Two new Sections, 206AB and 206CCA, were introduced in Income Tax Act, 1961, which came into effect on July 1, 2021. The government charges the tax deduction source (TDS) and collection of source (TCS) at a higher rate for those who don't file income tax returns. But, what do the sections mean, and what are the implications? Let's begin with Sections 206 AB & 206 CCA of the Income Tax Act, 1961, and step-by-step look into the details of the compliance check facility.
Did you know? The tax (TDS) to be deducted for the transaction related to crypto will be 5%, under Section 206AB of the Income Tax Act 1961 for any user who has not filed an income tax return in the last two financial years.
Definition of Section 206AB
According to Section 206AB of the Income Tax Act, tax is to be deducted at source on any amount of sum or income or amount of money paid or payable to or credited by a person (deductee) to the specified person at the following higher rates (the higher rate is the greater of double the specified rate or 5%. If a PAN is not provided, the existing rate of 20% or the rates applicable to this section will apply):
- At two times the rate stated in the relevant statutory provision,
- At two times the current rate or rates,
- At the rate of 5%,
Definition of Section 206CCA
According to Section 206 CCA, tax collection at source on any sum or amount received by a person (collected) from that specified person is required at higher rates than the following:
- At twice the rate specified in the relevant act provisions
- At the rate of 5%
Section 206AB's relatively higher TDS rate will be deducted for the 'specified person.' However, Section 206AB will not apply if the deductee has filed an ITR for even a year.
Does Section 206AB and 206CCA apply if TDS/TCS by the tax deductee is lower than ₹50,000?
No, the ₹50,000 TDS/TCS threshold applies to the deductee's real income, not only the portion of income credited by a specific tax deductor.
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Who is a Specified Person?
The meaning of "specified person" is the one who has not submitted income tax returns for the two years that immediately preceded the year in which tax was needed to be deducted. The deadline for filing income tax returns under Section 139(1) would have passed, and the total of tax deducted at source and tax collected at source comes to ₹50,000 or more in each of these two years.
Exemptions Under Sections 206AB and 206 CCA
A "specified person" does not include non-residents who don't have a permanent home in India. Sections 192, 192A, 194B, 194BB, 194LBC, and 194N are exempt from the restrictions of Section 206AB and Section 206CCA of the Income Tax Act. The Sections relate to the following areas:
- Salary: Section 192
- Payment of an employee's accumulated balance: Section 192A
- Winnings from the lottery: Section 194B
- Monetary winning received from a horse race: Section 194BB
- Income in respect of investment in a securitisation trust: Section 194LBC
- Cash payments of some amounts: Section 194N
Difference Between TDS and TCS in Income Tax Act, 1961
TDS must be deducted when the funds are credited to the payee's account or when the payment is made, whichever comes first.
For example, in the case of salary payments, payments related to the life insurance policy, etc., tax should be deducted at the time of payment.
Whereas tax collected at source (TCS) must be collected at the time of debiting the amount payable by the buyer of certain goods to the buyer's account or on the buyer's receipt of such amount, whichever comes first.
For example, a person who grants a license or lease is responsible for collecting the tax at the source. If the person covered by this Section also covered the deduction or collected the tax at a higher rate, Section 206AA also applies.
For example, if PAN is not furnished or PAN is not available, the tax deduction rate is higher than Section 206AA and Section 206AB.
What If TDS/TCS is Not Deducted?
Section 271H is invoked under the Income Tax Act, 1961 if the deductor fails to submit your TDS statement. The tax deductor will face the following consequences:
- Disallowance of expense
- Late payment interest
How to Register for Compliance Check Facility for Section 206AB and 206CCA Income Tax Act 1961?
In its reporting portal, the CBDT has provided a compliance checking tool for ITR filing of specified persons.
Notification No. 1 of 2021, dated 22.06.2021, notifies the procedure of using compliance check functionality for Section 206AB and Section 206CCA on the reporting portal of income tax.
On 21.06.2021, the CBDT issued circular no. 11/2021 for the use of functionality under Section 206AB, Section 206CCA for tax deductors and collection to verify the specified person. For Section 206AB or 206CCA, the deductor should register on the reporting portal of the income tax department.
Let's see the step-by-step process of registration to use compliance check facilities.
Follow these steps:
1: Go to https://report.insight.gov.in to access the new income tax login portal.
2: In the portal for new users, click the Register button. After successful registration, users need to click on the login button.
3: After clicking the "Register" button In the electronic filing portal, click on the login option.
