Analysis of Section 206AB and Section 206CCA

Neethi V. Kannanth | Last updated: 01 June 2021

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Quick Summary

Sections 206AB and 206CCA, introduced in the Finance Bill 2021, impose higher rates for Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) respectively. These sections apply to 'specified persons' who haven't filed income tax returns for the past two relevant assessment years, provided their TDS/TCS amounts meet a certain threshold. However, there are exceptions, including specific TDS sections and non-residents without a permanent establishment in India.

Section 206AB and 206CCA were introduced in the Finance Bill 2021. They provide for a higher deduction of TDS and TCS respectively, if certain conditions are met. Let us now analyze in detail about Section 206AB and 206CCA.

Section 206AB

As per Section 206AB, tax shall be deducted on any sum or income or amount paid or payable or credited by a person to a specified person, at the rate which is higher of the following-

At twice the rate specified in relevant provisions of the Act.
At twice the rate or rates in force.
At the rate of five percent.

Understanding TDS/TCS: Sections 206AB and 206CCA

However, this section shall not apply if Tax is required to be deducted under the following sections-

Section 192- TDS on Salary
Section 192A- TDS on premature withdrawal of EPF
Section 194B- TDS on winnings of lotteries
Section 194BB- TDS on winnings of horse races
Section 194LBC- TDS by securitization trust
Section 194N- TDS on Cash Withdrawal

If the provisions of Section 206AA are applicable to a specified person, then in addition to the provisions of this section, tax shall be deducted at a higher of the rates provided in this section and in Section 206AB.

Section 206CCA

As per Section 206CCA, tax is required to be collected at source on any sum or amount received by a person from a specified person, at the rate which is higher of the following-

At twice the rate specified in relevant provisions of the Act.
At the rate of five percent.

If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC.

Meaning of Specified Person

Specified person means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be collected, for which the time limit of filing return of income under sub-section (1) of section 139 has expired and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years.

However, the specified person shall not include a non-resident who does not have a permanent establishment in India. The expression "permanent establishment" includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.

FAQ :

Sections 206AB and 206CCA are provisions introduced in the Finance Bill 2021 that mandate higher rates for TDS and TCS, respectively, for specified persons who have not filed their income tax returns.

A 'specified person' is someone who has not filed income tax returns for the two assessment years preceding the current year, where the filing deadline has passed, and whose aggregate TDS and TCS in each of those two years is ₹50,000 or more.

Under Section 206AB, tax is deducted at the higher of: twice the rate specified in the Act, twice the rate in force, or 5%.

Under Section 206CCA, tax is collected at the higher of: twice the rate specified in the Act or 5%.

Yes, Section 206AB does not apply if tax is required to be deducted under specific sections like those for salary, EPF withdrawal, lotteries, horse races, securitisation trusts, or cash withdrawals. Also, non-residents without a permanent establishment in India are excluded.

If Section 206AA is applicable for TDS, the tax will be deducted at the higher rate of Section 206AB and Section 206AA. Similarly, for TCS, if Section 206CC applies, the tax will be collected at the higher rate of Section 206CCA and Section 206CC.