Section 206AB & Section 206CCA – Implementation Guide (Including reference to all relevant circulars)

Section-206ab-of-income-tax-act-1961-c0b1dd06-caf101f4

As per  Section 57 of Finance Act 2021 which is given effect from 1/07/2021- Section 206 AB and 206CCA was introduced which specifies deduction of TDS/TCS at double the rate of original rate with a minimum  limit of 5%  if the payee  has not filed the ROI for the 2 immediately preceding Assessment  years if the TDS and TCS amount of the payee has exceeded 50,000 for both the previous years.

Provisions of the Act are reproduced for your reference –

206AB. (1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192192A194B194BB194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely:—

 (i)  at twice the rate specified in the relevant provision of the Act; or

 (ii)  at twice the rate or rates in force; or

(iii)  at the rate of five per cent.

(2) If the provisions of section 206AA 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.

(3) For the purposes of this section “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 deducted, 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:

Provided that the specified person shall not include a non-resident who does not have a permanent establishment in India.

Explanation.—For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.

Analysis-

Deduction of tax at higher rate than the rate prescribed in the respective section is already pre -existing and is being charged vide Section 206AA and Sec 194 N.

The relevant provisions of the respective sections are reproduced hereunder –

Sec 206AA (Extract) – 

(1) Notwithstanding anything contained in any other provisions of this Act, any person entitled to receive any sum or income or amount, on which tax is deductible under Chapter XVIIB (hereafter referred to as deductee) shall furnish his Permanent Account Number to the person responsible for deducting such tax (hereafter referred to as deductor), failing which tax shall be deducted at the higher of the following rates, namely:—

 (i)  at the rate specified in the relevant provision of this Act; or

(ii)  at the rate or rates in force; or

(iii) at the rate of twenty per cent:

          The above section prescribes deduction of tax at rate of 20% or rate prescribed in Act or rates in force ( Ref – Equalisation levy vide Section 166/Section 165A of the Finance Act, 2016) in case where the payee has not furnished his PAN.

    Deduction of tax at higher rate when  the payee has not furnished the return of income was introduced w.e.f 01/07/2020 in Section 194N(hence the same is excluded in 206AB).The relevant part of the section is reproduced hereunder –

First proviso to 194N

Provided that in case of a recipient who has not filed the returns of income for all of the three assessment years relevant to the three previous years, for which the time limit of file return of income under sub-section (1) of section 139 has expired, immediately preceding the previous year in which the payment of the sum is made to him, the provision of this section shall apply with the modification that—

 (i)  the sum shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding twenty lakh rupees during the previous year; and

(ii)  the deduction shall be—

(a)  an amount equal to two per cent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds twenty lakh rupees during the previous year but does not exceed one crore rupees; or

(b)  an amount equal to five per cent of the sum where the amount or aggregate of amounts, as the case may be, being paid in cash exceeds one crore rupees during the previous year:

       The original rate of deduction of the above section is 2% if the amounts paid in cash exceeds 1Cr . However proviso was inserted w.e.f 01/07/2020 by increasing the rate of deduction to 5% and decreasing the limit to 20 lakh and charging tax at rate of 2% on payments between 20 Lakh and 1Cr.

Implementation of 206AB in FAQ format –

Who is the deductor ?

Any person (Also applicable for Individual/HUF for whom tax audit is not applicable)

Who is the deductee ?

 Specified person

Which Sections of Tds are not covered in the above provision ?

  • 192 – Salary
  • 192A – Payment of accumulated balance due to an employee
  • 194B – Winning from lottery or crossword puzzle
  • 194BB – Winning from horse race
  • 194LBC – Income in respect of investment in securitization trust
  • 194N – Payment of certain amounts in cash

Who is a 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 deducted, for which the time limit of filing return of income under sub-section (1) of section 139has expired (For the FY 2021-22 the Return of Income for the year AY 2020-21, AY 2019-20 are covered )
  • 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

How can the deductor know the status of filing of deductee (to determine whether the deductee is specified person)?

Obtaining confirmations from all the deductee would be a tedious task for deductors and in result the  whole motive behind insertion of the above section would be defeated. Hence CBDT  released following guidance for proper implementation –

  • No.llS/6711Ol11ITA.D dated 21/06/2021
  • No. 3701331712021-TPL (Circular No 11 ) dated 21/06/2021
  • Notification No 1 (GIT(S)/ADG(S}-21Compliance Checkl43212021-22) dated 22/06/2021
  • Quick reference guide Version – 1(June 2021)

   Links for the above is given at the end of the articles.

