In the realm of Indian tax legislation, Sections 206AB and 206CCA of the Income Tax Act have been pivotal in reshaping compliance norms, particularly concerning Tax Deduction at Source (TDS) and Tax Collection at Source (TCS). These sections were introduced to reinforce tax discipline by imposing higher rates of TDS/TCS on specified persons who have not met their income tax return filing obligations. Understanding these provisions is crucial for businesses and individuals alike to ensure adherence and avoid penalties.
Understanding Sections 206AB & 206CCA
Section 206AB: Tax Deduction at Source (TDS)
Section 206AB mandates higher TDS rates for "specified persons" who have not filed their income tax returns for the immediately preceding two financial years, and where the aggregate TDS deducted in each of these years is ₹50,000 or more. The rates under this section are prescribed as:
- Twice the rate specified in the relevant provision of the Act, or
- Twice the rate or rates in force, or
- Five percent.
Section 206CCA: Tax Collection at Source (TCS)
Similarly, Section 206CCA imposes elevated TCS rates on specified persons who have not furnished their PAN or Aadhaar to the collector of TCS. The rates are set as:
- Twice the rate specified in the relevant provision of the Act, or
- Five percent.
Recent Amendments and Exemptions
The Union Budget 2023 brought about significant amendments to the definition of "specified person" under Sections 206AB and 206CCA. This revision exempts non-residents without a permanent establishment in India and individuals not obligated to file income tax returns for the relevant assessment year from these higher tax rates. This adjustment aims to streamline compliance requirements and alleviate burdens on certain categories of taxpayers.
Conclusion
Understanding the nuances of Sections 206AB and 206CCA is imperative for businesses to navigate tax obligations effectively. By ensuring compliance and utilizing the provided declaration, vendors and payees can mitigate risks and uphold seamless business operations. Stay informed, stay compliant, and embrace these tax provisions to foster financial prudence and regulatory adherence
Draft Declaration for Compliance
To facilitate compliance with Sections 206AB and 206CCA, vendors and payees can use the following declaration template:
Draft Declaration
On the Letterhead of the Vendor
Undertaking pursuant to Section 206AB and Section 206CCA
To
[Name of the Company]
[Date]
[Place]
Re: Declaration Confirming Filing of Income Tax Return for Immediately Preceding Two Years
I, [Name of the person signing declaration], in the capacity of [Self/Proprietor/Partner/Director] of [Vendor Name], having registered office address at [Address] and PAN [PAN Number], do hereby declare that I/we have filed our Income Tax Returns for the immediately preceding two financial years as detailed hereunder:
| S.No | Financial Year | Due Date of filing return of income u/s 139(1) of the Act | Date of filing return of income | Acknowledgement Number |
|---|---|---|---|---|
| 1 | 2021-22 | [Date] | [Date] | [Acknowledgement Number] |
| 2 | 2022-23 | [Date] | [Date] | [Acknowledgement Number] |
I/We further state that the above information is true and correct. If any liability arises on your business under Section 206AB/206CCA of the Act in respect of tax to be deducted/collected on account of any of the information mentioned hereinabove being incorrect, we hereby indemnify to reimburse the same.
Yours faithfully,
For [Vendor Name]
[Name of person signing]
[Designation]
