Section 206AB: Higher Rate of TDS for non-filers of Income Tax Return

The Finance Bill 2021, proposed to insert a new section 206AB for deduction of TDS at higher rates for those who have not filed their Income Tax Return. Here are the details of the new section 206AB of the Income Tax Act, 1961.

Section 206AB of the Income Tax Act, 1961

Proposed section 206AB of the Act would apply on any sum or income or the amount paid, or payable or credited, by a person (herein referred to as deductee) to a “specified person”.

Here “specified person”, has been defined under subsection (3) as a person, who has not filed the returns of income for both of the 2 assessment years relevant to the 2 previous years which are immediately before the previous year in which tax is required to be deducted or collected, as the case may be“.

Condition for deduction of TDS u/s 206AB

Here are 3 important conditions, which needs to be satisfied before deduction of TDS at higher rates u/s 206AB

1) Time limit for filing tax returns under sub-section (1) of section 139 of the Act has expired for both these assessment years.

2) Aggregate of tax deducted at source, in this case, is Rs. 50,000 or more in each of these two previous years.

3) Specified person shall not include a non-resident who does not have a permanent establishment in India.

Applicability of section 206AB

Budget 2021, provide for the applicability of the section 206AB w.e.f. 1st July 2021.

Non-applicability of section 206AB

Section 206AB of the Income Tax Act will not be applicable, where the tax is required to be deducted u/s 192, 192A, 194B, 194BB, 194LBC, or 194N of the Act. This implies that a higher rate of TDS shall not be applicable on the following sections where the full amount of TDS is required to be deducted.

192TDS on Salary
192ATDS on Salary to Government Employee
194BTDS on Lottery
194BBTDS on Horse Riding
194LBCTDS on Income in respect of investment in securitization trust
194NTDS on cash withdrawal in excess of 1 crore

Also Read: Section 206CCA of the Income Tax Act, 1961- Double rate of TCS Provision

How would be the ITR filing will be checked of the specified person

For this purpose, the government would provide a new utility, wherein a deductor will get the details of specified person ITR filing by entering the PAN no. of that person.

However, as a prudent practice, the assessee should keep a copy of the supplier’s ITR for the preceding two financial years as a confirmation to accordingly deduct TDS as per the applicable rates.

Rate of TDS under section 206AB of the Income Tax Act

The provisions of sub-section (1) of section 206AB provide for the rate to be applied. The rate of TDS under section 206AB of the Income Tax Act will be higher of the following-

a) at twice the rate specified in the relevant provision of the act, or

b) at twice the rate of rate in force, or

c) at the rate of 5%.

Some other Important points for section 206AB

  • If the specified person does not submit the PAN (section 206AA) as well as not filed the return (section 206AB), the TDS shall be deducted at the higher rates amongst both the sections.
  • The non-resident person who does not have any permanent establishment is excluded from the scope of the specified person.

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Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author does not own any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.

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Compiled by- CA Chirag Agarwal (Practicing Chartered Accountants)

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