Important points from the above guidance are reproduced hereunder –

 Income Tax Department has facilitated a new functionality “Compliance Check for Section 206AB & 206CCA” to facilitate tax deductors/collectors to verify if a person is a “Specified Person” as per section 206AB & 206CCA. This functionality is made available through Reporting Portal of Income-tax Department (https://report.insight.gov.in). The same portal is used for reporting of SFT transactions 285BA of the Act.

Overview – “Compliance Check for Section 206AB & 206CCA” functionality enables tax deductors/collectors to verify if a person is a “Specified Person” as defined in Section 206AB & 206CCA. This functionality is available to the Principal Officers of the registered TAN at the home page of Reporting Portal (After Login).

Registration of Tax Deductors/Collectors on Reporting Portal

To access the “Compliance Check for Section 206AB & 206CCA” functionality, tax deductors/collectors need to register through TAN on the Reporting Portal of Income-tax Department.

 Following steps may be followed for registration of TAN on reporting portal,

Step: 1 Go to Reporting Portal at URL https://report.insight.gov.in.

Step: 2 On the left sidebar of the Reporting Portal homepage, click on Register button.

 Step: 3 User is redirected to the e-filing login page. Or

 Step: 4 Directly navigated to e-filing portal through http://www.incometax.gov.in/

Step: 5 Log in to e-filing using e-filing login credential of TAN.

Step: 6 Under “Pending Actions”, select “Reporting Portal”.

 Step: 7 After being redirected to the Reporting portal, select New Registration option and click Continue.

 Step: 8 On the next screen, select the Form type as Compliance Check (Tax Deductor & Collector). The Entity Category will be displayed based on the category in which TAN is registered at e-filing. Click Continue to navigate to entity details page.

Step: 9 Enter relevant entity details on entity details page and click on “Add Principal Officer” button to add Principal Officer.

Step: 10 Enter Principal Officer details on the Principal Officer Details page.

 Step: 11 If more users such as Nodal Officer, Alternate Nodal Officer and other users are to be registered at this instance, adding the details of such users can be continued, otherwise the same can be done after registration also.

 Step: 12 Click on Preview button to view the entered entity and principal officer details.

 Step: 13 Click on Submit button to submit the registration request.

Step: 14 Acknowledgement receipt of registration request is provided through portal and the same will also be shared through an email notification to the Principal Officer.

 Step: 15 Once the registration request is approved by Income tax Department, email notification will be shared with the Principal Officer along with ITDREIN details and login credentials

If the Principal officer is already registered for reporting SFT transaction then the same login details can be used for checking compliance under this Section.  LOGIN ID is the PAN of the PRINCIPAL officer . So if an  Individual is principal officer of more than one Entity , the respective ITDREIN of all the entities(respective forms) will appear in his reporting portal . The ITDREIN for which data is required can be selected .

ITDREIN – Income Tax Department Reporting Entity Identification Number (ITDREIN) is an identification number allotted by the Income Tax Department to a Reporting Entity once the registration process is completed. ITDREIN is to be quoted by reporting entity for reporting any reportable transaction of a specified type. A Reporting Entity may have more than one ITDREIN for each type of reporting obligation.

Once the registration application for a particular form type and Reporting Entity category is processed and accepted by the Income-tax Department, system will generate the ITDREIN and communicate the same to the Reporting Entity

Accessing the functionality on Reporting Portal – by Principal Officer

 Step: 1 Go to Reporting Portal at URL https://report.insight.gov.in.

Step: 2 On the left sidebar of the Reporting Portal homepage, click the Login button.

 Step: 3 Enter the required details (of Principal Officer) in the respective fields (PAN and Password as received in the email or updated password) and click Login to continue.

 Step: 4 If Principal Officer’s PAN is registered for multiple Forms & ITDREIN, he/she needs to select Form type as Compliance Check (Tax Deductor & Collector) and associated ITDREINs from the drop-down.

 Step: 5 After successfully logging in, the home page of Reporting Portal appears.

Step: 6 Click on Compliance Check for Section 206AB & 206CCA link provided as shortcut on left panel.

