DEMYSTIFYING SECTION 206AB AND SECTION 206CCA

IMPORTANT UPDATE: SECTION 206AB AND 206CCA - ENHANCED TDS/TCS RATES

Effective from July 1, 2021, Section 206AB and 206CCA introduce higher rates of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). These sections apply when the Specified Person has not filed their income tax returns for the two preceding financial years.

EMPLOYEE PROVIDENT FUND (EPF)

The Employee Provident Fund is a popular tax-saving investment option for salaried individuals. By contributing a portion of your salary towards EPF, you not only build a retirement corpus but also enjoy tax benefits under Section 80C of the Income Tax Act.

Specified Person Definition:

A Specified Person meets the following criteria:

• Has not filed income tax returns for both the immediate two preceding assessment years.
• The time limit for filing income tax returns under Section 139(1) has expired.
• The aggregate of tax deducted and collected at source amounts to Rs. 50,000 or more in each of the two preceding years.

Enhanced TDS/TCS Rates:

As per these sections, higher rates of TDS/TCS will be applicable for Specified Persons who have not filed their income tax returns. The rates will be higher of the following:

• Twice the rate specified under the relevant provisions of the Income Tax Act.
• Twice the rate or rates in force.
• The rate of 5%.

It is crucial to comply with these provisions to avoid the higher TDS/TCS rates. Stay updated with the latest tax regulations and fulfil your tax obligations promptly. For personalized assistance and professional guidance on tax matters, feel free to reach out to our expert team. We are here to support you and ensure your compliance. Please note that this update is based on the latest available information for the current year, and it is always advisable to consult official sources and tax professionals for the most accurate and up-to-date details.

Special Provision For Deduction Of Tax At Source For Non-Filers Of Income Tax Return

• Section 206AB for TDS
• Section 206CCA for TCS
• Effective Date: 01st July 2021
• Effective Assessment Year: 2022-23

INTRODUCTION:

The Finance Budget, presented on 1st February 2021 by our Honourable Finance Minister, proposed several amendments in different sections of the Income-tax legislations. Among these proposals, one amendment that garnered special attention was the introduction of higher rates of TDS/TCS for non-filers of Income-tax returns.

What is Section 206AB?

Section 206AB of the Income Tax Act specifies the deduction of tax at source on any sum or income or amount paid under Chapter VIIB (All TDS Sections), excluding exceptions mentioned on page 2, by a person to a specified person.

• Twice the rate specified in the relevant provisions,
• Twice the rate currently in force, or
• 5%.

Please note that if the provisions of Section 206AA are applicable to a specified person, the tax deduction shall be at the higher of the rates provided in Section 206AB and Section 206AA.

Definition of Specified Person:

• The Specified Person is someone who has not filed their income tax returns for both of the two assessment years immediately preceding the previous year in which tax deduction is required (the relevant assessment years being 2019-20 and 2020-21).
• The time limit for filing the income tax return under section 139(1) has expired.
• The aggregate of tax deducted and collected at source is equal to or greater than Rs. 50,000 in each of these two previous years.

Please note: To determine the applicability of TDS/TCS at a threshold of Rs. 50,000 under section 206AB/206CCA, both TDS and TCS credits should be combined. This provision applies to payments made or sums or income received on or after 1st July 2021 (previous year 2021-22).

Applicability of Section 206AB extends to various sections under Chapter XVIIB, with the exception of the following sections:

• 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 - Income in respect of investment in securitization trust
• 194N - Payment of certain amounts in cash

What is Section 206CCA?

Section 206CCA pertains to the collection of tax at source on any sum or income or amount received under Chapter VIIB by a person to a specified person. Under this section, TCS (Tax Collected at Source) shall be collected at higher rates as follows:

• Twice the rate specified in the relevant provisions.
• 5%.

Please note that if the provisions of Section 206CC are applicable to a specified person, the tax collection shall be at the higher of the rates provided in Section 206CCA and Section 206CC.

Definition of Specified Person:

• The Specified Person is someone who has not filed their income tax returns for both of the two assessment years immediately preceding the previous year in which tax deduction is required (the relevant assessment years being 2019-20 and 2020-21).
• The time limit for filing the income tax return under section 139(1) has expired.
• The aggregate of tax deducted and collected at source is equal to or greater than Rs. 50,000 in each of these two previous years.

Please note: To calculate the applicability for TDS/TCS>=50,000 under Section 206AB/206CCA, both TDS and TCS credits should be aggregated.