The Finance Bill, 2021 introduces new sections. If you pay any amount to a specified person, you will be required to deduct TDS/collect TCS at higher rates. Section 206AB for TDS is inserted after section 206AA. If you do not provide/furnish your Permanent Account Number (PAN), you will be required to deduct TDS at higher rates. A similar section 206cca of income tax act is inserted after section 206CC of the Income Tax Act for TCS. Find out about the compliance check functionality, recent CBDT circular no. 10/2022, and more.
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What Are Sections 206AB and 206CCA?
206AB- Deduct TDS (tax deducted at source) from payments you make to individuals who haven’t filed an income tax return for the past year at higher rates than usual.
In the same way, section 206CCA-Collect TCS (tax collected at source) at higher rates than usual from the amounts you receive from your buyers.
The applicability of section 206AB
Contract payments, professional charges, rent, etc., will be subject to a higher TDS, with the exception of the following payments:
- The salary (Section 192)
- Section 192A: Premature withdrawal of EPF
- A lottery winning, a card winning, or a crossword puzzle winning (Section 194B)
- (Section 194BB) – Winnings from horse races
- (Section 194LBC) Income from securitisation trusts
- Withdrawals (Section 194N)
- Those who do not have a permanent establishment in India (PE).
Further, the Union Budget 2022 eliminates higher TDS deductions on the following transactions:
- The consideration paid for the sale of immovable property (Section 194-IA)
- Over Rs 50,000 in rent paid to the landlord (section 194-IB)
- Payment of more than Rs 50 lakh for contractual or professional services (Section 194M)
- Digital assets transferred (Section 194S) to:
- Individuals or HUFs with gross business turnover under Rs 1 crore or gross income from their professions under Rs 50 lakhs;
- Non-income-producing individual or HUF.
Section 206CCA Non-applicability
In case of a non-resident who does not have a fixed place of business in India and is not operating a permanent establishment (PE) in India, TCS may not be collected at a higher amount.
Specified Persons Under Section 206AB
A Specified Person is someone who:
- The income tax return (ITR) filing due date has passed, and no income tax return (not belated return) has been filed.
- A total of Rs.50,000 or more has been deducted or collected in the last FY (TDS and TCS).
Those who are non-residents and do not have a permanent establishment in India are not subject to this rule. A permanent establishment includes any place where a business is carried on wholly or partially.
Under section 206AB or section 206CCA, what is the rate of TDS?
In accordance with section 206AB, TDS is due
In the case of payment to a specified person, tax will be deducted at source (TDS) at the rate shown below:
- The rate specified in the Income Tax Act or Finance Act plus two
- In five percent
Also, if the specified person does not provide a PAN, then tax will be deducted at 20% or the rates applicable under the section, whichever is higher.