Compliance Check for Section 206AB & 206CCA

Upon clicking Compliance Check for Section 206AB & 206CCA at home page, the compliance check functionality page appears. Through the functionality, tax deductors or collectors can verify if any person (PAN) is a “Specified Person” as defined in Section 206AB & 206CCA. The same can be done in two modes:

  • PAN Search: To verify for single PAN
  • Bulk Search: To verify for PANs in bulk (Upto 10,000)

PAN Search (Single PAN Search)

Step 1: Select PAN Search tab under Compliance Check for Section 206AB & 206CCA functionality.

 Step 2: Enter valid PAN & captcha code and click Search. Following Output result will be displayed upon entering a valid PAN & captcha code. Output result will not be shown if Invalid

Bulk Search

Step 1: Select “Bulk Search” tab.

Step 2: Download the CSV Template by clicking on “Download CSV template” button.

Step 3: Fill the CSV with PANs for which “Specified Person” status is required. (Provided PANs should be valid PANs and count of PANs should not be more than 10,000).

Step 4: Upload the CSV by clicking on “Upload CSV” button.

Step 5: Uploaded file will start reflecting with Uploaded status.

The status will be as follows:

  • Uploaded – The CSV has been uploaded and pending for processing.
  • Available – Uploaded CSV has been processed and results are ready for download
  • Downloaded – The user has downloaded the output results CSV.
  • Link Expired – Download link has been expired.

Step 6: Download the output result CSV once status is available by clicking on Available link.

Step 7: After downloading the file, the status will change to Downloaded and after 24 hours of availability of the file, download link will expire and status will change to Link Expired.

Output Result-

  • Financial Year: Current Financial Year
  • PAN: As provided in the input.
  • Name: Masked name of the Person (as per PAN).
  • PAN Allotment date: Date of allotment of PAN.
  • PAN-Aadhaar Link Status: Status of PAN-Aadhaar linking for individual PAN holders as on date. The response options are Linked (PAN and Aadhaar are linked), Not Linked (PAN & Aadhaar are not linked), Exempt (PAN is exempted from PAN-Aadhaar linking requirements as per Department of Revenue Notification No. 37/2017 dated 11th May 2017) or Not-Applicable (PAN belongs to non-individual person).
  • Specified Person u/s 206AB & 206CCA: The response options are Yes (PAN is a specified person as per section 206AB/206CCA as on date) or No (PAN is not a specified person as per section 206AB/206CCA as on date). Output will also provide the date on which the “Specified Person” status as per section 206AB and 206CCA is determined.

Click PDF icon to download the details in PDF format. 

DETAILS OF THE DEDUCTEE  ARE NOT SHOWN IN DETAIL (i.e Filing status , Amount of the TDS for the Previous years etc) . ALL THE DETAILS ARE CALCULATED IN BACKGROUND AND DATA IS ONLY PROVIDED IN YES/NO FORMAT.

The above given guidance is on the implementation side of the deductor. As far as the deductor is concerned it would be  straight forward provision that if he finds Y at the  column as discussed above , he should start deducting tax at th rates specified in the section. But if we analyse the provisions from the point of view of the deductee. The following questions may arise –

  • What if the deductee has filed the ROI of the previous years after the notification of this Section ?
  • At what frequency should the deductor check the filing status ?
  • Will late return filed under 139(4) be considered as valid return for the purpose of this Section?
  • Which date is considered for determining the status of Specified person?
  • What if the deductee submits declaration under Section 194 C(6) for non deduction of TDS ? Will this provisions override all the other exemptions provided ?
  • What if the TDS deductor has filed wrong amount of tds for the previous year and the same is  rectified now ?

Circular no 11 has clarified most of the questions that may arise in implementation. Relevant text is given below –

The logic of the functionality is as under:

