- Background & Relevance
- Effective Date
- Who is Specified person?
- Not Applicable on?
- Penal provisions
- Difficulty for Tax Deductor and Collector
- Declarations Formats
- How to identify Specified Persons? – Live Example
Download the PPT in the Video here:
Background & Relevance
The central government proposed Sections 206AB (TDS) and 206CCA (TCS), which include a particular provision for the deduction of TDS at a higher rate for non-filers of income tax returns within the time limit set out in Section 139(1), and will take effect on July 1, 2021.
The goal of these sections, which are effectively extensions of Sections 206AA (TDS) and 206CC (TCS), is to bring more people into the tax net. The move has expanded to encompass persons who have a PAN card and taxable income but do not file their ITRs for various reasons.
Where tax is needed to be deducted/collected at source on any sum or income or amount paid/received or payable or credited by any person to/from the Specified person, tax shall be deducted/collected at higher rates, according to Subsection (1) of Section 206AB/206CCA.
Rate of TDS/TCS
|For Section 206AB||For Section 206CCA|
|(i) At twice the rates specified in the relevant provisions of the act||(i) At twice the rates specified in the relevant provisions of the act|
|(ii) At twice the rate or rates in force||(ii) At the rate of 5%|
|(iii) At the rate of 5%|
Furthermore, Section 206AB/206CCA, Subsection (2), specifies that if the indicated individual fails to produce a PAN, Section 206AA/206CC will apply in addition to this section, and the tax will be deducted/collected at the highest of the two rates established in Section 206AB/206CCA and Section 206AA/206CC.
Section 206AB and 206CCA are effective from 1st July 2021.
Who is Specified person?
Section 206AB/206CCA are applicable to Specified person.
Now, ‘Specified person’ means a person satisfying all the below mentioned conditions but shall not include a non-resident who does not have a permanent establishment in India:
Condition 1 – Person has not filed their Income Tax Return for two previous years immediately preceding the previous year in which tax is required to be deducted/collected
Condition 2 – The time limit for filing of such return of income U/s 139(1) has expired.
Condition 3 – Aggregate of Tax deducted/collected at source in each of these two financial year is INR 50,000/- or more
Therefore, For FY 2021-22 effective 1st July 2021, specified person shall mean those persons who has not filed their Income Tax Return for both the FY 2018-19 & FY 2019-20 and whose total tax deducted/collected during each of FY 2018-19 & FY 2019-20 were INR 50,000/- or more.
Non-Applicability/Exemptions under Section 206AB/206CCA?
Both Section 206AB/206CCA are not applicable to a non-resident who does not have a permanent establishment in India.
Further, provisions of section 206AB does not apply to any sum or income or amount paid or payable or credited on which tax is otherwise deducted at source under below mentioned provision of Chapter XVIIB:
- Section 192 – Salary
- Section 192A – Payment of accumulated balance due to an employee
- Section 194B – Winnings from lottery or crossword puzzle
- Section 194BB – Winning from a horse race
- Section 194LBC – Income in respect of investment in securitisation trust
- Section 194N – Payments of certain amount/amounts in cash
There are no changes to the due date, and it is still enforceable as before for TDS deduction and payment.
In the case of TDS provisions, the deductor/payer bears the primary responsibility for deducting TDS provisions at the appropriate rates. Otherwise, he is termed a “assessee in default.”
Noncompliance with the TDS regulations is punishable under Section 201A of the Income Tax Law. TDS returns will also be punished if they are filed late.
If a tax deductor fails to deduct TDS in accordance with the laws, the following consequences will apply:
– Expenses are not allowed to be deducted.
– Late payment interest and
Difficulty for Tax Deductor and Collector
The tax deductor was required to check the designated person a certain number of times during the year, for example, before the due date of filing an ITR u/s 139(1) or after the due date of filing an ITR u/s 139(1). (1).
Furthermore, because different assessees have different due dates, the deductor must double-check the indicated person on the applicable due date. In addition, if the ITR date is prolonged, the deductor must check the named person again when the extended date expires.
To address the aforementioned issue, the CBDT issued circular No. 11/2020 on June 21, 2021, which provides functionality to identify the Specified person. The CBDT is introducing a new feature called “Compliance Check for Section 206AB & 206CCA” to help with this compliance load.
This functionality is made available through the income tax department’s reporting portal, where the deductor or collector can examine the information on a single PAN or bulk PAN basis and save it in PDF format for their records.
CBDT has clarified the below Points through its circular:
1. That a list of specified person is prepared on the start of the financial year 2021-22 taking previous year 2018-19 and 2019-20 who did not file ITR for AY 2019-20 and AY 2020-21.
2. During F.Y. 2021-22 no new names would be added in the list of specified persons to reduce the burden on tax deductor or collector.
3. If any specified person files the valid return for above assessment years 2019-20 and 2020-21 during F.Y. 2021-22 his name would be dropped from the list of specified person on the date of filing of ITR.
4. If any specified person files the valid return for above assessment years 2021-22 his name would be dropped from the list of specified person on the due date of filing of ITR or actual filing date whichever is later.
