The Central Board of Direct Taxes ( CBDT ) has issued the Circular No. 11 of 2021 dated 21st June, 2021, regarding the new functionality in regard to compliance check for Section 206AB and 206CCA of the Income Tax Act, 1961.
It is pertinent to mention here that the Finance Act, 2021 inserted two new sections 206AB and 206CCA in the Income Tax Act 1961 which takes effect from 1 day of July 2021. These sections mandate tax deduction (section 206AB) or tax collection (section 206CCA) at higher rate in case of certain non-filers (specified persons) with respect to tax deductions (other than under sections 192, 192A, 194B, 194BB, 194LBC and 194N) and tax collections. The higher rate is twice the prescribed rate or 5%, whichever is higher.
A specified person means a person who satisfies both the following two conditions:
i) He has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately before the previous year in which tax is required to be deducted /collected. Two previous years to be counted are required to be those whose return filing date under sub-section (1) of section 139 has expired.
ii) Aggregate of tax deducted at source and tax collected at source is rupees fifty thousand or more in each of these two previous years.
Launching of new functionality
The tax deductor or the tax collector is required to do a due diligence of satisfying himself if the deductee or the collectee is a specified person. This can lead to extra compliance burden on such tax deductors or tax collectors. To ease this compliance burden the Central Board of Direct Taxes is issuing a new functionality “Compliance Check for Sections 206AB & 206CCA”.
This functionality is made available through reporting portal of the Income-tax Department. The tax deductor or the collector can feed the single PAN (PAN search) or multiple PANs (bulk search) of the deductee or collected and can get a response from the functionality if such deductee or collected is a specified person.
For PAN Search, the response will be visible on the screen which can be downloaded in PDF format. For Bulk Search, the response would be in the form of a downloadable file that can be kept for record.
Logic of new functionality
- A list of specified persons is prepared as of the start of the financial year 2021-22, taking previous years 2018-19 and 2019-20 as the two relevant previous years. The list contains the name of taxpayers who did not file a return of income for both assessment years 2019-20 and 2020-21 and have aggregate TDS and TCS of fifty thousand rupees or more in each of these two previous years.
- During the financial year 2021-22, no new names are added in the list of specified persons. This is a taxpayer friendly measure to reduce the burden on tax deductors and collectors of checking PANS of non-specified persons more than once during the financial year.
- If any specified person files a valid return of income (filed & verified) for the assessment year 2019-20 or 2020-21 during the financial year 2021-22, his name would be removed from the list of specified persons. This would be done on the date of filing of the valid return of income during the financial year 2021-22.
- If any specified person files a valid return of income (filed & verified) for the assessment year 2021-22, his name would be removed from the list of specified persons. This will be done on the due date of filing of return of income for A.Y. 2021-22 or the date of actual filing of valid return (filed & verified) whichever is later.
- If the aggregate of TDS and TCS, in the case of a specified person, in the previous year 2020-21, is less than fifty thousand rupees, his name would be removed from the list of specified persons. This would be done on the first due date under sub-section (1) of section 139 of the Act falling in the financial year 2021-22. For the financial year 2021-22 this due date of 31″ July 2021 has been extended to 30th Sept 2021.
- Belated and revised TCS & TDS returns of the relevant financial years filed during the financial year 2021-22 would also be considered for removing persons from the list of specified persons on a regular basis.
The deductor or the collector may check the PAN for functionality at the beginning of the financial year and then he is not required to check the PAN of a non-specified person during that financial year.
To illustrate, let us assume that a deductor has 10,000 vendors that he deals with. He can use the functionality in the bulk search mode and can get the result of all these 10,000 PANs at one go. Let us assume that the functionality has shown that out of these 10,000 PANs, 5 PANS are specified persons for the purposes of sections 206AB and 206CCA of the Act.
Now with respect to the remaining 9,995 PAN, it is clear that they are not on the list of specified persons for that financial year. Since no new name would be added to the list of specified persons during the financial year, the deductor or collector can be assured that these 9,995 PANs would remain outside the list of specified persons during that financial year.
Thus, the deductor or collector need not check again with respect to these 9,995 PANS during that financial year. There are chances that the 5 PANs which are of specified persons may move out of the list during the financial year and for that, there will be a need to recheck at the time of making tax deduction or tax collection.
CBIC has also stated in the Circular that the list would be drawn afresh at the start of each financial year and the above process would have to be repeated.
CBIC has also stated that as per provisos of sections 206AB and 206CCA of the Act, the specified persons shall not include a non-resident who does not have permanent establishment in India.
It has been stipulated that Tax Deductors / Collectors are expected to carry out necessary due diligence in respect of specified person established by the new functionality to consider him as non-specified, if he fall under these provisos.
Order issued in regard to new functionality
The CBDT vide its Order dated 21st June, 2021 in exercise of powers conferred under section 138(1)(a)(i) of Income-tax Act, 1961 has directed that Director General of Income-tax (Systems), New Delhi to be the specified income-tax authority for furnishing information to the ‘Tax Deductor / Tax Collector’, having registered in the reporting portal of the Project might through valid TAN, to identify the ‘Specified Persons’ for the purposes of section 206AB and 206CCA of the Act through the functionality “Compliance Check for Section 206AB &; 206CCA”.
The information to be furnished to stated to be as under:
a) Name: Name as per PAN Record (Masked)
b) PAN Allotment date: xx-xx-xxxx
c) PAN Aadhaar Link Status: Status of linking of PAN and Aadhaar for individual PAN Holders as below:
i. Linked: PAN and Aadhaar are linked
ii. Not Linked: PAN & Aadhaar are not linked.
iii. Exempt PAN is exempted from PAN-Aadhaar linking requirements as per CBDT’s Notification No. 37/2017 dated 11th May 2017.
iv. Not – Applicable: PAN belongs to non-individual person.
d) Specified person u/s 206AB & 206CCA: (Yes/No)
It has also been stated that DGIT (Systems) would notify the procedure and format regarding the new functionality after taking approval from CBDT.
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