  • A list of specified persons is prepared as on the start of the financial year 2021-22, taking previous years 2018-19 and 2019-20 as the two relevant previous years. List contains name of taxpayers who did not file return of income for both assessment years 2019-20 and 2020-21 and have aggregate of TDS and TCS of fifty thousand rupees or more in each of these two previous years.
  • During the financial year 2021-22, no new names are added In the list of specified persons. This is a taxpayer friendly measure to reduce the burden on tax deductor a collector of checking PANs of non-specified person more than once during the financial year.
  • If any specified person files a valid return of income (filed & verified) for assessment year 2019-20 or 2020-21 during the financial year 2021-22, his name would be removed from the list of specified persons. This would be done on the date of fihng of the valid return of income during the financial year 2021-22. ( So the deductor has to check for removal of names at the time of every deduction. Many ERP have implemented realtime tracking of the above mechanism.)
  • If any specified person files a valid return of income (filed & verified) for assessment year 2021-22, his name would be removed from the list of specified persons. This will be done on the due date of filing of return of income for A. Y. 2021-22 or the date of actual filing of valid retum( filed & verified) whichever is later.
  • If the aggregate of TDS and TCS, in the case of a specified person, in the previous year 2020-21, is less than fifty thousand rupees, his name would be removed from the list of specified persons. This would be done on the first due date under sub-section (I) of section 139 of the Act falling in the financial year 2021-22. For the financial year 2021-22 this due date of 31st July 2021 has been extended to 30th Sept 2021.
  • Belated and revised TCS & TDS returns of the relevant financial years filed during the financial year 2021-22 would also be considered for removing persons from the list of specified persons on a regular basis
  • The deductor or the collector may check the PAN in the functionality at the beginning of the financial year and then he is not required to check the PAN of non-specified person during that financial year. To illustrate, let us assume that a dcductor has 10,000 vendors that he deals with. He can use the functionality in the bulk search mode and can get the result of all these 10,000 PANs at one go. Let us assume that the functionality has shown that out of these 10,000 PANs, 5 PANs arc specified persons for the purposes of sections 206AB and 206CCA of the Act. Now with respect of the remaining 9,995 PAN, it is clear that they are not in the list of specified persons for that financial year. Since no new name would be added in the list of specified persons during the financial year, the deduct or collector can be assured that these 9,995PANs would remain outside the list of specified persons during that financial year. Thus, deduct or or collector need not check again with respect to these 9,995 PANs during that financial year. There are chances that the 5 PANs which arc of specified persons may move out of the list during the financial year and for that there will be need to recheck at the time of making tax deduction or tax collection.
  • The list would be drawn afresh at the start of each financial year and the above process would have to be repeated. For example, at the beginning of the financial year 2022- 23 a fresh list would be prepared with previous years 2019-20 and 2020-21 as the two relevant previous years. Then, no name would be added to the list of specified persons during the financial year and only name would be removed based on the logic discussed above.
  • It may be noted that as per the provisos of sections 206AB & 206CCA of the Act, the specified persons shall not include a non-resident who does not have a permanent establishment in India. Tax deductors & collectors are expected to carry out necessary due deligence in respect of a specified person established by above referred functionality to consider him as non- specified, if he fall under these provision.

Which section will prevail Section 206 AA or 206AB ?

Section 206 AB (2) provides that  If the provisions of section 206AA 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. Therefore inn such cases rate of TDS is –

  • at twice the rate specified in the relevant provision of the Act; 
  • at twice the rate or rates in force; or
  • at the rate of twenty per cent

For the purpose of section 194-0 20% percent shall be substituted with 5%.

Conclusion –

Section 194 Q and 206AB are given effect from 01.07.2021. Implementation of the both the sections has to be ensured. Section 194 Q has to be compared with 206C(1H) and the first one overrides the later. Department is also ensuring proper compliance by providing guidance through circulars and Implementation guide. One can also navigate to the “Help” section of Reporting Portal for submitting query or to get a call back from Customer Care Team of Income-tax Department. Customer Care Team of Income-tax Department can also be reached by calling on its Toll Free number 1800 1034215 for any assistance.

Checklist for Compliance with 206 AB –

  • Register with the reporting portal and generate ITDREIN
  • LOGIN with the credentials provided to Principal Officer
  • Select the respective ITDREIN generated for Compliance check with 206AB and 206CCA
  • Use Single PAN / Bulk PAN method to download the date
  • Check for deletions from the date before every deduction (as there is no chance for additions)

                                             OR

Integrate ERP with the above reporting portal. Tally ERP has issued guidelines regarding the same.

About the Autor:- ANIL KUMAR

Author of Tax Concept, who writes on tax related topics. The Author is engaged in empowering Professionals by his Efforts.

Anil Kumar Tenneti

Editor, Tax Concept & TC VIP. Chartered Accountant II Stock Market Enthusiast. I write articles related to market, taxation, Company law and MSME.

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