Section 206CCA of the Income Tax Act, 1961:Applicability w.e.f. 01-07-2021

The Finance Act 2021 has introduced a new section called Section 206CCA of the Income Tax Act 1961, which mandates the person receiving the amount to collect TCS in case of non-filing of an income tax return by the specified person.

Section 206CCA of Income Tax Act – This section is applicable with effect from the 1st day of July, 2021, namely-

Section 206CCA – Special provision for collection of tax at source for non-filers of income-tax return

Notwithstanding anything contained in any other provisions of this Act, where tax is required to be collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person (hereafter referred to as collectee) from a specified person, the tax shall be collected at the higher of the following two rates, namely:––

(i) at twice the rate specified in the relevant provision of the Act; or

(ii) at the rate of five per cent.

Analysis:

1. Meaning of relevant terms:

(i) “Specified person” means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be collected, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years

(ii) “Permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.’.

 2. Applicability

Applicable to ANY PERSON who is required to collect at source under the provisions of Chapter XVII-BB.

 3. When shall this provisions apply:

(i) Any sum, income or amount is received on which TCS is required to be collected under the provisions of this Act.

(iii) The Specified Person has not filed his Income Tax Return in either of the 2 previous years for which the time limit of filing return of income under sub-section (1) of section 139 has expired.

(iv) The aggregate of tax collected at source in his case is Rs. 50,000/- or more in each of these two previous years.

4. Rate of TCS applicable shall be Higher of the following:

(i) at twice the rate specified in the relevant provision of the Act; or

(ii) at the rate of five per cent.

 5. When these provisions are NOT applicable:

(i) The receipt is not liable required to collect TCS under the provisions of this Act.

(ii) PAN and IT Returns of 2 previous years for which the time limit of filing return of income under sub-section (1) of section 139 has expired BUT aggregate of tax collected at source in his case does NOT exceed Rs. 50,000/- or more in each of these two previous years.

(iii) Specified Person shall not include a non-resident who does not have a permanent establishment in India.

Actionable Points:

1. Identify list of customers to whom TCS is applicable during the current year.

2. Identify customers from (a) above, whose aggregate of tax collected at source have exceeded Rs. 50,000/- in each of the two previous years whose time limit of filing return of income under sub-section (1) of section 139 has expired. For instance, AY 2019-20 & AY 2020-21 until the due date for filing of return for A.Y. 2021-22 expires.

3. Identify residents and non-residents without PE from list of customers identified in (b) above.

4. Obtain Copies of ITR-V or Declaration incorporating E-filing Acknowledgement Number of ITRs filed from the Specified Persons from list identified in (c.) above.

We hope the new income tax portal on www.incometax.gov.in provides utility to verify the return filing status online.