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Section 206AB: TDS on Non Filers of ITR

A new section 206AB, that has been imposed by Finance Act 2021, shall be applicable from 1st July 2021, that means if you're liable to deduct TDS then you have to check whether TDS returns is filed by the party to whom you are making payment.

The Finance Act 2021 has introduced a new section called Section 206AB of the Income Tax Act 1961, which mandates the person paying the amount to deduct TDS in case of non-filing of an income tax return by the specified person.

Legal Provisions

After Section 206AA of the Income-tax Act 1961, the following section shall be inserted with effect from the 1st day of July 2021, namely- Section 206AB – Special provision for deduction of tax at source for non-filers of income tax return

1. Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, 194LBC, or 194N on any sum or income or the amount paid, or payable or credited, by a person to a specified person, the tax shall be deducted at the higher of the following rates, namely-

  • At twice the rate specified in the relevant provision of the Act; or
  • At twice the rate or rates in force; or
  • At the rate of five percent

2. If the provisions of section 206AA are applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section

3. For the purposes of this section “specified person” means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years:

Provided that the specified person shall not include a non-resident, who does not have a permanent establishment in India.

Explanation – For the purposes of this subsection, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.

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Who is required to deduct tax under Section 206AB?

Any person who is responsible to pay any sum or income, or who has paid or credited any amount or by whom any amount is payable shall deduct the TDS under Section 206AB

Applicability of Section 206AB

The provisions of section 206AB will be applicable w.e.f. 01-07-2021

  • The onus of deducting TDS/TCS at a higher rate lies with the deductor/collector on any amount paid to/ received from the “Specified Person”.
  • Sub-section (3) of Section 206AB/206CCA defines  “Specified Person” as:
    • A person who has not filed the Income Tax Return (ITR) for 2 previous years immediately before the previous year in which tax is required to be deducted/collected;
    • The time limit of ITR filing under sub-section (1) of Section 139 is expired; and
    • The aggregate TDS or TCS is Rs. 50,000 or more in each of the 2 previous years.

Non Applicability of Section 206AB

  • Deduction under Section 206AB does not apply if tax is deducted under the following sections
Section Details
192 TDS on Salary
192A TDS on Premature withdrawal from EPF
194B TDS on Lottery
194BB TDS on Horse Riding
194LBC TDS on Income in respect of investment in securitization trust
194N TDS on cash withdrawal in excess of  Rs. 1 crore
  • The specified person shall not include a non-resident who does not have a permanent establishment in India.

Rate of TDS

TDS rate if the amount is paid/ credited to a specified person, being highest than the below rates

  • at twice the rate specified in the relevant provision of the Act; or
  • twice the rate /rates in force; or
  • at the rate of 5%.

Note:

  • If the provisions of Section 206AA are applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in Section 206AA.

Meaning of a specified person for the purpose of Section 206AB

For the purpose of this section, the term specified person means

  • a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, and
  • for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and
  • the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous

Provided that the term specified person shall not include a non-resident who does not have a permanent establishment in India. Practical Aspects of Tax Deduction and Collection at Source under Income Tax Act 

Declaration Forms of Section 206AB

  • In the absence of a proper mechanism or platform to determine the applicability of sections, it will be challenging for the deductor/collector to check whether the person from whom TDS/TCS needs to be deducted/collected meets the two conditions or not.
  • The deductor/collector can ask for declarations on the letterhead of the specified person or use the ITR acknowledgment to check if the person has filed the ITR or not.
  • If the specified person does not furnish the declaration or required details, the TDS/TCS should be deducted /collected at a higher rate as per the provisions.

Vikas Sharma

A writer by passion. Reading and traveling in my free time enhances my creativity in work. I enjoy exploring my creative side, and so I keep myself engaged in learning new skills.

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