Compliance Check Functionality for Section 206AB & 206CCA

New sections were introduced in the Finance Bill, 2021 to deduct TDS (tax deducted at source)/ collect TCS (tax collected at source) at higher rates when the amount is paid to specified persons who have not filed their income tax returns.

Section 206AB is inserted after section 206AA of the Income Tax Act. The latter provides for the deduction of TDS at higher rates for those who do not provide/furnish their Permanent Account Number (PAN).
Similarly, section 206CCA for TCS is inserted after section 206CC of the Income Tax Act. Read on for a detailed explanation covering the recent CBDT circular no. 10/2022, the compliance check functionality and more.

Synopsis of CBDT Notification

To ease the compliance burden on tax deductors and tax collectors in complying with provisions of section 206AB and 206CCA, the CBDT has introduced a new functionality “Compliance Check for Sections 206AB & 206CCA”

The logic of the functionality has been explained through CBDT Circular No. 11 of 2021 dated 21st June 2021.
The Notification has further eased the burden of the tax deductors/collectors by ensuring that the deductors/collectors need to check the PAN in the functionality at the beginning of the financial year without there being any need to check the PAN of the non-specified person again during that financial year.
With this new functionality, the Government has reiterated its commitment to ease the compliance burden of taxpayers.

What is Section 206AB and 206CCA?

Section 206AB– Deduct TDS at higher rates than usual when you make payments to those who have not filed their income tax return in the last year.
Section 206CCA– Collect TCS at higher rates than usual from the amounts received from buyers

New sections 206AB and 206CCA of Income-tax Act 1961

Finance Act, 2021 inserted two new sections 206AB and 206CCA in the Income-tax Act 1961 which takes effect from the 1st day of July 2021. These sections mandate tax deduction or tax collection at a higher rate in the case of certain non-filers (specified persons). The higher rate is twice the prescribed rate or 5%, whichever is higher. To implement these two provisions sections 206AB and 206CCA, the tax deductor/collector was required to do the due diligence of satisfying himself if the deductee/collected is a specified person. This would have resulted in an extra compliance burden on such tax deductor/collector.

Rate of TDS Under Section 206AB or Rate of TCS Under Section 206CCA?

TDS under section 206AB

If payment is made to a specified person as mentioned above, then tax shall be deducted at source (TDS) at higher of below rates:

2 times the rate given in the Income Tax Act or Finance Act or
5%

If the person provides the PAN but has not filed the return for the last assessment year, the due date for filing has expired, and the aggregate of TDS or TCS in his case is Rs. 50,000 or more, then the above rate shall apply. Just to save from this, if he doesn’t provide the PAN, then tax shall be deducted at 20% or a much higher rate as per section 206AA.

TCS under section 206CCA

The tax shall be collected at source (TCS) on higher of the following:

2 times the rate given in the Income Tax Act or Finance Act or.
5%

If the person provides the PAN but has not filed the return for the last assessment year and the due date for filing has been expired and the aggregate of TDS or TCS in his case is Rs. 50,000 or more then the above rate shall apply. Just to save from this, if he doesn’t provide the PAN then tax shall be collected at 20% or a much higher rate as per section 206CC.

Who is a Specified Person under Section 206AB?

Specified Person is the one who:

Has not filed the income tax return (ITR) for the preceding FY, and the income tax return (not belated return) filing due date has expired and
Total amount of tax deducted or collected (TDS and TCS) in the last FY is Rs.50,000 or more.

Note: It does not apply to a non-resident who does not have a permanent establishment in India. Permanent establishment for this purpose includes a fixed place of business where the enterprise’s business is carried out wholly or partially.

Accessing the functionality on Reporting Portal?

The Principal Officer needs to login into the portal, provide the required details (of Principal Officer) in the respective fields, and click Login to continue.

Note; 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.

After successfully logging in, the home page of Reporting Portal appears. Click on the Compliance Check for Section 206AB & 206CCA link provided as a shortcut on the left panel.

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