Section 206AB & 206CCA of Income Tax Act, 1961.

1. Introduction: Both section 206AB & 206CCA, are introduced in Union Budget 2021. As per the provisions of this section, person liable to deduct or collect tax at source has to deduct/collect tax at higher rate while transacting with non-filers. This section will come into effect from July 1, 2021.

2. Applicability: Person liable to deduct or collect tax at source has the liability to deduct/collect tax at higher rate when amount paid/payable/credited/received (as the case may be) from following persons (excluding a non-resident who does not have a permanent establishment in India).

a) Person who has not filed income tax return for both two previous years immediately preceding the previous year in which the tax is required to be deducted/collected for which time limit for filing those income tax return u/s 139(1) has expired; and

b) The aggregate of TDS and TCS in his case is INR 50,000 or more in each of these two previous years.

Important: at present two previous years for which due date for filing return u/s 139(1) is expired is FY 2018-19 and FY 2019-20. Once due date for filing return for filing return for FY 2020-21 is expired, previous years 2019-20 and 2020-21 should be considered, in other cases previous years 2018-19 and 2019-20 should be considered.

3. Not applicable: Provisions of section 206AB is not applicable for deductions under following sections:

a) 192 – TDS on salary

b) 192A – TDS on premature withdrawal from Employees Provident Fund

c) 194B – TDS on winning from lottery.

d) 194BB – TDS on horse races

e) 194LBC – TDS on income in respect of investment in securitization trust

f) 194N – TDS on cash withdrawal in excess of INR 1 Crore.

4. Rate of TDS u/s 206AB

Highest of:

a) Twice the rate specified in the relevant provisions of the act; or

b) Twice the rate/rates in force; or

c) At the rate of 5%

If PAN is not provided:

If the provision of section 206AA is applicable, tax is to be deducted at the rate specified u/s 206AA or rate specified u/s 206AB, whichever is higher.

5. Rate of TCS u/s 206CCA

Highest of:

a) Twice the rate prescribed in the act; or

b) At the rate of 5%

If PAN is not provided:

If provisions of the section 206CC is applicable, tax is to be collected the rate specified u/s 206CC or rate specified u/s 206CCA, whichever is higher.

To be complied with these sections, tax deductor/collector should obtain declaration from their respective deductees regarding compliance of filing of the income tax return for applicable previous years. In case deductee is not filed income tax returns for applicable previous years, obtain declaration along with total tax deduction or collection in his case as per form 26AS for those previous years.