A new section is introduced in the Finance Bill, 2021 for deduction and collection of tax at source at higher rates if an amount is paid or payable to the specified person who did not file the income tax return. Section 206AB for TDS is inserted after section 206AA of the income tax act. The latter provides for deduction of TDS at higher rates for non-furnishing of Permanent Account Number (PAN). Similarly, section 206CCA for TCS is inserted after section 206CC of the income tax act.

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What is section 206AB and 206CCA
Section 206AB provides a tax deduction at source (TDS) at rates higher than those prescribed in the Act while making payments or collections to those who have not filed their income tax return.
Similarly, section 206CCA provides a collection of tax at source (TCS) on amounts received from the buyers at rates higher than specified in the Act.

Applicable for Which Type of Transactions
The nature of the transaction on which a higher amount of TDS/TCS shall be deducted can be any transaction such as contract payments, professional charges, rent etc., but excluding the below nature of payments:

Salary
Premature withdrawal of EPF
Winnings from any lottery or card games or crossword puzzles
Income with respect to investment in securitisation trust
Winnings from any horse races
TDS on cash withdrawals
When You Should Deduct or Collect Tax at Source at Higher Rates
The tax is required to be deducted/collected at source at rates higher than prescribed in the Act, if the transaction is incurred with the person who satisfies the following conditions:

The person not file the income tax return for both of the previous two Financial Years (FYs) immediately before the FY in which tax is required to be deducted,
where the income tax return (not belated return) filing due date is expired and
The total amount of deduction and collection of tax (TDS and TCS) is Rs.50,000 or more in each of these two previous years.
Note: It does not apply to a non-resident who does not have a permanent establishment in India. Permanent establishment for this purpose includes a fixed place of business where the enterprise’s business is carried out wholly or partially.

Rate of TDS or TCS
TDS
If the taxpayer falls under all the above conditions then tax shall be deducted at source (TDS) at higher of below rates:

Twice at the rates prescribed in the relevant provisions of the Income Tax Act.
At the rate or rates in force, i.e., the rate prescribed in the Finance Act
At five per cent.
In addition to non-filing of income tax return, if the specified person does not furnish PAN, then tax shall be deducted or collected at 20 per cent or rates applicable as per this section, whichever is higher.

TCS
The tax shall be collected at source (TCS) on higher of the following:

Twice at the rates prescribed in the relevant provisions of the Income Tax Act.

At the rate or rates in force, i.e., the rate prescribed in the Finance Act
At five per cent.
In addition to non-filing of income tax return, if the specified person does not furnish PAN, then tax shall be deducted or collected at 20 per cent or rates applicable as per this section, whichever is higher.

 

Illustration

A company makes a contract payment of Rs.80 lakhs to Mr P. The tax is deductible at 1%. But Mr P did not file his IT return for both the years and the due date of filing the return has expired.

Hence, when the company deducts tax in the FY 2020-21 and learns that the payee has not filed his ITR for the last two years, the TDS should be deducted at higher of the following:

Twice the rate prescribed in the Act, i.e. 2% (twice of 1%), or
5%
Hence, the tax should be deducted at the rate of 5%.

Further, if PAN is not furnished, then TDS shall be deducted at the rate of 20%, which is higher than 5%

♦ Section 206CC of Income Tax Act, 1961 has been inserted to provide that any person whose payments are subject to tax collection at source i.e. the collectee, shall mandatorily furnish his PAN to the collector failing which the collector shall collect tax at source at higher of the following rates –

a. At twice the applicable rate of TCS or

b. At the rate of 5%

♦ Section 206CC further provides as under:

√ No certificate under section 206C (9) will be granted by the Assessing Officer unless the application contains the PAN of the applicant.

√ Tax is required to be collected at the rates (as suggested under this section) also in cases where the collectee files a declaration in Form 27C [[under section 206C(1A)] but does not provide his PAN.

√ If the PAN provided to the collector is invalid or it does not belong to the collectee, it shall be deemed that the collecctee has not furnished his PAN to the collector. Accordingly, tax would be collectible at the highest of the two rates specified above

√ Both the collector and the collectee have to compulsorily quote the PAN of the collectee in all correspondence, bills, vouchers and other documents exchanged between them.

√ The provisions of this section shall not apply to Non-resident who does not have permanent establishment in India. For this purpose, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.

Extract of Section 206CC of Income Tax Act, 1961
Mandatory Requirement of Furnishing PAN

206CC. (1) Notwithstanding anything contained in any other provisions of this Act, any person paying any sum or amount, on which tax is collectible at source under Chapter XVII-BB (herein referred to as collectee) shall furnish his Permanent Account Number to the person responsible for collecting such tax (herein referred to as collector), failing which tax shall be collected at the higher of the following rates, namely:—

(i) at twice the rate specified in the relevant provision of this Act; or

(ii) at the rate of five per cent.

Section 206CC Mandatory Requirement of Furnishing PAN

(2) No declaration under sub-section (1A) of section 206C shall be valid unless the person furnishes his Permanent Account Number in such declaration.

(3) In case any declaration becomes invalid under sub-section (2), the collector shall collect the tax at source in accordance with the provisions of sub-section (1).

(4) No certificate under sub-section (9) of section 206C shall be granted unless the application made under that section contains the Permanent Account Number of the applicant.

(5) The collectee shall furnish his Permanent Account Number to the collector and both shall indicate the same in all the correspondence, bills, vouchers and other documents which are sent to each other.

(6) Where the Permanent Account Number provided to the collector is invalid or does not belong to the collectee, it shall be deemed that the collectee has not furnished his Permanent Account Number to the collector and the provisions of sub-section (1) shall apply accordingly.

 

(7) The provisions of this section shall not apply to a non-resident who does not have permanent establishment in India.

Explanation.—For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.