Understanding Section 206CCA of the Income Tax Act
Section 206CCA is a newly introduced provision under the Income Tax Act, 1961. This section requires taxpayers to furnish their Permanent Account Number (PAN) or Aadhaar number to the deductor for tax deducted at source (TDS) or tax collected at source (TCS). In this blog, we will discuss the key provisions of Section 206CCA and its impact on taxpayers.
What is Section 206CCA of the Income Tax Act?
Section 206CCA of the Income Tax Act, 1961, was inserted by the Finance Act, 2021. This section mandates the furnishing of PAN or Aadhaar number by taxpayers to the deductor for tax deducted at source (TDS) or tax collected at source (TCS). The section is applicable to all taxpayers who are subject to TDS or TCS.
Who is affected by Section 206CCA?
All taxpayers who are required to deduct or collect TDS or TCS are affected by Section 206CCA. This includes individuals, Hindu Undivided Families (HUFs), companies, firms, and other entities. The provision is also applicable to non-residents who have a tax liability in India.
What are the key provisions of Section 206CCA?
- Furnishing of PAN or Aadhaar number: Section 206CCA mandates that taxpayers must provide their PAN or Aadhaar number to the deductor for TDS or TCS. This provision applies to all transactions that are subject to TDS or TCS.
- Higher rate of TDS or TCS: If a taxpayer fails to furnish their PAN or Aadhaar number to the deductor, then the TDS or TCS rate will be higher of the following rates:
a. Twice the rate specified under the relevant provisions of the Income Tax Act, or b. The rate of 5%
For example, if the TDS rate specified under the Income Tax Act is 10%, then the TDS rate for a taxpayer who has not furnished their PAN or Aadhaar number will be 20% (i.e., twice the rate of 10%).
- No exemption from higher TDS or TCS: The provision of Section 206CCA overrides all other provisions of the Income Tax Act that allow for lower TDS or TCS rates. Therefore, if a taxpayer has an exemption from TDS or TCS or is eligible for a lower TDS or TCS rate under any other provision of the Income Tax Act, they will still be subject to the higher TDS or TCS rate under Section 206CCA if they fail to furnish their PAN or Aadhaar number to the deductor.
- No credit for excess TDS or TCS: If a taxpayer has been subject to higher TDS or TCS due to the non-furnishing of PAN or Aadhaar number, they will not be able to claim credit for the excess amount deducted or collected.
What is the impact of Section 206CCA on taxpayers?
Section 206CCA aims to promote compliance with tax laws and prevent tax evasion. Taxpayers who fail to furnish their PAN or Aadhaar number to the deductor will be subject to higher TDS or TCS rates. This may increase the compliance burden for taxpayers who are unable to furnish their PAN or Aadhaar number for any reason. Additionally, taxpayers who have been subject to higher TDS or TCS rates due to non-furnishing of PAN or Aadhaar number will not be able to claim credit for the excess amount deducted or collected.
Taxpayers are advised to ensure that they provide their PAN or Aadhaar number to the deductor to avoid higher TDS or TCS rates. Failure to do so may result in a higher tax liability, and the excess amount deducted or collected cannot be claimed as credit.
Furthermore, the introduction of Section 206CCA underscores the importance of maintaining accurate and up-to-date records of financial transactions. Taxpayers should maintain records of all transactions subject to TDS or TCS and ensure that their PAN or Aadhaar number is correctly furnished to the deductor.
Conclusion
In conclusion, Section 206CCA is a crucial provision of the Income Tax Act that aims to promote compliance with tax laws and prevent tax evasion. It is essential for taxpayers to understand the provisions of this section and comply with the requirements to avoid any adverse impact on their tax liability.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
- section 90a of income tax act
- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
Who is required to furnish their PAN or Aadhaar number under Section 206CCA of the Income Tax Act?
Answer: All taxpayers who are subject to TDS or TCS are required to furnish their PAN or Aadhaar number to the deductor.
What happens if a taxpayer fails to furnish their PAN or Aadhaar number to the deductor?
Answer: If a taxpayer fails to furnish their PAN or Aadhaar number to the deductor, they will be subject to a higher TDS or TCS rate.
What is the higher TDS or TCS rate applicable for non-compliance with Section 206CCA?
Answer: The higher TDS or TCS rate applicable for non-compliance with Section 206CCA is the higher of twice the rate specified under the relevant provisions of the Income Tax Act or the rate of 5%.
Can a taxpayer claim credit for excess TDS or TCS deducted or collected due to non-compliance with Section 206CCA?
Answer: No, a taxpayer cannot claim credit for excess TDS or TCS deducted or collected due to non-compliance with Section 206CCA.
Is Section 206CCA applicable to non-residents with a tax liability in India?
Answer: Yes, Section 206CCA is applicable to non-residents with a tax liability in India.
Can a taxpayer apply for an exemption from higher TDS or TCS rates under Section 206CCA?
Answer: No, a taxpayer cannot apply for an exemption from higher TDS or TCS rates under Section 206CCA.
Is there any penalty for non-compliance with Section 206CCA?
Answer: No, there is no penalty for non-compliance with Section 206CCA, but taxpayers will be subject to a higher TDS or TCS rate.
Can a taxpayer furnish their PAN or Aadhaar number after TDS or TCS has been deducted or collected?
Answer: No, a taxpayer cannot furnish their PAN or Aadhaar number after TDS or TCS has been deducted or collected.
Can a taxpayer furnish their PAN or Aadhaar number to the deductor verbally?
Answer: No, a taxpayer must furnish their PAN or Aadhaar number to the deductor in writing.
Is Section 206CCA applicable to all types of TDS or TCS transactions?
Answer: Yes, Section 206CCA is applicable to all types of TDS or TCS transactions, whether it is salary, interest, rent, or any other type of payment.
