In the Union Budget 2021, the Indian government introduced Section 206AB and 206CCA of the Income Tax Act, which came into effect on July 1, 2021. These provisions are aimed at ensuring that taxpayers who have not complied with their tax obligations in the past are held accountable and incentivizing timely tax compliance.
Let’s understand what these sections mean and how they affect taxpayers.
What is Section 206AB?
Section 206AB of the Income Tax Act applies to taxpayers who are required to deduct TDS (Tax Deducted at Source) on certain payments made to residents. This section applies to both individuals and companies who are responsible for deducting TDS.
According to this section, if a person has not filed their income tax returns (ITR) for the previous two financial years, and the aggregate of TDS deducted and collected from them is Rs. 50,000 or more in each of these two years, then TDS must be deducted at twice the rate specified in the Income Tax Act, or at the rate of 5%, whichever is higher.
For example, if the specified TDS rate for a particular payment is 10%, then the TDS rate for a non-compliant taxpayer under Section 206AB will be 20%, i.e., twice the specified rate.
It is important to note that Section 206AB does not apply to non-residents or to cases where the TDS or tax deducted at source under Section 194N is being deducted.
What is Section 206CCA?
Section 206CCA of the Income Tax Act applies to taxpayers who are required to collect TCS (Tax Collected at Source) on certain transactions. This section applies to both individuals and companies who are responsible for collecting TCS.
According to this section, if a person has not filed their ITR for the previous two financial years, and the aggregate of TCS collected from them is Rs. 50,000 or more in each of these two years, then TCS must be collected at twice the rate specified in the Income Tax Act, or at the rate of 5%, whichever is higher.
For example, if the specified TCS rate for a particular transaction is 5%, then the TCS rate for a non-compliant taxpayer under Section 206CCA will be 10%, i.e., twice the specified rate.
It is important to note that Section 206CCA does not apply to non-residents or to cases where the tax is being collected under Section 194-O.
What are the implications of Sections 206AB and 206CCA?
The introduction of Sections 206AB and 206CCA has made it more crucial for taxpayers to comply with their tax obligations. The higher TDS/TCS rates under these sections will not only increase the tax outflow for non-compliant taxpayers but also act as a deterrent for future non-compliance.
Moreover, taxpayers who have filed their ITRs for the previous two financial years need not worry about the higher TDS/TCS rates under these sections. Therefore, it is essential to ensure timely compliance with tax obligations to avoid any implications of these sections.
In conclusion
Sections 206AB and 206CCA of the Income Tax Act are aimed at ensuring timely compliance with tax obligations and holding non-compliant taxpayers accountable. These sections have significant implications for taxpayers who are required to deduct TDS or collect TCS. It is essential for taxpayers to understand the provisions of these sections and ensure timely compliance with their tax obligations to avoid any implications under these sections.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
Q: What is Section 206AB of the Income Tax Act?
A: Section 206AB of the Income Tax Act is a provision that requires taxpayers who are responsible for deducting TDS (Tax Deducted at Source) to deduct TDS at twice the rate specified in the Income Tax Act, or at the rate of 5%, whichever is higher, if the person has not filed their income tax returns (ITR) for the previous two financial years, and the aggregate of TDS deducted and collected from them is Rs. 50,000 or more in each of these two years.
Q: What is Section 206CCA of the Income Tax Act?
A: Section 206CCA of the Income Tax Act is a provision that requires taxpayers who are responsible for collecting TCS (Tax Collected at Source) to collect TCS at twice the rate specified in the Income Tax Act, or at the rate of 5%, whichever is higher, if the person has not filed their ITR for the previous two financial years, and the aggregate of TCS collected from them is Rs. 50,000 or more in each of these two years.
Q: Who does Section 206AB and 206CCA apply to?
A: Section 206AB and 206CCA apply to taxpayers who are responsible for deducting TDS or collecting TCS, such as individuals and companies.
Q: What is the purpose of Section 206AB and 206CCA?
A: The purpose of Section 206AB and 206CCA is to incentivize timely compliance with tax obligations and hold non-compliant taxpayers accountable.
Q: Does Section 206AB and 206CCA apply to non-residents?
A: No, Section 206AB and 206CCA do not apply to non-residents.
Q: Does Section 206AB and 206CCA apply to cases where TDS or tax is being deducted under other sections of the Income Tax Act?
A: No, Section 206AB does not apply to cases where tax is being deducted under Section 194N and Section 206CCA does not apply to cases where tax is being collected under Section 194-O.
Q: What is the consequence of non-compliance with Section 206AB and 206CCA?
A: Non-compliance with Section 206AB and 206CCA will result in higher TDS/TCS rates for the taxpayer, which will increase the tax outflow and act as a deterrent for future non-compliance.
Q: Does Section 206AB and 206CCA apply to taxpayers who have filed their ITR for the previous two financial years?
A: No, Section 206AB and 206CCA do not apply to taxpayers who have filed their ITR for the previous two financial years.
