compliance check facility?

The functionality allows the tax deductor or collector to submit a single PAN (PAN search) or numerous PANs (bulk search) of the deductee or collectee and receive a response if the deductee or collectee is a certain individual.

The result of a PAN search will be displayed on the screen and available for download in PDF format. The response for a Bulk Search would be a downloaded file.

How does the portal’s compliance check feature operate?

At the beginning of the fiscal year 2021–2022, a list of specified individuals is created using the prior fiscal years 2018–19 and 2019–2020 as the two pertinent precedent years. The list includes the names of taxpayers with an aggregate of TDS and TCS of 50,000 or more in each of the two prior years but who failed to file income tax forms for both the assessment years “2019-20 and 2020-21.”

Will the deductee’s or collector’s name be changed during the fiscal year on the list of specified individuals?

No more names of the selected individuals will be added throughout the fiscal year. However, in the following circumstances, the names could be crossed off the list:

  • If any of the individuals listed submits an accurate income tax return that has been submitted and confirmed for any of the prior assessment years during the financial year.
  • If a certain person’s combined TDS and TCS for the preceding year was less than 50,000 INR
  • TCS & TDS returns for the relevant financial years that were filed belatedly and with revisions during the fiscal year.

How often should the deductor or collector use the facility to check the PAN?

Only at the start of the fiscal year should the deductor or collector use the compliance check functionality to check the PAN. There is no requirement to verify the non-specified person’s PAN because no new names will be added during the financial year. The designated individuals, however, may be crossed off the list depending on the circumstances; therefore, a new check will be required for making tax deductions or collecting taxes.