Deductors or collectors can use the functionality – Compliance Check for Sections 206AB &206CCA available on the reporting portal of the income-tax department – by keying in permanent account numbers (PAN) in bulk or singularly. The functionality will respond in the affirmative or negative.
The government had introduced two new sections in the income tax Act – 206AB and 206CCA – which mandate tax deduction or tax collection at higher rate in case of certain non-filers or specified persons. This will take effect from July 1, 2021.
Specified person would mean those that have not filed income tax returns for FY19 and FY20, and aggregate of TDS or is Rs 50,000 or more in each of these years. It does not include a non-resident who does not have a permanent establishment in India.
For instance, if a company pays a contractor and it is liable to deduct 2% TDS on the payment to the contractor, it has to check whether the contractor has filed its last two returns or not. If the contractor has not filed last two returns ITRs and the total TDS deducted from A is more than Rs.50,000 then the company has to deduct 5% TDS instead.
“To implement these two provisions, tax deductor/collector was required to do a due diligence of satisfying himself if the deductee/collectee is a specified person. This would have resulted in extra compliance burden on such tax deductor/collector,” the Board said.
The functionality will ensure that deductors or collectors check the PAN in the functionality at the beginning of the financial year without there being any need to check the PAN of the non-specified person again during that financial year.
Experts said that the move would help companies comply with ease, and also leave room for non-compliant specified persons to comply during the year.
“As per the logic of the functionality, list of non-specified persons would get frozen at the beginning of the financial year. The specified persons could, however, enter the coveted club of the non-specified persons during the course of the FY,” said Sandeep Jhunjhuwala, partner at Nangia Andersen LLP.
In a separate circular issued Monday, the Board added that if a specified person files a valid return for the assessment year 2019-20 or 2020-21 during FY 2021-22, that name would be removed from the list of specified persons on the date of filing the return.
Removal of names from the specified person list would be done in case revised or belated filing of the TDS or TCS returns. If aggregate of TDS and TCS is less than Rs 50,000 in any of the financial years of the returns filed, then the name will be removed from the specified persons list.
