Last updated: May 19th, 2022 5:07 PM

CBDT amends Compliance Check Functionality for Section 206AB & 206CCA

The Central Board of Direct Taxes (CBDT) amends Compliance Check Functionality for Section 206AB & 206CCA vide a Circular No. 10/2022 dated 17th May 2022 to determine the non-filers. To ease the compliance burden on tax deductors and tax collectors in complying with provisions of sections 206AB and 206CCA, the CBDT had introduced the functionality "Compliance Check for Sections 206AB & 206CCA" vide Circular no. 11/2021. The Finance Act 2022 has made amendments to the provisions of Sections 206AB and 206CCA. Now, the CBDT has incorporated such changes in the functionality. Click here to know  more about the Compliance Check Functionality for Section 206AB & 206CCA

Synopsis of the CBDT Circular

With this circular, CBDT modified the earlier Circular No. 11/2021 dated 21.06.2021 after amendments made in section 206AB (for TDS) and section 206CCA (for TCS) of the Income-tax Act, 1961  by the Finance Act, 2022.

• Individuals who have not filed the income tax return (ITR) for the financial year 2020-21, then he/she will be on the list of non-tax filers and have to face higher tax deductions at source (TDS) from this financial fear i.e. 1st April 2022.
• The deductee who is marked as ‘filer’ shall remain a filer for the whole financial year even after the expiry of the due date of furnishing the return of income for the latest assessment year.
• The status of the deductee who is marked as non-filers are subject to change and the deductor may recheck their status in the subsequent deduction.
• Deductor/collectors are not required to collect any evidence from the deductee for applying the provisions of section 206AB/206CCA.
• Section 206AB shall not apply to TDS under section 194S-TDS on the transfer of VDA.

Section 206AB and 206CCA of Income-tax Act 1961

Finance Act, 2021 inserted two new sections 206AB and 206CCA in the Income-tax Act 1961. 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.

• Section 206AB provides TDS at rates higher than those prescribed in the Income Tax Act while making payments or collections to those who have not filed their income tax return.
• Similarly, section 206CCA provides a collection of tax at source (TCS) on amounts received from the buyers at rates higher than specified in the Income Tax Act.

Amendments in the section 206AB & 206CCA

Finance Act 2022 has brought about the following changes in section 206AB and section 206CCA of the Income Tax Act with effect from 1st April 2022.

Non Applicability of Provisions of Section 206AB

Section 206AB shall not apply to TDS under section sections 194-IA, 194-IB, and 194M

Finance Act, 2022 has included some other sections outside the purview of sections 206AB and 206CCA. These are sections 194-IA, 194-IB, and 194M. This is in addition to the already existing provision of its non-applicability on tax to be deducted under sections 192, 192A, 194B, 194BB, 194LB, and 194N.

Section 206AB shall not apply section 194S-TDS on the transfer of VDA

Also, the provisions of section 206AB will not apply in case of deduction of tax on the transfer of virtual digital asset (YDA) under section 1945 of the Income Tax Act to a person being an individual or Hindu undivided family, whose sales, gross receipts or turnover from the business carried on by him or profession exercised by him does not exceed 1 crore rupees in case of business or 50 Lakh rupees in case of the profession, during the financial year immediately preceding the financial year in which such virtual digital asset is transferred or if such person does not have any income under the head “Profit and gains of business or profession."

Amendment in the definition of Specified person

Now "specified person" means a person who satisfies both the following conditions:

• He has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately before the previous year in which tax is required to be deducted/collected. Two previous years to be counted are required to be those whose return filing date under sub-section
• The aggregate of tax deducted at source and tax collected at source is rupees fifty thousand or more in each of these two previous years.

Thus it can be seen that now a person can become a specified person for default in one year instead of the earlier provision of default in two years. Accordingly, the logic of the functionality has been amended. The new logic for the current financial year is explained below:

Amendments in Compliance Check Functionality for Section 206AB & 206CCA

• A list of specified persons is prepared at the start of the financial year 2022-23, taking the previous year 2020-21 as the relevant previous year. The list contains names of the taxpayers who did not file a return of income for the assessment year 2021-22 and have an aggregate of TDS and TCS of fifty thousand rupees or more in the previous year 2020-21.
• During the financial year 2022-23, no new names are added to the list of specified persons. This is a taxpayer-friendly measure to reduce the burden on tax deduction and collectors for checking PANs of non-specified persons more than once during the financial year.
• If any specified person files a valid return of income (filed & verified) for the assessment year 202 1-22 during the financial year 2022-23, his name would be removed from the list of specified persons. This would be done on the date of filing of the valid return of income during the financial year 2022-23.
• If the aggregate of TDS and TCS, in the case of a specified person, in the previous year 202 1-22 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 2022-23. For the financial year 2022-23, this due date is 31 " July 2022,
• Belated and revised TCS & TDS returns of the relevant financial year filed during the financial year 2022-23 would also be considered for removing persons from the list of specified persons regularly.
• The deductor/collector shall check the status of the deductee at the beginning of each year and then he is not required to check the PAN of a non-specified personSection 206AB & 206CCA during that financial year.
• The case of a non-resident who does not have any PE in India is outside the purview of the provisions of section 206AB and section 206CCA. However, the online utility does not distinguish between a non-resident who has a PE or does not have a PE in India, hence, deductors needs to carry out the due diligence manually in respect of non-residents having PE in India and deduct the tax accordingly.

Click here to get the official Notification of CBDT