Section 206AB and 206CCA: Higher Rate of TDS/TCS for Non-Filers of Income Tax Return (w.e.f. 1st July 2021)

In Union Budget 2021 , Finance Minister takes note of changes proposed with regard to some of the TDS provisions applicable from 1st July, 2021. Government of India vide Finance Act 2021, has introduced a new Section 206AB and 206CCA under the Income Tax Act 1961 wherein a buyer is responsible to deduct TDS at a higher rate. The Article on ” Section 206AB and 206CCA : Higher Rate of TDS/TCS for Non-Filers of Income Tax Return (w.e.f. 1st July 2021)” cover the Applicability of Section, Conditions to Deduct, Rate of TDS, Illustration & Declaration to be obtained from your buyer etc.

When is Section 206AB and 206CCA Applicable?

Section 206AB is Applicable/Effective from 1st July 2021.

Need to Introduce Section 206AB and 206CCA

The Rationale behind the Introduction of Section 206AB and 206CCA is:

a) to widen the tax base of compliant Taxpayers & Compliance Monitoring

b) to increase the revenue from tax collections from the Taxpayers who are Compliant with the tax provisions

c) to capture the details of the Non-Compliant Taxpayers and to initiate appropriate inquiries against them;

d) To Penalize the Non-Filers of Income Tax Return who are otherwise liable to file the ITR.

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What is Section 206AB and 206CCA?

Under Section 206AB and 206CCA a buyer is responsible to deduct TDS/TCS at a higher rate from the seller who is a specified person in cases where any amount/ sum/ income is paid/received or payable/receivable or credited to/from the specified person.

Accordingly, Buyer would have to deduct/collect TDS/TCS at a higher rate in the case of a seller/vendor/supplier who has not filed income tax returns for the immediately prior two years and the aggregate of TDS and TCS in your case is more than INR 50,000 in each of the two years.

Section 206AB & 206CCA provides TDS/TCS or tax deduction/Collection at source

  • on AMOUNT PAID/RECEIVED OR PAYABLE/RECEIVABLE
  • to/from the SPECIFIED PERSONS
  • who are NOT FILING THEIR INCOME TAX RETURN
  • AT RATES HIGHER THAN SPECIFIED IN THE ACT.

Definition of Specified Persons

“Specified Persons” means who satisfies the following conditions:

  • Person Who has not filed the Income Tax Return for two previous years immediately prior to the previous year in which tax is required to be deducted;
  • The time limit of filing Income Tax Return under section 139(1) is expired
  • The aggregate TDS/TCS as the case maybe, is Rs. 50,000 or more in each of the two previous years.

Note: The specified persons shall not include a Non-resident who does not have Permanent Establishment (PE) in India.

Non-Applicability/Exemption from Section 206AB

TDS/TCS u/s 206AB is not applicable if TDS is Deducted under following Sections:

SECTIONDETAILS
192TDS on Salary
192ATDS on Premature withdrawal from EPF
194BTDS on Lottery
194BBTDS on Horse Riding
194LBCTDS on Income in respect of investment in securitization trust
194NTDS on cash withdrawal in excess of 1 crore
Indiataxlaws.com

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Rate of TDS under Section 206AB

The TDS Rates under Section 206AB shall be higher of the following rates:

  • at twice the rate specified in the relevant provision of the Act; or
  • twice the rate /rates in force; or
  • the rate of 5%.

Note: If the provisions of Section 206AA(TDS @ 20% for Non Furnishing of PAN) is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in Section 206AA.

Rate of TDS under Section 206CCA

The TCS Rates under Section 206CCA shall be higher of the following rates:

  • at twice the rate specified in the relevant provision of the Act; or
  • the rate of 5%.

Note: If the provisions of Section 206CC(TCS @ 20% for Non Furnishing of PAN) is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in Section 206CC.

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Conditions to Deduct/collect TDS/TCS

Buyer is responsible to deduct TDS/TCS at a higher rate (i.e., twice the rate as specified under the relevant provision of the Income Tax Act or twice the rate/ rates in force; or at the rate of 5%whichever is higher) from the seller who is a specified person, in cases where any amount/ sum/ income is paid/received or payable/receivable or credited to/from the specified person:

1) who has not filed the returns of income for two assessment years immediately prior to the previous year in which tax is required to be deducted

2) the time limit of filing return of income u/s Section 139(1) of the Act has expired; &

2) where the aggregate of tax deducted at source and tax collected at source in the person’s case is INR 50,000 or more in each of these two previous years.

Format of Declaration u/s 206AB and 206CCA with respect of Deduction of TDS At higher rate

Under Section 206AB of Income Tax Act, 1961 TDS would be deducted at higher rates on the amount is paid or payable to the specified person who did not file the income tax return. Before 1st July 2021 the Buyer has to obtain the Declaration from Vendor/Seller on their Letter head the format of which is attached below:

Format of Declaration u/s 206AB & 206CCA of Income Tax Act, 1961 by Vendor for Income Tax Return filing status

Declaration by Vendor for Income Tax Return filing status

(u/s 206AB/206CCA of Income Tax Act, 1961)

Vendor Code XXX
Vendor Name XXX
Mobile No and Mail ID of Authorized Person providing declarationXXX

A.  Declaration for Income Tax Return filing status of Vendor

I / We hereby confirm that we have filed the Income Tax Return (ITR) for last 2 Financial Years for which the time limit of filing   return of income u/s 139(1) has already expired.

  • If, Yes (mention 15 Digit ITR Acknowledgement Number and Date)
Financial YearITR Acknowledgement NumberDate of Filing (DD/MM/YYYY)
2018-19  
2019-20  
  • If, No
  1. Total TDS and TCS for each of last 2 Financial Year exceeds 50,000/- *
  2. Total TDS and TCS for each of last 2 Financial Year does not exceed 50,000/-

* In this case if TDS/TCS is applicable, it will be deducted at higher rate by Buyer

  • TDS/TCS is Not Applicable If-
    • New business started in any of last 2 assessment years.
    • Any other reason (Please Mention the reason*)
  • Our TAN number is
          
  • Our PAN number is

I / we further declare that information furnished above is true and correct. In case any part of the above declaration is untrue / false, we undertake to indemnify the Company and the Company shall recover the TDS/TCS amount from us alongwith Interest and Penalty.

The copy of acknowledgements of the Income tax returns are enclosed herewith. Or, the screen shot from the income tax website indicating the filing of returns is enclosed herewith.

Thanking you,

Vendor Name:

Mobile No:

Mail ID:

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Download the Format of Declaration u/s 206AB/206CCA in word

Click here to Download the Format of Declaration u/s 206AB/206CCA in word file to avoid deduction of TDS at higher rate.

Download the Format of Declaration u/s 206AB/206CCA in PDF

Click here to Download the Format of Declaration u/s 206AB/206CCA in PDF to avoid deduction of TDS at higher rate.

Author Profile

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CA Shiwali Shukla
Shiwali Shukla is a member of ICAI since 2018 & She has excelled in Chartered Accountancy & follows an innovative & talented approach towards work, She is also an Ex- Employee of Ernst & Young. She is having the Expertise in the filed of Direct Taxation, Indirect Taxation, Company Law matters & Finance. She is also having more than 3 years of Experience in the same field. & more than 3 years if Experience in the field of Direct as well as Indirect Taxation..

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