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The Finance Bill 2021 introduced section 206CCA for a higher deduction of tax collected at source TCS. Similar to higher deduction of TDS, the Income Tax Department introduced section 206CCA for a higher deduction of TCS.

What is Section 206CCA?

Section 206CCA provides for a higher collection of TCS than the TCS rates prescribed in section 206C. Hence, at the time of selling the goods, the seller would collect a higher TCS from the buyer against the goods eligible for a tax collection at source. Section 206CCA is applicable to specified taxpayers only. Section 206CCA is applicable to resident taxpayers as well as non-resident taxpayers. Moreover, section 206CCA overrides other provisions/ section/ rules of the Income Tax Act, 1961 that opposes the applicability of section 206CCA.

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Applicability of Section 206CCA

206CCA is applicable to the taxpayers who fulfil the following conditions:

  • The buyer taxpayer has not filed the income tax return for both of the two assessment years relevant to the two previous financial years immediately prior to the financial year in which tax is required to be deducted. For example- The TDS is to be deducted for the financial year 2021-22. If the taxpayer has not filed the income tax return for FY 2020-21 and FY 2019-20 then section 206AB is applicable.
  • The due of filing of the income tax return for those two financial years have expired
  • The total amount of TDS and TCS in those two financial years exceeds Rs 50,000.

Non-Applicability of Section 206CCA

Section 206CCA is not applicable to non-resident taxpayers who do not have a permanent establishment in India. A permanent establishment is a place of business from which the establishment runs its business either partially or entirely.

TDS Rate Under 206CCA

If 206CCA is applicable to a taxpayer then higher of the following is applicable

  • at twice the rate specified in section 206C of the Income Tax Act, 1961; or
  • at the rate of 5%.

How To Calculate TDS Under Section 206CCA of Income Tax Act?

Illustration-1: Section 206CCA is applicable

Mr. Amar sells scrap worth Rs 7,00,000 to Mr. Ajay. TCS is applicable on sale of scrap at a rate of 1%. Mr. Amar is the seller and Mr. Ajay is the buyer. With the applicability of TCS, Mr. Amar must collect TCS from Mr. Ajay and pay to the credit of the Central Government. Mr. Ajay did not file his income tax return for the past two financial years. Section 206CCA is applicable. Now, Mr. Amar will collect TCS at a higher rate. The new TCS rate will be higher of the following:

  • 2% (1% the rate as per section 206C for scrap sale * 2)
  • at the rate of 5%.

At the rate of 5%, the total TCS amount is Rs 14,000.

Failure To Furnish PAN and Default in Filing ITR

If Section 206CC and 206CCA are applicable simultaneously then the treatment differs.

Section 206CC provides that if a buyer does not furnish their PAN to the seller then a higher TCS rate is applicable. The higher of the following is the applicable TCS rate in such a case:

  • at twice the rate specified in section 206C; or
  • at the rate of 5%.

If a taxpayer fails to furnish their PAN to the seller and is a specified taxpayer then the TCS rate is different. The higher of the following will be the TCS rate:

  1. Rate under section 206CC
  2. Rate under section 206CCA

Illustration-2

Mr. Amar sells scrap worth Rs 7,00,000 to Mr. Ajay. TCS is applicable on the sale of tendu leaves at a rate of 5%. Mr. Amar is the seller and Mr. Ajay is the buyer. With the applicability of TCS, Mr. Amar must collect TCS from Mr. Ajay and pay to the credit of the Central Government. Mr. Ajay did not file his ITR for the previous two financial years. Furthermore, he did not furnish his PAN to Mr. Amar. Now, section 206CC is applicable along with 206CCA.

Rate under section 206CC

The TCS rate will be higher of the following:

  • 10% (at twice the rate specified in section 206C, i.e. 5%*2); or
  • at the rate of 5%

Rate under 206CCA

The TCS rate will be higher of the following:

  • 10% (5% the rate as per section 206C for tendu leaves * 2)
  • at the rate of 5%.

In this case, the applicable rate will be higher of the following:

  • Section 206CA- 10%
  • Section 206CCA- 10%

Hence, the amount of TCS will be Rs 70,000 (Rs 7,00,000 * 10%)