Last updated on July 28th, 2022 at 06:11 pm
Section 206AB – Special provision for TDS for non-filers of the income tax return
- Section 206AB has been inserted after section 206AA vide Finance Act 2021 and amended vide Finance Act 2022.
- Provision of section 206AB overrides all the provisions of the Income Tax Act,1961 as it begins with the non-obstante clause.
- Provisions of the section were made effective from 1st July 2021.
- Provisions of section 206AB will replace the applicable TDS rate with a higher rate of TDS for the persons who have not filed income tax returns for the previous year and where the aggregate of tax deducted and collected is more than Rs 50,000/- in the previous year. (Note: For AY 2021-22 the condition of return filing and TDS+TDS above Rs 50,0000 was to be verified for 2 previous years)
Section 206AB of Income Tax mandates the person to deduct the tax at a higher rate to penalize the specified persons.
As per section 206AB (3) A person who will satisfy both the conditions will be considered as a specified person for higher deduction of TDS u/s 206AB. (Amended in Finance Act 2022)
• A person who has not filed income tax returns for the previous year.
• A person whose aggregate of TDS and TCS exceeds Rs 50,000/- in the previous year.
Note: For AY 2021-22, the condition of return filing and TDS+TDS above Rs 50,000/- was to be verified for 2 previous years.
Note: Provisions of section 206AB shall not be applicable to a non-resident who does not have a permanent establishment in India.
Note: Provisions of section 206AB shall be applicable even when you are not required to furnish the income tax return. For e.g. Senior citizen might become a victim of a higher deduction of TDS as per this section even if his/her income is below the exemption limit but the TDS deducted was above Rs 50,000/-.
TDS will be deducted at a higher rate from the following
• Twice the rate specified in the relevant section;
• Twice the rate in force for the relevant section;
• 5%
Provisions of section 206AB shall be applicable wherever TDS provisions of Chapter XVIIB except for the following sections
• Section 192: Salary
• Section 192A: Payment of accumulated balance due to an employee
• Section 194B: Winnings from lottery or crossword puzzle
• Section 194BB: Winnings from horse race
• Section 194IA: TDS on purchase of immovable property
• Section 194IB: TDS on rent of the immovable property by Individual or HUF
• Section 194LBC: Income in respect of investment in securitization trust
• Section 194M: Payment to resident contractors and professionals
• Section 194N: Payment of certain amounts in cash
Note: Finance Act 2022 was amended to cover more sections such as 194IA,194IB, and 194M in the exclusion list for applicability of provisions of section 206AB.
Disallowance of expenditure as per section 40(a)(ia), the assessee will not be allowed to claim the amount as an expenditure while calculating profit under PGBP to the extent of 30% of the expenditure where tax was to be deducted.
As per section 206AB(2) – TDS will be deducted at a higher rate from the following
• Rate determined as per section 206AA
• Rate determined as per section 206AB
Section 206AA of Income Tax mandates the person to deduct the tax at a higher rate (20%) to penalize the person who fails to furnish the permanent account number.
CBDT had issued circular no. 11 dated 21st June 2021 and introduced the compliance check for sections 206AB and 206CCA of the Income Tax Act.
1. Go to www.incometax.gov.in
2. Login with valid credentials.
3. Navigate to “Pending Actions” on the Dashboard.
4. Select the option “Reporting Portal“
5. Select the option “New Registration“.
6. Select the option “Compliance Check(Tax Deductor & Collector)” from the drop-down list for Form Type.
7. Select the option “________________________” from the drop-down list for Entity Category.
[Note: IT WAS APPLICABLE ONLY FOR AY 2021-22 as the section was later amended by Finance Act 2022]
For example, Mr. A has not filed income tax returns and the aggregate of TDS & TCS exceeds Rs 50,000/-
• If you are deducting tax before 31st July 2021 then two years to be considered for section 206AB are AY 19-20 and AY 20-21.
• If you are deducting tax after 31st July 2021 then two years to be considered for section 206AB are AY 20-21 and AY 21-22.
(Note: Presumed Mr. A is not required to get books of accounts audited u/s 44AB and due date under section 139(1) will not be extended for AY 21-22)
For example, Mr. B has not filed income tax returns and the aggregate of TDS & TCS exceeds Rs 50,000/-
• If you are deducting tax before 31st October 2021 then two years to be considered for section 206AB are AY 19-20 and AY 20-21.
• If you are deducting tax after 31st October 2021 then two years to be considered for section 206AB are AY 20-21 and AY 21-22.
(Note: Presumed Mr. B is required to get books of accounts audited u/s 44AB and due date under section 139(1) will not be extended for AY 21-22)
Unanswered Questions…
- What happens if the person’s name was not on the list of specified persons but the same is to be included based on the revised TDS or TCS return?
- As per circular no. 11, the name of the specified person will be removed if he completes the compliance as required by the section. But what if someone was not a specified person on day 1 of the financial year but becomes a specified person later in that year? Will his/her name be added to the list of specified persons?
Conclusion
Compliance check for Sections 206AB will help the taxpayers in understanding the applicability of the provisions of the law better and it will assist in the smooth implementation of the same. Any new amendment to the law comes with its teething issues but this provision will enhance the number of filers of income tax returns and tax collection for the Government.
The above provision is likely to impact the persons who do not file income tax returns considering the tax has been deducted from their income and they need not file their return of income. Such persons will start furnishing the return of income upon realizing/understanding that non-filing of return will result in deduction of tax at a higher rate (almost double rate).
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Very informative. This article is well written and contains good and practice advice.
Thank you for the valuable feedback and appreciation.
Nice Article self explanatory. Even a normal businessmen can understand after reading this. Ofcourse hope, unanswered questions, will be answered shortly, and same will be posted here, like present article.
Thank you for the valuable feedback and appreciation.
We expect clarification on unanswered questions from Government at the earliest. And we would surely update the article and share it for the benefit of our readers. You can reach out to us at email info.financepost@gmail.com for any queries.