Section 206AB & 206CCA – Tax Deduction or Collection at Source for Not Filing Income Tax Return

Topic Covers:

1. Introduction
2. Applicable tax rate as per Section 206AB
3. Applicable tax Rate of TCS as per Section 206CCA
4. Additional Provision of Section 206AA and 206CC
5. Compliance with Section 206AB and section 206CCA
6. Conclusion

Introduction:

Under income tax act Section 206AB has been introduced to ensure the tax compliances obligations. According to this section specified persons who have not filed their income tax returns are liable for tax deductions at higher rates. Similar provision has been inserted through section 206CCA for tax collection at source.

Applicable tax rate as per Section 206AB:

According to Section 206AB, if TDS is required to be deducted on any sum or income payable to a specified person, the tax shall be deducted at the higher of the following rates:
a. Twice the rate specified in the relevant provision of the Income Tax Act.
b. Twice the rate or rates in force.
c. At the rate of 5%.

Exception to section 206AB:

The provision of section 206AB does not apply if the tax is required to be deducted under the following section:

• Section 192: Income from salary
• Section 192A : Premature withdrawal of EPF
• Section 194B: Winnings from any lottery or card games, or crossword puzzles
• Section 194BB : Winnings from any horse races
• Section 194LBC: Income concerning investment in securitisation trust
• Section 194N: Cash withdrawals
• Section 194IA: Consideration paid on sale of Immovable property
• Section 194IB: Rent payment to the landlord above ₹ 50,000 (Individual and HUF)
• Section 194M: Payment for contract or professional services above ₹ 50 lakh by an Individual or HUF

Applicable tax Rate of TCS as per Section 206CCA:

Section 206CCA requires TCS at the higher of:

• Twice the rate specified in the relevant provision of the Act.

• 5%. Effective from July 1, 2023,

The maximum TCS rate for non-filers of income-tax return should not exceed 20%.

Specified Person u/s 206AB and 206CCA:

A "specified person" is defined as an individual or entity who meets the following criteria:

• Has not filed their income tax return for the assessment year relevant to the previous year immediately preceding the financial year in which TDS is required to be deducted

• The time limit for filing the return of income under Section 139(1) has expired.

• The aggregate of TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) in their case is ₹ 50,000 or more in the said previous year.

• Exclusion for Non-resident without Permanent Establishment.

The definition of "specified person" excludes non-residents who do not have a permanent establishment in India. A permanent establishment refers to a fixed place of business through which the enterprise's business is wholly or partly carried on in India.

Example:

For instance, if tax collection is required in January 2024, the higher rate under section 206CCA applies if the buyer has not filed the income tax return for the assessment year 2023-24, and the aggregate TDS/TCS in the buyer's case is ₹50,000 or more in the previous year 2022-23.

Additional Provision of Section 206AA and 206CC:

If the provisions of Section 206AA (relating to the requirement of furnishing a Permanent Account Number or PAN) are applicable to a specified person, the tax shall be deducted at the higher of the rates provided in Section 206AB and Section 206AA.
In case of collection of tax, If Section 206CC and Section 206CCA both are applicable to the specified person, TCS is required at the higher of the rates specified in both sections.

Compliance with Section 206AB and section 206CCA:

This section places the responsibility on deductors and collectors to identify specified persons who have not filed their income tax returns and apply the higher tax rates as mandated. It encourages tax compliance and filing of income tax returns by individuals and entities falling under the specified person category.

Conclusion:

Section 206AB and section 206CCA of the Income Tax Act, 1961, enforces higher TDS/TCS rates on specified persons who have not filed their income tax returns and whose aggregate TDS and TCS exceeds ₹50,000 in the previous year. Deductor or collector must ensure compliance with this provision to meet their tax obligations and promote tax compliance among payees.

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