Section 206AB and 206CCA-Special provision for Deduction of tax at Source (TDS) and Collection of Tax at Source (TCS) for Non-filers of Income Tax Return at higher rates.
Section 206AB for TDS
Section 206CCA for TCS
Effective Date: 01st July 2021
Effective Assessment Year: 2022-23
Some sections have a flashback right! Let’s guess who their forerunners are …
The said section has been inserted after Section 206AA and Section 206CC, respectively, of the Act which provides for higher rate of TDS/TCS for non-furnishing of Permanent Account Number ('PAN').
Why these intermediaries between 206AB and 206CCA?
Section 206AA and Section 206CC are applicable where the person fails to furnish the PAN, in which case the person who is responsible for deducting/collecting the tax, as the case may be, is required to apply the tax rate at higher of the following:-
Same rates for the brain-child – Section 206AB too. Easy to remember right… But the focus is to serve a different purpose.
Further analysis on Section 206AB:
Where tax is required to be deducted on any sum or income or amount paid under Chapter VIIB except as specified by a person to a specified person, TDS shall be deducted at higher of (i) at twice the rate in relevant provisions (ii) at twice the rate in force (iii) at 5%
Applicable for payments made or sums or income on or after 1st Jul, 2021(previous year 2021-22)
Relevant two previous year shall be 2019-20 and 2020-21
Applicability of section 206AB on various sections under Chapter XVIIB
Sections excluded under Chapter XVIIB
192- TDS on Salary
192A- TDS on payment of accumulated balance due to an employee
194B- TDS on winnings from lottery or crossword puzzle
194BB- TDS on winnings from horse race
194LBC- TDS on income in respect of investment in securitization trust
194N- TDS on payment of certain amounts in cash
Definition of Specified Person
Not filed the returns of income for both of the two assessment years immediately prior to the previous year in which tax is required to be deducted, and
Time limit of filing return of income u/s 139(1) has expired; and
Aggregate of tax deducted & collected at source is rupees >=50,000 in each of these two previous years.
Now let us understand with an example:
Hence Tax rate applicable is 20%
PRACTICAL DIFFICULTY NOTICED:
It is not clear when to deduct taxes. Whether it is immediately after expiry of time limit u/s 139(1)? If not deducted timely, whether the same would be liable for interest on delay in deduction or deposit?
How would the person deducting the tax know whether the tax payer (person from whom tax is deducted) has furnished the return of income for the relevant two previous years?
In which assessment year relevant to previous year and how the credit of taxes should be given, along with reporting of income for taxation purposes?
This would pose additional compliance burden of deducting and depositing taxes and furnishing of TDS returns in 26Q, 27EQ and 27Q including issuing of TDS Certificates in Form 16A
What will happen in a case where tax is deducted u/s 194-IA Payment on transfer of certain immovable property other than agricultural land and seller is specified person within the meaning of 206AB?
The person deducting the tax has to wait till the expiry time limit u/s 139(1) has been expired to determine whether the taxpayer has filed return of income or not.
The person deducting the tax has to wait for each of the two assessment years to ascertain the applicability.