5. If aggregate of TDS and TCS in previous year 2020-21 is less than 50000, his name would be dropped from the list of specified person.
6. Belated and revised return TCS & TDS return of relevant financial years filed during FY 2021-22 would also be considered.
From the foregoing, it is clear that the deductor or collector may check the PAN in the functionality at the start of the financial year, but he is not required to check the PAN of non-specified persons during the financial year because the name can be dropped pursuant to points 1 through 6, but no new names will be added to the list. To see if any names have been removed from the list of designated persons, the deductor or collector must recheck for the above individuals only at the time of tax deduction or collection.
It increases the compliance burden and hence to comply with it, everyone has to take declarations regarding the same to comply with it.
Declaration format is provided for the ease of compliance to everyone.
(On the Letterhead of the Buyer)
(Supplier’s/Seller Name & Address)
Sub: Regarding change in compliance due to insertion of new sections under Income Tax Act. Deduction of TDS u/s 194Q and non-applicability of TCS u/s 206C (1H) of Income Tax Act.
Dear Sir / Madam,
We, (name of buyer) , having PAN (PAN of buyer) hereby inform you that our total sales/gross receipts/turnover from Business during FY 2020-21 has been more than Rs.10 Crore. Therefore, provisions of Section 194Q inserted in the Income Tax Act vide Finance Act 2021 with effect from 01.07.2021 are applicable to our company. Hence, we shall be deducting tax at source at per provisions of above section from purchase consideration paid/ credited on or after 01.07.2021 to you against supplies made by you at the rate 0.1 percent of purchase consideration paid / credited exceeding rupees 50 lacs during the current financial year.
Since, we are liable to deduct tax at source under section 194Q of the Act, you may ensure not to take any action to collect tax at source under section 206C (1H) of the Act w.e.f. 01.07.2021, in case provisions of section are applicable to you considering your amount of turnover and our purchases being of more than rupees 50 lacs.
You are also requested to intimate your Permanent Account Number. In case you fail to provide your PAN, tax will be deducted at a higher rate in terms of Section 206AA of the Act.
Further, you are also required to confirm that in your case amount of TDS/TCS was Rs.50,000/- or more in previous years relevant to Assessment Years 2019-20 and 2020-21 and you have filed your returns of income for these assessment years according to section 139(1), otherwise tax is required to be deducted at a higher rate in terms of Section 206AB of the Act.
Further, as per Rule 114AAA, higher of TDS/TCS will be applicable in case PAN and AADHAR is not linked. This is applicable only in case of Individual.
You may send to us your declaration in the enclosed draft on or before 25.06.2021 to enable us to take note of same and modify our accounting software accordingly. In case we do not receive your declaration by the above date, we will modify our software to deduct tax at the higher rate and it would be difficult for us to take corrective action to reduce the rate during the current financial year.
Further, we confirm that (name of buyer) has filed its Income Tax Return for the previous year 2018-19 & 2019-20. You may accordingly ensure that in case of applicability of Tax deduction u/s 194Q, TDS is deducted @ 0.1% on all purchases from us. The status of return of Income filed by (name of buyer) is as under: –
|Assessment year||Acknowledgement No.||Filing Date|
Important to note here, that any financial loss which (name of buyer) would incur, due to said non-compliance at your end, will have to be indemnified by you. We, therefore, look forward to your full cooperation in the process.
For (name of buyer)
Then, on the below format vendor will confirm its details.
(On the letter head of the seller)
(Buyer Name & Address)
Sub: Declaration / information for deduction of tax at source u/s 194Q of the Act.
This is with reference to your letter dated requiring our declaration / information in regard to deduction of tax at source u/s 194Q of the Act. The information is being provided hereunder:
1. Since your company is liable to deduct tax u/s 194Q of the Act, you may deduct the tax @0.1 % of sale consideration paid /credited by your company to us on the amount exceeding Rs.50 lacs during the current financial year. We also confirm that we will not take any action to collect tax at source under section 206C(1H) of the Act w.e.f. 01.07.2021.
2. Permanent Account Number of our company is (PAN of seller) . Further, we have duly filed our returns of income for Assessment Years 2019-20 and 2020-21 as per the information given hereunder:
|Assessment year||Acknowledgement No.||Filing Date|
3. Our PAN and AADHAR is linked. This is applicable only in case of Individual.
Please take note of the above information and confirmation and deduct tax at the appropriate rate-taking cognizance of the above information.
For (Seller Name)
The above declaration formats can be downloaded for further use here.
How to identify Specified Persons on income Tax portal?
In view of the above, Income Tax Department has facilitated a new functionality ‘Compliance Check for Section 206AB & 206CCA‘ to facilitate tax deductors/collectors to verify if a person is a ‘Specified Person’ as per section 206AB & 206CCA. This functionality is made available through Reporting Portal of Income-tax Department (https://report.insight.gov.in).
You can follow the step by step process for using the above functionality as given in Quick Reference Guide for Compliance Check for Section 206AB & 206CCA