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

 

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

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Introduction-
In Budget 2021, the finance minister has introduced a new section, which shall be applicable from 1st July 2021. The main objective to introduce Section 206AB is to ensure that taxpayers will file their income tax return.

 

Applicability-

This provision would apply notwithstanding anything contained in any other provisions of this Act where tax is required to be deducted under Chapter XVII-B of the Act.

Section 206AB provides to deduct TDS at higher rates as specified in the act, on amount paid/payable to the specified persons, who are not filing their income tax return.



‘Specified Person’ includes the person who satisfies all the following criteria-
  • The person to whom the payment is made but who has not filed income tax return of two previous years immediately before the previous year in which tax is required to be deducted;
  • The time limit for filing of an income tax return under section 139(1) has expired;
  • The aggregate amount of tax deducted at source is Rs.50,000 or more in each of the two preceding previous years.

 

The term ‘specified person’ doesn’t include a non-resident not having a permanent establishment* in India.

*Explanation- For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.’


TDS Rate under section 206AB-

The rate of tax deduction in such cases shall be higher of the following rates-

(a)  Twice the rate specified in the relevant provision of the Act; or

 (b)  Twice the rate or rates in force; or

 (c)  The rate of 5%

In case of PAN not furnished by the deductee

The TDS will be deducted at higher of-

Rates according to this section or;

Rates according to Section 206AA of the Income Tax Act 1961.

 

Time of Deduction-

TDS will be deducted at the time of any sum/ income/ amount is either paid or payable or credited.



To whom the provision of Section 206AB are not applicable-

The provision of TDS deduction at higher rate will not apply on the following-

Sr. No.

Section

Description

1

Section 192

TDS on Salary

2

Section 192A

TDS on premature withdrawal of Employee’s Provident Fund

3

Section 194B

TDS on Winning from the Lottery, crossword, puzzle, card game or any other games.

4

Section 194BB

TDS on Winning from horse race.

5

Section 194LBC

TDS on Income against investment in the securitization trust.

6

Section 194N

TDS on cash withdrawal.

7

 

Non-resident not having permanent establishment in India.



Example-

ABC & company makes a contract with Mr. X, for the preceding two previous years (FY 2019-20 and FY 2018-19). The tax was deducted @ 1% each year by ABC & company.
- If Mr. X has not filed his Income Tax Return for both the years and the due date of filing the return has expired. What will be the rate of TDS?

Answer-

For the financial year 2020-21, Mr. ABC & Company finds that Mr. X has not filed his Income Tax Return for the last two years i.e. (FY 2019-20 and FY 2018-19), the TDS should be deducted under section 206AB the higher of the following-

(i) Twice the rate mentioned in the Act, i.e., 2% (twice the rate of i.e. 1%), or;

(ii) Twice the rate or rates in force, i.e. 2% or;

(iii) Rate of 5%.

Hence, the tax should be deducted at the rate of 5% by M/s ABC & Company.



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