Simplify TDS compliance in light of Section 206AB and Section 206CCA

The Finance Act 2021 has inserted new Section 206AB and Section 206CCA under the Income Tax Act, 1961. These sections are introduced to set a higher rate of TDS and TCS for the deductee or collectee who have been non-filers of their Income Tax Returns for the previous two assessment years immediately before the previous year from the date of deduction or collection. From a regulation perspective, this appears to be an attempt to maintain a shared responsibility of being tax compliant. Now, there arises a need for organizations to stay TDS compliant.

When does this come into effect?

Section 206AB and Section 206CCA come into effect from 1st July 2021. In this blog let’s understand TDS compliance with these new amendments, their implications, and how to build a framework around these compliances & dig deeper on how to automate it.

What are the implications of Section 206AB?

Let’s understand the implications of prior sections 206AA & 206CC first:

1. As per Section 206AA of the Income Tax Act, 1961, if the PAN of the deductee is not available, TDS needs to be deducted at a higher rate of 20% for non-furnishing of PAN.
2. Similarly, Section 206CC of Income Tax Act, 1961 outlines a higher rate of TCS for non-furnishing of PAN to (i) twice the rate specified or (ii) 5%, whichever is higher.

The newly proposed section 206AB says that when TDS is applicable, the deductee meeting the below criteria will be considered as a specified person under Section 206AB:

• The deductee has not filed the Income Tax Return for the last two assessment years, previous to the year for which the tax is required to be deducted and
• If the aggregate of TDS and TCS for deductee is INR 50,000 or more in each of these two previous years

For such a specified person, a higher deduction rate would be applicable. The higher of the following rate would be applicable:

• Twice the rate specified in the relevant provision of the Act, or
• Twice the rates in force or
• The rate of 5%

Section 206AB is exempt when tax deduction is applicable under:

1. Section 192 (TDS on Salary)
2. Section 192A (TDS on Premature withdrawal of EPF)
3. Section 194B (TDS on winnings from the lottery)
4. Section 194BB (TDS on winnings from horse races)
5. Section 194LBC (TDS by securitization trust)
6. Section 194N (TDS on cash withdrawal) of the Act.

In case when the provision of section 206AA of the Act is applicable to a specified person u/s 206AB, the TDS should be deducted at the rate that is higher of the two rates provided u/s 206AB & u/s 206AA.

Let’s break it down & visualize it with a logical framework:

What are the implications of Section 206CCA?

The newly proposed section 206CCA says that when TCS collection is applicable, the collectee meeting the below criteria will be considered as a specified person under Section 206CCA:

1. The collectee has not filed the Income Tax Return for the last two assessment years, previous to the year for which the tax is required to be collected and
2. If the aggregate of TDS and TCS for collectee is INR 50,000 or more in each of these two previous years

For such a specified person, a higher collection rate would be applicable. The higher of the following rate would be applicable:

• At twice the rate or rates in force; or
• At the rate of 5%

Let’s look at the logical framework to break that down:

Contact Sales | Tax Compliance APIs for India | Sandbox

What happens if I don’t check for sections 206AB and 206CCA?

How can Sandbox APIs help here?

The primary objective of Sandbox APIs is to streamline your Tax Compliance Workflows, and in scenarios like these when compliance requirements change is where we reduce your headache! In the above-highlighted processes, two primary data points required regarding the specified person are:

In these processes, we need two primary data points regarding the specified person for the previous two assessment years from the date of deduction :

1. Income tax Returns
2. Amount of TDS + TCS

Sandbox APIs now include a Compliance Check for Section 206AB and Section 206CCA API, to help you automate the evaluation of these data points and straight away gives you:

• The status of PAN holder whether they fall under the category of specified person u/s 206AB and 206CCA or not
• PAN-Aadhar Linked Status and
• PAN allotment date of the PAN holder.

Here’s, why Compliance Check for Section 206AB and Section 206CCA API when integrated within your systems works better than any manual workflow:

1. Verify specified person conditions u/s 206AB and 206CCA by providing just the PAN number.
2. Option to perform the compliance check of up to 10,000 PAN in a single request.
3. Configure Post-back events to know when your Compliance Check Job gets completed.
4. Eliminate manual error and build a seamless journey on top of this Sandbox API
5. Access to a 14-day free trial, well-documented API to refer and start the Integration!

Let’s look at how Sandbox APIs could modify the workflows as we saw in the description for these sections:

Sandbox APIs enable seamless integration of such Tax Compliance Workflows and all you have to do is Sign up for a free trial or Get in touch with Us!

Reach out to us and we’ll share all the details that you need to seamlessly integrate Compliance Check for Section 206AB and Section 206CCA in your workflows!

Develop, Integrate & Grow!

Tax Compliance APIs for India | IT, GST, TDS, & KYC APIs

Contact Sales | Tax Compliance APIs for India | Sandbox