Section 206AB of Income Tax

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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. Provision of section 206AB overrides all the provisions of the Income Tax Act,1961 as it begins with the non-obstante clause.
  • It will be effective from 1st July 2021. (If not extended)
  • 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 two previous years despite aggregate of tax deducted and collected is more than Rs 50,000/- in each of those two previous years.

What is section 206AB? | Section 206AB of Income Tax


Section 206AB of Income Tax mandates the person to deduct the tax at a higher rate to penalize the specified persons.

Who is a specified person as per section 206AB?


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.
• A person who has not filed income tax returns for two previous years.
• A person whose aggregate of tax deducted and collected exceeds Rs 50,000/- in both 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 TDS deducted was above Rs 50,000/-.

What is the higher rate prescribed by section 206AB? | TDS Rate u/s 206AB


TDS will be deducted at the higher rate from the following
• Twice the rate specified in the relevant section;
• Twice the rate in force for the relevant section;
• 5%

Which TDS sections are not covered by the provisions of section 206AB? | Non-applicability of section 206AB


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 194LBC: Income in respect of investment in securitization trust
Section 194N: Payment of certain amounts in cash

Which two years will be considered as relevant previous years for determining specified persons for section 206AB?


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)

Which rate should be considered when both sections 206AA & 206AB are attracted?


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

What is Section 206AA? | Section 206AA of Income Tax


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.

Question was raised on twitter how a company will know that whether vendor has filed his income tax return or not?

Official Twitter Handle of Income Tax India replied that a ‘Compliance Check Utility’ for deductors/collectors for determining the applicability of section 206AB/206CCA will be made available soon. A screenshot of the tweet has been shared for reference.

Unanswered Questions…

  • How a person requiring to deduct TDS will ascertain whether the income tax returns for two previous years were filed or not?
  • How a person requiring to deduct TDS will ascertain whether the aggregate of TDS and TCS is more than Rs 50,000/- for each of the two previous years?
  • How a person requiring to deduct TDS will ascertain the above two( ITR was filed or not and TDS+TCS was more than 50K) for the person who has not even furnished the details of the permanent account number?
  • What will be the penal provisions on the person requiring to deduct TDS for failure to comply with provisions of section 206AB?

Conclusion

Clarification from Government will help taxpayers in understanding the applicability of the provisions of the law better and it will assist in 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 return 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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About CA Ankita Khetan 166 Articles
Ankita is a Chartered Accountant in practice and holds a Diploma in IFRS (from ACCA, UK). She is also a Commerce PG and Certified Independent Director (from IICA). She holds a certification in Forex and Treasury Management. Her area of expertise is GST and Income tax. She is passionate about reading, writing, and sharing knowledge on areas related to finance and taxation.

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