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Guide to TDS/TCS: Income Tax Act’s Sections 206AB & 206CCA Explained

Embedded within the complexities of the Income Tax Act are Sections 206AB and 206CCA, strategically positioned after Sections 206AA and 206CC, respectively. These statutory clauses delve into essential aspects of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) regulations.

Section 206AA pertains to escalated TDS Returns Filing Services Delhi rates that apply to individuals who neglect to furnish their Permanent Account Number (PAN). Conversely, Section 206CC revolves around TCS, a critical component of tax collection.

In this article, we will embark on an in-depth exploration of Sections 206AB and 206CCA, delving into the intricate technicalities. We will dissect the recent CBDT circular no. 10/2022, which assumes a pivotal role in these provisions, and gains insights into the mechanics of compliance checks. This comprehensive analysis aims to provide you with a comprehensive grasp of these significant sections and their ramifications, ensuring adherence to the latest tax stipulations and optimal tax management.

Essentials of Deciphering TDS as per Section 206AB: Key Points and Ramifications

The concept of Tax Deducted at Source (TDS) assumes paramount significance within the framework of Section 206AB of the Income Tax Act, ushering in noteworthy provisions that demand a comprehensive understanding. This segment mandates a heightened rate of TDS deduction when disbursing payments to specified individuals, contingent upon specific conditions.

Online TDS Returns Filing Services Delhi

It is crucial to note that TDS is ascertained by taking into account two fundamental parameters: either twice the rate stipulated in the Income Tax Act or the Finance Act or a flat 5%, with the higher value being chosen for TDS computation. However, a pivotal aspect comes to the forefront when the designated individual fails to furnish their income tax return and neglects to furnish their Permanent Account Number (PAN). In such instances, the TDS rate undergoes a substantial escalation, reaching an impressive 20%, or the applicable rates as prescribed by the pertinent section, with preference given to the higher value.

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TCS as Outlined in Section 206CCA: Key Elements and Ramifications

Within the framework of the Income Tax Act, Section 206CCA assigns a significant role to Tax Collection at Source (TCS), encompassing vital stipulations that demand scrutiny. TCS involves the collection of taxes for specific transactions, and Section 206CCA introduces a critical dimension by specifying the tax rates for different scenarios.

Interestingly, TCS operates based on two crucial benchmarks, necessitating the imposition of tax on the higher of either 2 times the rate prescribed in the Income Tax Act or Finance Act, or a flat 5%. However, a pivotal consideration emerges in situations where the designated individual neglects to file their income tax return and omits to provide their Permanent Account Number (PAN).

In such instances, the tax collection rate surges to a notable 20% or the applicable rates as determined by the pertinent section, opting for the higher value.

Union Budget 2023: Easing Burden with Revised “Specified Person”

The freshly unveiled Union Budget for the year 2023 introduces a noteworthy adjustment to the interpretation of a “specified person” as defined by the Income Tax Act. This substantial modification seeks to provide respite to specific individuals, notably including those who are not required to furnish their online income tax returns for the applicable assessment year, as well as non-residents lacking a permanent establishment within India.

Consequently, these individuals will be excluded from the group of non-filers and will be spared from heightened tax deductions at the source.

TDS Returns Filing
TDS Returns Filing Delhi

Changes to Sections 206AB and 206CCA – Amendments

The definition of “specified person” in the Income Tax Act has undergone significant revisions within sections 206AB and 206CCA. The modified definition now specifically excludes two distinct groups:

  • Non-residents without Permanent Establishment in India:

Those non-residents who lack a permanent establishment in India are now beneficiaries of this alteration. By removing them from the classification of “specified person,” they are no longer subject to increased tax deductions at the source, resulting in substantial relief for them.

  • Individuals Who Are Exempt from Furnishing Income Tax Return:

Individuals who are not obligated to submit their income tax return for the relevant assessment year and have received official notification from the Central Government via the Official Gazette also experience a favourable outcome due to this revision. These individuals are now freed from the category of non-filers, thus easing their burden of higher tax deductions at the source.

The proposed modifications to the definition of a “specified person” in the Union Budget offer much-needed relief to eligible individuals, alleviating them from the burden of increased tax deductions. As these changes take effect, taxpayers and entities must be aware of these adjustments and ensure adherence to the revised regulations.

The application of Section 206AB entails heightened TDS returns filing services Delhi on various transactions, with certain exceptions such as salary (Section 192), premature EPF withdrawal (Section 192A), lottery winnings or card games (Section 194B), horse race winnings (Section 194BB), income related to investment in securitisation trust (Section 194LBC), cash withdrawals (Section 194N), and transactions involving non-residents lacking a permanent establishment in India.

Additionally, the Union Budget for 2022 introduces further exemptions from increased TDS, encompassing considerations for the sale of immovable property (Section 194-IA), rental payments exceeding Rs 50,000 (Section 194-IB), payments for contractual or professional services surpassing Rs 50 lakh (Section 194M), and the transfer of virtual digital assets (Section 194S) to eligible individuals or Hindu Undivided Families (HUFs) meeting specific turnover and income criteria.

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