To help the tax deductor or the collector comply with two new sections, 206AB and 206CCA of the Income Tax Act, the income tax department developed a compliance check functionality. The CBDT released a circular dated 21st June 2021 introducing and specifying the use of the new functionality. Section 206AB and section 206CCA were inserted by the Finance Act 2021. With effect from 1st July 2021, it requires the tax deduction at source (TDS) or collection at source (TCS) at higher rates in the specified persons. The Act defines a specified person as:
- The person has not filed his income tax return (ITR) for the previous two financial years. The two financial years relate to those whose ITR filing due date under section 139(1) has expired.
- And the total of TDS and TCS during each of these two financial years is Rs.50,000 or more.
If the deductee or the collectee satisfies both the above conditions, then the tax deductor or the collector has to deduct or collect tax at the rate twice the prescribed rate provided in the Act or 5%, whichever is higher.
To comply with the provision mentioned above, the tax deductor or the collector has to verify whether the deductee or the collectee is a specified person or not. Hence, during the FY 2021-22, the deductor or the collector needs to verify whether the deductee or the collectee have filed their ITR returns for the FY 2018-19 and FY 2019-20 (ITR filing due date under section 139(1) expired). And the aggregate amount of TDS and TCS during these financial years.
The taxpayers can use the new functionality through the reporting portal of the income tax department. The deductors or the collectors can either check a single PAN or check multiple PANs at a time from the utility. On a single PAN search, the response will be displayed on the screen, which is downloadable in PDF format. The response for bulk search would be in the form of a downloadable file.
To ease the burden of repeatedly checking PANs, the income tax department clarifies that the PAN(s) once checked in the financial year and marked as non-specified need not be re-checked. There will be no addition of any names to the list of specified persons once prepared at the beginning of the financial year.
However, there may be chances that the specified persons may move out of the list during the financial year. Hence, re-checking will be required when making tax deductions or tax collections for these (specified person) PAN(s).
For example, if the TDS deductor has verified 10 PANs of the deductees through a bulk search facility at the beginning of the financial year. And it is identified that 2 out of 10 deductees are specified persons. So while tax deductions, the deductor needs to re-check the PAN of two specified persons if they are removed from the list of the specified persons.
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