Section 206AB & 206CCA – Compliance Check Facility

The insertion of two new sections ‘206AB’ and ‘206CCA’ in the Income Tax Act mandates tax deduction or collection at a higher rate for non-filing of returns in the previous two financial years. The higher rate is applied for certain notified taxpayers referred to as ‘Specified Persons”. Section 206AB is related to the higher rate of TDS and 206 CCA is for TCS. This section will be in effect from 1st July,2021.

In this blog, let us understand the scope and applicability of section 206AB & 206CCA of Income-tax Act 1961 and how to configure and record transactions with a higher rate of TDS and TCS in TallyPrime.

To know step-by-step details to configure the higher rate of tax in Tally Prime, refer the help articles given below.

Section 206AB & 206 CCA and Compliance Check Functionality

What is section 206 AB and 206 CCA of Income Tax ACT of 1961?

Section 206AB and 206CCA mandates TDS or TCS at a higher rate for non-filing of returns in the previous two financial years for certain notified taxpayers referred to as ‘Specified Persons. Section 206A is for TDS at a higher rate and 206CC is for TCS at a higher rate.

Who is a specified person?

A specified person refers to a person who satisfies the following 2 conditions: -

1. He has not filed the income tax returns for two previous financial years immediately before the previous year in which tax is required to be deducted or collected. For example, for the current financial year 2021-22, previous years would be 20 18-19 and 2019-20
2. The aggregate of tax deducted at source (TDS) and tax collected at source (TCS) is 50,000 INR or more in each of these two previous years.

Note: The specified person shall not include a non-resident who does not have a permanent establishment in India. The permanent establishment includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.

What is the higher rate of tax that needs to be deducted or collected under section 206AB and 206CCA?

The higher rate is twice the prescribed rate or 5%, whichever is higher. In case of PAN not available/furnished, the existing rate of 20% or rates applicable under this section, which is higher.

What are the types of transactions on which the higher rate of tax needs to be deducted or collected?

Higher rate under these sections needs to be deducted or collected on all nature of payments or goods such as payment to contractors, commission, brokerage, etc.

Is there any exemption from the higher rate of TDS and TCS?

Yes, the following are exempted from the higher rate of tax under the new section of the income tax act.

• TDS on salary (192)
• TDS on the withdrawals of the provident fund (192A)
• TDS on winning from Lottery (194B)
• TDS on Winning from Horse Races (194BB)
• TDS Income in respect of investment in securitization (194LBC)
• TDS on Cash Withdrawal (194N)

How will a tax deductor or the tax collector know if the deductee or the collectee is a specified person?

A new functionality called ‘Compliance Check for Sections 206AB & 206 CCA’ has been made available on thereporting portalof the income tax department that helps you to search with PAN and identify if the deductee or the collectee is a specified person.

How to use the compliance check facility to identify the specified person?

The tax deductor or the collector can feed a single PAN (PAN search) or multiple PAN's (bulk search) of the deductee or collectee and can get a response from the functionality if such deductee or collectee is a specified person.

For PAN search, the response will be visible on the screen which can be downloaded in PDF format. For Bulk Search, the response would be in the form of a downloadable file.

How does the compliance check facility on the portal work?

A list of specified persons is prepared at the start of the financial year 2021-22, taking previous years 20 18-19 and 2019-20 as the two relevant previous years. The list contains the name of taxpayers who did not file the income tax returns for both the assessment year '2019-20 and 2020-21' and have an aggregate of TDS and TCS of 50,000 or more in each of these two previous years.

Will the name of the deductee or collectee be added or removed from the list of specified persons during the financial year?

No new names of specified persons will be added during the financial year. However, the names can be removed from the list in the following scenarios:

• If any specified person files a valid return of income (filed & verified) for any of previous assessment years during the financial year
• If the aggregate of TDS and TCS, in the case of a specified person, in the previous year is less than 50,000 INR
• Belated and revised TCS & TDS returns of the relevant financial years filed during the financial year

How frequently should the deductor or collector verify the PAN using the facility?

The deductor or the collector should check the PAN using the compliance check functionality only at the beginning of the financial year. Since no new names would be added during the financial year, there is no need to check the PAN of the non-specified person. However, the specified persons can be removed from the list, depending on the conditions, there will be a need to recheck those at the time of making tax deductions or tax collections.

For example, let us say that you have 10,000 vendors that you deal with. At the beginning of the financial year, you can use the functionality in the bulk search mode and can get the result of all these 10,000 PANs in one go. Now, let us say among 10,000 Vendors, only 5 of your vendors are listed as specified persons. You need not re-check these 9,995 vendors who are not listed under specified persons since no new name would be added during the financial year. You only need to re-check 5 vendors who are listed under specified persons at the time of making tax deductions or tax collections.

Configure and transact with specified persons at a higher tax rate in Tally Prime

Higher rate of TDS for specified persons

• Configure the party ledger with TDS at twice the rate as specified under the relevant category or at a rate of 5% whichever is higher
• Record purchase voucher and select TDS duty ledger.

Read Configure Specified Person Higher Tax Rate (Under Section 206AB)to know step-by-step details to configure TDS for a specified person in Tally Prime

Higher rate of TCS for specified persons

• Configure the Party ledger with TCS at twice the rate as specified under the relevant category or at a rate of 5% whichever is higher
• Record sales voucher and select TCS duty ledger

Read Configure Specified Person Higher Tax Rate (Under Section 206 CCA)to know step-by-step details to configure TDS for specified persons in Tally Prime.

To know more on section 206AB and 206 CCA, download the clarification issued by the department on 206AB & 206CCA as well as the FAQ.

• Section 206AB and 206CCA clarification circular
• Compliance Check for Section 206AB & 206CCA - FAQs