Navigating TDS and TCS: Understanding Section 206AB & 206CCA of the Income Tax Act
Within the intricacies of the Income Tax Act, Sections 206AB and 206CCA hold significant importance, strategically positioned after Sections 206AA and 206CC, respectively. These sections deal with crucial aspects of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) regulations.
Section 206AA addresses the higher TDS deduction rates applicable to individuals who fail to furnish their Permanent Account Number (PAN). On the other hand, Section 206CC focuses on TCS, a crucial aspect of tax collection.
In this blog, we will take a deep dive into the technical details of Sections 206AB and 206CCA. We will explore the recent CBDT circular no. 10/2022, which plays a pivotal role in these provisions, and gains insights into the compliance check functionality. Through this comprehensive analysis, you will gain a thorough understanding of these significant sections and their implications, ensuring compliance with the latest tax regulations and optimizing tax efficiency.
Decoding TDS under Section 206AB: Key Provisions and Implications
Tax Deducted at Source (TDS) assumes a critical role under Section 206AB of the Income Tax Act, introducing significant provisions that warrant thorough comprehension. When making payments to specified individuals, this section mandates TDS deduction at higher rates, subject to specific criteria.
Notably, TDS is determined based on two essential factors: either 2 times the rate prescribed in the Income Tax Act or Finance Act, or a flat 5%, selecting the higher value for TDS calculation. However, an essential consideration arises when the specified individual fails to file their income tax return and does not provide their Permanent Account Number (PAN). In such cases, the TDS rate significantly escalates to an impressive 20%, or the applicable rates as per the relevant section, opting for the higher value.
Unveiling TCS under Section 206CCA: Key Aspects and Implications
Tax Collection at Source (TCS) assumes a significant role under Section 206CCA of the Income Tax Act, encompassing essential provisions that warrant close examination. The process of TCS involves collecting taxes on specific transactions, and Section 206CCA introduces a pivotal dimension by stipulating the tax rates under various scenarios.
Intriguingly, TCS is determined by two essential criteria, requiring the collection of tax on the higher value between either 2 times the rate prescribed in the Income Tax Act or Finance Act, or a flat 5%. However, a crucial aspect lies in cases where the specified person fails to file their income tax return and does not furnish their Permanent Account Number (PAN).
Under such circumstances, the tax collection rate escalates to a remarkable 20% or the applicable rates as per the relevant section, selecting the higher value.
Union Budget 2023 - Providing Relief through Amended Definition of "Specified Person"
The recently proposed Union Budget 2023 presents a notable change in the definition of a "specified person" within the ambit of the Income Tax Act. This significant amendment aims to offer relief to certain individuals, specifically those who are not obligated to submit income tax returns for the relevant assessment year and non-residents without a permanent establishment in India.
As a result, these individuals will no longer fall under the category of non-filers and won't be subjected to higher tax deductions at source.
Amendments in Sections 206AB and 206CCA
The definition of "specified person" has undergone crucial modifications in sections 206AB and 206CCA of the Income Tax Act. The amended definition now excludes two distinct categories:
(i) Non-Residents without Permanent Establishment in India:
Non-residents who do not possess a permanent establishment in India are among those who benefit from the change. By excluding them from the "specified person" category, they are no longer subjected to higher tax deductions at source, thus providing significant relief.
(ii) Non-Filers Not Obligated to Furnish Income Tax Return:
Individuals who are not required to furnish the return of income for the relevant assessment year and have been duly notified by the Central Government in the Official Gazette in this regard, also experience the positive impact of this amendment. Such individuals are now exempted from the non-filer category, alleviating them from higher tax deductions at source.
The Union Budget's proposed changes in the definition of "specified person" bring much-needed respite to these eligible individuals, relieving them from the burden of higher tax deductions. As these amendments come into effect, taxpayers and entities need to be aware of these changes and ensure compliance with the revised provisions.
The applicability of Section 206AB involves higher TDS deduction on various transactions, excluding specific types such as salary (Section 192), premature EPF withdrawal (Section 192A), lottery winnings or card games (Section 194B), horse race winnings (Section 194BB), income concerning investment in securitisation trust (Section 194LBC), cash withdrawals (Section 194N), and transactions involving non-residents without a permanent establishment in India.
Furthermore, Union Budget 2022 adds additional transactions exempt from higher TDS, including consideration for the sale of immovable property (Section 194-IA), rent payment exceeding Rs 50,000 (Section 194-IB), payment for contractual or professional services above Rs 50 lakh (Section 194M), and transfer of virtual digital assets (Section 194S) to eligible individuals or HUFs meeting specific turnover and income criteria.
Q1: What is the recent change in the definition of a "specified person" in the Income Tax Act?
The amendment aims to exclude two specific categories from the "specified person" definition.
Q2: Who are the individuals excluded from the "specified person" category under the amended definition?
The amended definition of "specified person" excludes non-residents who do not have a permanent establishment in India and individuals who are not required to furnish the return of income for the relevant assessment year.
Q3: What relief do the individuals excluded from the "specified person" category receive?
The individuals excluded from the "specified person" category will no longer be considered non-filers and will not be subjected to higher tax deductions at source. The amendment intends to provide relief to these eligible individuals.
Q4: How does the amended definition impact taxation in India?
The amended definition of "specified person" brings much-needed respite to eligible individuals, relieving them from the burden of higher tax deductions. It aims to create a more efficient and equitable taxation system while providing necessary relief to the specified beneficiaries. Taxpayers and entities should be aware of these changes to ensure compliance with the revised provisions