CBDT Exempts RBI from Higher TDS and TCS Rates under Sections 206CCA and 206AB of Income Tax Act, 1961

The Central Board of Direct Taxes (CBDT) has recently exempted the Reserve Bank of India (RBI) from the special provisions of the Income Tax Act, 1961, regarding the tax deducted at source (TDS) and the tax collected at source (TCS) for non-filers of an income-tax return. This notification came into effect under section 206CCA and section 206AB of the Income Tax Act.

Section 206CCA and Section 206AB

Section 206CCA provides for tax collection at source (TCS) on amounts received by a specified person at rates higher than specified in the Act. Under this, tax is collected at twice the rate specified in the relevant provision of the Act, or at the rate of 5%, whichever is higher.

Section 206AB, on the other hand, mandates TDS at rates higher than standard prescribed rates if the taxpayer does not file their income tax return. This section was introduced in 2021 to nudge people to file returns. Under this, tax is deducted at twice the rate specified in the relevant provision of the Act, or at the rate of 5%, or at twice the rates in force, whichever is higher.

CBDT Notification

The Central Board of Direct Taxes (CBDT) has exempted the Reserve Bank of India (RBI) from the applicability of these sections. The Finance Ministry issued a notification stating that the RBI is notified as a person referred to in section 206CCA and section 206AB. This means that the RBI will not be subject to the higher TDS or TCS rates for non-filers of income tax returns.

Implications

This exemption is significant as the RBI is a crucial player in the Indian economy. The RBI's transactions with various entities may involve significant amounts, and the higher TDS or TCS rates could have resulted in substantial tax outgo. By exempting the RBI from these provisions, the CBDT has ensured that the central bank can carry out its functions smoothly without worrying about the additional tax burden.

Understanding Section 206CCA

Section 206CCA, introduced as a special provision for the collection of tax at source, targets non-filers of income tax returns. The section mandates that tax should be collected at a higher rate from specified persons who have not furnished their income tax returns for the relevant assessment year.

Understanding Section 206AB

Section 206AB of the Income Tax Act mandates TDS at rates higher than standard prescribed rates if you do not file your income tax return. This section was introduced in 2021 and nudges people to file returns.

Under this, the tax is deducted at twice the rate specified in the relevant provision of the Act, or at the rate of 5%, or at twice the rates in force, whichever is higher.

Section 206AB is applicable to those who have not filed your income tax return for One assessment year related to the one year preceding the year in which tax is to be deducted, the due date for filing ITR for those 1 years has passed by, and the cumulative TDS in those 1 years is greater than Rs.50,000.

Conclusion

The CBDT's decision to exempt the RBI from the higher TDS and TCS rates under section 206CCA and section 206AB of the Income Tax Act, 1961, is a welcome move. It will help the RBI to carry out its functions efficiently and contribute to the overall economic growth of the country. The exemption will also ensure that the RBI is not subject to any additional tax burden due to non-filing of income tax returns. This move will also help in maintaining the smooth functioning of the Indian economy and ensure that the RBI can continue to play its role as a regulator and a lender of last resort.

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