Introduction

Section 206AB is the newly inserted provisions in the Income Tax Act, 1961, introduced via the Finance Act, 2021.

As per section 206AB, where any person fails to furnish his return of income for a specified period and tax deducted/collected during that period exceeds the specified limit, the deductor shall deduct the tax at a higher rate under section 206AB.

Let’s delve into their applicability and implications:

 

Section 206AB Applicability

Purpose: This section deals with deduction of tax at source (TDS) at a higher rate for certain non-filers of Income Tax Returns.

• • Effective Date: It has been in effect since July 1, 2021.
  • Applicability:
    • Specified Person: Refers to individuals who meet the following conditions:
      1. Non-filing of Income Tax Return: The person has not filed their Income Tax Return for both of the two assessment years immediately preceding the previous year in which tax is required to be deducted.
      2. Expired Filing Deadline: The due date for filing the return of income under Section 139(1) has expired.
      3. Aggregate TDS: The aggregate of tax deducted at source (TDS) in each of these two financial years is INR 50,000 or more.

For example, for the financial year 2021-22 (effective from July 1, 2021), specified persons are those who haven’t filed their Income Tax Returns for both FY 2018-19 and FY 2019-20, and whose total TDS during each of those years was INR 50,000 or more.

 

TDS Rate under section 206AB

• • Tax shall be deducted at higher of the following rates:
    1. Twice the rates specified in the relevant provisions of the act.
    2. Twice the rate or rates in force.
    3.  5%.​

 

Exclusions under Section 206AB

Provision for TDS deduction under section 206AB does not apply to:

Section	Nature of Payment
192	TDS on Salary
192A	TDS on Premature withdrawal of EPF
194B	TDS on lottery Prize
194BB	TDS on Horse race winning
194LBC	TDS on Income of Investment Securitization
194N	TDS on Cash withdrawal
194-IA	Consideration payment for the sale of immovable property
194-IB	Rent paid to landlord above Rs. 50,000
194M	Payment for professional or contractual services above Rs. 50 lakh
194S	Payment on transfer of Virtual Digital Asset.

Further, the tax shall not be deducted at higher rates under this provision if such sum (or income or amount) is paid (or payable or credited) to a non-resident who does not have a permanent establishment (PE) in India or to a person who is not required to furnish the return of income for the specified period and is notified by the Central Government. ​

 

How to check the return filing status under Section 206AB

​The Income-tax Department has issued a new functionality “”Compliance Check for section 206AB & 206CCA”” on https://report.insight.gov.in to check the IT Return filing status of the deductee.

The tax deductor can feed the single PAN or multiple PANs of a person and get a response from the functionality if such a person is a specified person for the purpose of section 206AB.

 

What is the rate of tax in case both Section 206AA and Section 206AB apply to a person

In case both the provisions of ​​​​Section 206AA and section 206AB apply to a person, that is, the person has neither furnished his PAN to the deductor nor he furnished his return of income for the specified period, the tax shall be deducted at the rates provided in ​​​​Section 206AA or section 206AB, whichever is higher.

 

 

TCS collected under section 206CCA

Purpose: This section deals with collection of tax at source (TCS) at a higher rate for similar non-filers.

• • • Applicability:
      • The same conditions as Section 206AB apply.
    • Higher TCS Rate:
    • Tax shall be collected at higher of the following rates:
      1. Twice the rates specified in the relevant provisions of the act.
      2. At the rate of 5%.