206AB and 206CCA – Income Tax Compliance Check Functions

section 206ab

In the income tax act, certain provisions have been drafted to target non-filers of returns of income. In this regard, Sections 206AB and 206CCA of the income tax act are prominent. 206AB states that TDS is deducted at the higher of the following rates when amounts are paid or payable to specified persons:

  • If the relevant Act provision specifies twice the rate;
  • The rate or rates in effect should be doubled;
  • Five percent is the rate of growth.

In addition, Section 206CCA states that the TCS shall be collected at the highest rate of the following:

  • If the relevant Act provision specifies twice the rate;
  • A five percent rate is applied.

The specified persons in both sections above are the same and include those who meet both criteria:

  • Despite the fact that the time limit for furnishing a return of income under section 139(1) has expired, they have not filed their return of income for the assessment year relevant to the previous year immediately preceding the year in which TDS / TCS is deducted/collected;
  • TDS and TCS amounted to at least Rs. 50,000 in the previous year.

A PY 2022-23 tax return should be filed for PY 2020-21 (AY 2021-22), as the relevant previous year will be PY 2020-21. In the past, income tax returns had to be filed for two assessment years. However, the provisions of Section 206AB and 206CCA have been amended in the recent circular in order to reduce it to one year.

The Non-application of Sections 206AB and 206CCA

  • As a result, Sections 206AB and 206CCA are not applicable to TDS under sections 194IA, 194IB, 194M, 192, 192A, 194B, 194BB, 194LBC and 194N.
  • As a result, Section 206AB shall not be applicable for TDS under section 194S when Virtual Digital Assets (VDAs) are transferred to individuals or HUFs whose sales or gross receipts do not exceed Rs. In the case of business, Rs. 1 crore and in the case of the profession, Rs. 50 lakhs during the financial year immediately preceding the year that such VDA is transferred or the individual does not receive any income under the PGBP heading.

The Functionality of Section 206AB and Section 206CCA

Hence, the government had difficulties tracking persons who became subject to 206AB and 206CCA due to the difficulties of the assessee deducting/collecting TDS/TCS. introduced a The income tax department offers the functionality “Compliance Check for Section 206AB and 206CCA” on its reporting portal.¬†

PANs can be fed by tax deductors and collectors, as well as bulk PANs, and the functionality will determine if the deductee or collector is specified. As discussed in Circular No. 10 of 2022 dated 17th May 2022, the functionality will operate in FY 2022-23 in the following way:

  • ¬†Taking the previous year, FY 2020-21, as the basis for preparing a list of specified persons for FY 2022-23. In the list, you will find the names of those who haven’t filed income tax returns for the PY 2020-21 (AY 2021-22) and the aggregate of the TDS and TCS is Rs. 50,000 or more.
  • This will relieve the taxpayer from having to verify the names of specified persons multiple times during the remaining financial year 2022-23.

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