Analysis of Section 206CCA, Income Tax Act, 1961 (w.e.f 1st July 2021)

Special Provision to collect TCS on Non-Filers of Income Tax Return

Illustration:

M/s ABC Ltd. is receiving payment from Mr. Kushwaha of INR 100 Lacs on 1st October 2021, on account of the sale of Alcoholic Liquor for human consumption under section 206C(1). Mr. Kushwaha declares to the company that:

i) He hasn’t filed his ITR for the last two financial year (i.e., FY 2019-20 & FY 2020-21); and

ii) Time limit for filings ITR for FY 2019-20 & FY 2020-21, has been already expired on 31st May 2021 & 30th September 2021 respectively under section 139(1) of the Act; and

iii) Income in these two FYs was INR 100 lacs each which means TCS was INR 1 Lac in each of these two financial years.

Now, the company will collect the TCS u/s 206CCA in the case of Mr. Kushwaha, at the higher of the following rates:

i) Twice the rate as mentioned in Section 206C(1) (1%*2= 2%)

ii) At the rate of 5%

TCS Rate is 5%.

What if Mr. Kushwaha doesn’t provide his PAN number (as per Section 206CC)

In this case, the TCS rate would be higher of the following:

i) TCS rate u/s 206CCA i.e., 5%

ii) TCS rate u/s 206CC i.e., 5%

TCS Rate is 5%.

GENERAL FAQs:

1. How Collector would come to know that Collectee has not filed his ITR?

We would suggest you take the declaration from all the collectees regarding the filing of ITRs in the last two previous years. It would help you to apply Section-206CCA specifically only on those collectees, who fall under the category of “Specified Person”.

2. What kind of payments received covered u/s 206CCA?

Every payment that mentioned under section 206C of the Act.

3. What about the payments already received or debited in the period 1st April 2021 to 30th June 2021?

This section shall come into force w.e.f 1st July 2021, which means not applicable on any payments received or debited before 1st July 2021.

4. How to report in TCS return i.e., FORM 27EQ?

Respective changes have been made in the FORM 27EQ regarding Section-206CCA vide Notification No. 71/2021 dt. 8th June 2021

5. Does tax need to be collected under both, section-206CCA and specific section-206C?

No, if Section-206CCA applies then tax shall be collected under this section only. It prevails over any specific section of collection i.e., 206C.

6. Who is the Specified Person?

As per Section 206CCA “Specified Person” means:

1. Who has not filed his ITR for two previous years, immediately prior to the year in which tax is required to be collected.

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2. Time limit for filing ITR for these two previous years has been expired under section 139(1).

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3. Aggregate of TCS in his case is 50k or more, in each of these two previous years.

The above three conditions need to be mutually fulfilled if any of condition breaks then Section-206CCA will not apply.

Note: Specified person shall not include a Non-Resident, who doesn’t have a permanent establishment in India