Applicability of Section 206AB and 206CCA w.e.f 1st July 2021
Introduction of Section 206AB & 206CCA:The Union Budget 2021 has proposed introduction of two new Sections 206AB & 206CCA of the Income Tax Act 1961, applicable from 1st July 2021.
The primary objective of introducing these two sections were to penalize the defaulters(Specified Persons) who did not file their Income Tax returns for last two previous Assessment Years immediately prior to the current Financial Year within the specified time period.
Why Section 206AB and 206CCA were introduced?
Basically these two sections act as the penal sections. Finance Act 2021, has specified that a higher rate of TDS/TCS shall be imposed under these two sections on the Specified Persons as notified in the said Act.
This means that Income Tax return non-filers are to be penalized at double the normal TDS/TCS rate or 5% whichever is higher, to ensure that they file their Tax returns within the specified time limit and comply with the Income Tax norms regarding filing of returns positively from next Financial year onwards.
Who is a ‘Specified Person’ under these two Section 206AB and 206CCA ?
As per Sub-section 3 of Section 206AB/206CCA a person shall be deemed to be a “Specified Person“ if he failed to file his Income Tax return within the stipulated time period or the extended time period as specified in the Section 139(1), for last two previous Assessment years excluding the current Financial year provided the aggregate of TDS deducted or TCS collected exceeds ₹50,000/– in each of these two previous years.
To summarise, a person shall be identified as a Specified Person if all the following conditions are satisfied, such as:-
- Income Tax returns not filed in the last two Assessment Years i.e. A.Y 2019-20 and A.Y 2020-21 except current F.Y 2020-21 and A.Y 2021-22; and
- 2. The Income Tax return was not filed within the revised/extended due dates as mentioned U/S 139(1) of the I.T Act 1961 ; and,
- 3. The aggregate amount of TDS and TCS exceeds ₹50,000/– in each of these two previous years; and
- 4. He is not a Non Resident Individual(N.R.I) in India.
You may read the below relevant posts:
Income Tax Section 206AB & 206CCA –Key Points to Remember
- A list containing the names of Specified Persons has been prepared by the Income Tax Authority in the beginning of FY 2021-22;
- The last two Previous Years i.e. 2018-19 and 2019-20 have been taken as the base years, pertaining to Assessment Years 2019-20 and 2020-21 in which taxpayers didn’t file their Income Tax Returns;
- The list contains the names of the Specified Persons only whose aggregate amount of both TDS and TCS exceeds ₹50,000/– for each of the two previous years;
- It is to be kept in mind that no new names of the Specified Persons will be added to the list of the current year to reduce the burden on the Tax Deductor or Tax Collector during the year;
- So, the names of the defaulters of P.Y 2018-19 & 2019-20 are displayed in the list of 2021-22 and the defaulters of F.Y 2021-22 will be displayed in the list of F.Y 2022-23;
- Once a specified person files a valid Income Tax return (filed & verified) for the A.Y say 2019-20 or 2020-21 during the F.Y 2021-22, his name would be removed from the list of specified persons;
This would be done on the date of filing of the valid return of income during the financial year 2021-22;
- Most importantly, for the P.Y 2020-21 for a Specified Person, if the aggregate amount of TDS and TCS is less than ₹50,000/– , his name would be removed from the list of Specified Persons. This would be done on the first due date U/S 139(1) of the Act falling in the financial year 2021-22;
- The act has also prescribed that filing of Belated and Revised TCS & TDS returns of the relevant financial years filed during the F.Y 2021-22 shall be taken into account for removing the names of the Specified Persons from the list so published.
When Section 206AB is not Applicable?
Deduction U/S 206AB is not applicable when Tax has been deducted under the following sections:
|Section||Deductions where Section 206AB is not Applicable|
|192||TDS on Salary|
|192A||TDS on Premature withdrawal from EPF|
|194B||TDS on winning from Lottery|
|194BB||TDS on winning from Horse Racing|
|194LBC||TDS on Income i.r.o Investment in Securitization Trust|
|194N||TDS on cash withdrawals|
Rate of TDS Under Section 206AB?
As per the Provisions of Section 206AB(1), while paying any sum to a Specified Person, TDS is to be deducted higher of the following three rates:
- Twice at the rates as prescribed in the relevant provisions of the Income Tax Act;
- At the rate/rates in force, i.e., the rate prescribed in the Finance Act;
- At the rate of 5%.
Further, this section has clarified that If the provisions of Section 206AA is applicable to a Specified Person, tax shall be deducted at the higher of the two rates provided in this section and in Section 206AA.
Rate of TCS Under Section 206CCA?
As per the Provisions of Section 206CCA(1), while receiving any sum from a Specified Person, TCS is to be collected higher of the following two rates:
- At the rate/rates in force, i.e. the rate prescribed in the Finance Act;
- At the rate of 5%.
Further, this section has clarified that If the provisions of Section 206CC is applicable to a Specified Person, tax shall be collected at the higher of the two rates provided in this section and in Section 206AA.