Enter the user ID and password and log in. After entering the TAN (user ID) and password, the next page will be displayed.
4: Under the option Pending Actions, click on Report Portal
5: The user will be required to be registered to access the Compliance tool capability and will be sent to the reporting site.
6: Select "New Registration" and click "Next."You were redirected to a new page. In the field Form Type, select Conformity Check.
7: In the form, the fields "Entity Name" and "Entity PAN" are pre-filled and editable. Enter the address of the entity.
8: Enter the company details on the page and tap on Add Primary Owner. Add the necessary information.
9: On the page of Principal Officer Details, enter the officer details.
10: Similarly, register Node Officer, Deputy Officer, Deputy Node Officer Details, and Other Users (if any) if required.
11: Click on the Preview option to view the details of the entity and executive.
12: Click on the Submit option to proceed with submitting your registration request.
13: It will also be emailed to you after the registration request has been submitted.
14: Once the Income Tax Office approves your registration application, you will receive a confirmation email.
Compliance Check Methods
The compliance check for Section 206AB and Section 206CCA can be done in two modes:
- Single PAN Search
- Bulk PAN Search
Let us look at how to proceed in both cases.
Single PAN Search
The steps you need to follow for a single PAN search are listed below:
1: Go to the reporting page, which is at https://report.insight.gov.in.
2: Click on the login option. Enter all of the required details of the principal officer and click to continue.
3: If the PAN of principal officers is registered on ITDREIN (Income Tax Department Reporting Entity Identification Number), they can select the tax deductors or collectors.
4: You will be sent back to the portal's home page after successful login.
5: Click the link that provides a compliance check for Section 206AB and Section 206CCA.
6: Choose PAN search to select the Search Tab and enter a valid PAN and captcha code.
The following valid details will be displayed after entering:
- PAN of the person
- Name of the person
- PAN allotment date
- PAN aadhar link status
- Section of 206AB, 206CCA of the Income Tax Act: The status of the specified person will be shown as Yes or no as of that date.
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Bulk PAN Search
- Select the tab for Bulk search.
- Then, download the CSV template to enter PAN details in bulk for the bulk search.
- Upload a CSV file, and the file will begin to upload.
Once the status is available, click on the available link to download the result. CSV.
After 24 hours, the downloaded status will be changed, so download it before it expires.
The output CSV file will include:
- The PAN.
- The PAN holder's (masked) name.
- The PAN allotment date.
- The PAN-Aadhaar link status.
- The specified persons 206AB and 206CCA status.
After entering valid information, you will see this:
- PAN of the person
- Name of the person
- PAN allotment date
- PAN aadhar link status
- Current financial year- under the provisions of Section 206AB and Section 206CCA of the specified person, with a Yes or no response.
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Compliance Check Explained
- The list of specific persons is created at the beginning of the 2021/22 financial year. Let the past be two related past years, 2018-19 and 2019-20. The list includes the taxpayer's name who hasn't filed an income tax return for both assessments. In 2019-20 and 2020-21, the total of TDS and TCS is ₹50,000 more than in the last two years.
- During the current fiscal year 2021–2022, if any of the specified persons submit a valid income tax return (filed and confirmed) for the assessment years 2019–2020 or 2020–21, his/her name would be crossed off the list of named individuals. This would be done on the day when the legal income tax return for the fiscal year 2021–2022 was filed.
- Any named person will have their name removed from the list if they submit an accurate return of income for the assessment year 2021–2022, which has been filed and validated.
- If the aggregate of TDS and TCS, in the case of the specified person, in the years 2020–21 is lower than ₹50,000, their name would be crossed off the list of named individuals. The first due date under Section 139 sub-section (I) of the Act, which would be in the financial year 2021–2022, would be used for this. For the financial year 2021–22, this due date of July 31, 2021, has been extended to September 30, 2021.
- Late and revised TCS and TDS returns for all the applicable financial years filled for the financial year of 2021-22 would also be regularly considered for eliminating individuals from the list of designated individuals.
- The deductor or collector may check the PAN for functionality at the start of the financial year, but they are not required to check the PAN of an unspecified person during that financial year. So, that's all about the compliance check functionality for Sections 206 AB and 206CCA of Income Tax.
To summarise, Sections 206AB and 206CCA apply to specific people who must pay taxes. Also, you use an e-filing portal to utilise the legal framework of compliance check functionality. This feature provides detailed information about the taxpayer's financial transactions, such as taxes, refunds, pending and completed proceedings, etc. It is a feature provided to reduce the taxpayer's compliance burden.
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