Section 206AB and 206CCA of Income Tax Act

Section 206AB and 206CCA are the latest addition to the Income Tax Act. The introduction of the new section is for the deduction and collection of tax at source at higher rates if an amount is paid or payable to the specified person who did not file the income tax return. The new section will be applicable from 1st day of July 2021.

What is Section 206AB and 206CCA?

Section 206AB deals with the deduction of TDS at the higher rate to those who have not filed their income tax return. Whereas, Section 206CCA deals with the collection of tax at source at a higher rate received from the buyers.

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Let’s break down the new section 206AB and 206CCA & visualize it with a logical framework
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Tax Compliance APIs
Let’s break down the new section 206AB and 206CCA & visualize it with a logical framework
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Rates for Deduction or Collection of Tax under section 206AB and 206CCA

TDS

Tax will be deducted at the higher of the following rates:

  • at twice the rate specified in the relevant provision of the Act; or
  • at twice the rate or rates in force; or
  • at the rate of 5%

TCS

Tax will be collected at the higher of the following rates:

  • at twice the rate specified in the relevant provision of the Act; or
  • at the rate of 5%
TDS Calculator
TDS (Tax Deducted at Source) is a part of Income Tax. TDS should be dedcuted by a person for specific payments made.
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TDS Calculator
TDS (Tax Deducted at Source) is a part of Income Tax. TDS should be dedcuted by a person for specific payments made.
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Applicability of Section 206AB and 206CCA

The section 206AB and 206CCA are not applicable to a non-resident who does not have a permanent establishment in India. Furthermore, provisions of section 206AB do not apply to any sum or income or amount paid or payable or credited on which tax is otherwise deducted at source under below-mentioned provision of Chapter XVIIB:

  • Section 192 – Salary
  • Section 192A – Premature withdrawal of EPF
  • Winnings from any lottery or card games or crosswords or puzzles – Section 194B
  • Winnings from any horse race – Section 194BB
  • Section 194LBC – Income in respect of investment in securitisation trust
  • Section 194N – Payments of certain amount/amounts in cash

The section 206AB and 206CCA are applicable to specified persons:

  • Person has not filed their Income Tax Return for two previous years immediately preceding the previous year in which tax is required to be deducted/collected
  • The time limit for filing such return of income u/s 139(1) has expired
  • Aggregate of tax deducted/collected at source in each of these two financial years is INR 50,000/- or more

FAQs

Does section 206AA override DTAA?

The DTAA provides for a rate of 10% whereas as per the provisions of Section 206AA of the Act, the rate of tax deduction at source is 20%. The plea of the revenue was that section 206AA starts with a non-obstante clause and therefore it overrides all other provisions of the Act including 90(2), 115A and 139A.

What is Section 206AA?

Section 206AA requires every taxpayer who receives taxable income to furnish their PAN to the payer of such income. This applies to both the resident as well as non-resident recipients.