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.
Specified Person:
- 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.
Current: FY 2021-2022 (Due date of return filing is 31st July 2022, time limit for filing return has not expired)
Previous FY: FY 2020-2021 (Due date of return filing is 30th Sept 2021, time limit for filing return has not expired)
Years to consider for above provision: FY 2019-2020 (AY 20-21), FY 2018-2019 (AY 19-20)
* Specified Person shall not include a Non resident who does not have permanent establishment(a fixed place of business) in India.
Let us understand this provision by providing answers to your questions
Whether section 206 AB is applicable on all payments?
This section is applicable only on payments when tax is required to be deducted at source under the provisions of Chapter XVIIB, other than the provisions of section:
192: TDS on Salary
192A: TDS on pre-mature withdrawal of EPF
194B: TDS on winning of lottery or crossword puzzle
194BB: TDS on winning from horse races
194LBC: TDS on income in respect of investment in securitization trust
194N: TDS on cash withdrawal exceeding Rs. 1 crore
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.
What is the rate for deducting tax under section 206AB?
Under this section, TDS is required to be deducted at a rate higher of the following-
i. At twice the rate specified in the relevant provision of the Act; or
ii. At twice the rate or rates in force; or
iii. At the rate of five percent
What if section 206AA also applies to the transaction? Which section will prevail?
This section is applicable even when the provisions of section 206AA is applicable to a specified person. In that case, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.
This section is applicable from 1.7.2021.
