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Updated on: Jul 1st, 2023
9 min read
New sections were introduced in the Finance Bill, 2021 to deduct TDS (tax deducted at source)/ collect TCS (tax collected at source) at higher rates when the amount is paid to specified persons who have not filed their income tax returns.
Section 206AB is inserted after section 206AA of the income tax act. The latter provides for the deduction of TDS at higher rates for those who do not provide/furnish their Permanent Account Number (PAN).
Similarly, section 206CCA for TCS is inserted after section 206CC of the Income Tax Act. Read on for a detailed explanation covering the recent CBDT circular no. 10/2022, the compliance check functionality and more.
Section 206AB– Deduct TDS at higher rates than usual when you make payments to those who have not filed their income tax return in the last year.
Section 206CCA– Collect TCS at higher rates than usual from the amounts received from buyers.
If payment is made to a specified person as mentioned above, then tax shall be deducted at source (TDS) at higher of below rates:
In addition to non-filing of income tax return, if the specified person does not provide PAN, then tax shall be deducted at 20% or rates applicable as per the section, whichever is higher.
The tax shall be collected at source (TCS) on higher of the following:
In addition to non-filing of income tax return, if the specified person does not give their PAN, then tax shall be collected at 20% or rates applicable as per the section, whichever is higher.
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 last year, and the due date for filing the return has expired.
Hence, when the company deducts tax in the FY 2022-23 and learns that the payee has not filed his ITR for the last year, the TDS should be deducted at higher of the following:
Hence, the tax should be deducted at the rate of 5%.
Further, if Mr P does not give PAN, then TDS shall be deducted at the rate of 20%, which is higher than 5%
Specified Person is the one who:
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.
A higher amount of TDS shall be deducted on any type of transaction, such as contract payments, professional charges, rent etc., but excluding the following nature of payments:
Union Budget 2022 further provides more transactions on which higher TDS cannot be deducted: –
The nature of the transaction can be any transaction excluding the following:
TCS must not be collected at a higher amount from a non-resident who does have a fixed business place in India for carrying on business, .i.e who does not have a permanent establishment(PE) in India.
Yes, sections 206AB and 206CCA apply to an NRI (Non-Resident Indian). However, it does not apply to a non-resident taxpayer who does not have a permanent establishment(PE) in India, i.e. a fixed place in India for carrying on business, whether wholly or partly.
Specified Persons are those taxpayers who have not filed their ITR last year, and the return filing deadline has lapsed. Also, the total TDS and TCS amount was Rs. 50,000 or more.
No. Higher TDS shall not be deducted under section 206AB for salaried employees.
Income Tax Department has introduced compliance check functionality to know if the payee or deductee is a specified person. You can search through a single PAN or multiple PANs (bulk search) for many payees or deductees at once by uploading a CSV file.
Step 1: A ‘specified persons’ list is prepared at the beginning of the financial year. E.g., a list is prepared at the start of FY 2022-23 of those who have not filed their returns of the PY 2020-21 and those who paid TDS/TCS of Rs. 50,000 or more in PY 2020-21
Note: No new names are added to the list. But if the specified person files his return of PY 2020-21, their names will be removed from the list on the return filing date.
Step 2: If the total TDS and TCS in the PY 2021-22 is less than Rs. 50,000, their names would be removed from the list of specified persons. This would be done on the first return filing due date in FY 2022-23, i.e., 31st July 2022.
Note: Revised and Belated TCS/TDS returns filed during the financial year 2022-23 would also be considered for removing names from the list of specified persons.