Sections 206AA and 206AB of the Income Tax Act, 1961 impose higher TDS rates under specific conditions. Section 206AA mandates a higher TDS rate if a recipient fails to provide their PAN, with rates being the highest of either the prescribed rate, the applicable rate, or a flat 20%. However, exceptions allow a reduced rate of 5% for e-commerce operators and buyers under specific sections. Exemptions also apply to non-residents receiving certain types of income, like interest on bonds. Section 206AB applies a higher TDS rate if a person has not filed their income tax return for a specified period and the deducted tax exceeds Rs. 50,000. The higher rate is the greater of twice the standard rate, twice the applicable rate, or 5%. The rate does not apply to certain income categories, such as salary or winnings from lotteries. To check if Section 206AB applies, the Income Tax Department provides a compliance check tool. If both Sections 206AA and 206AB are applicable, the higher of the two rates will be used for TDS deduction.
Q1. What are the provisions of Section 206AA of the Income Tax Act, 1961?
Ans: Section 206AA provides that where any person is entitled to receive any income on which tax is deductible at source, he is required to furnish his PAN to the deductor. In case the PAN is not furnished, the tax shall be deducted at a higher rate under section 206AA.
Q2. What is the rate of tax if provisions of Section 206AA are applicable?
Ans: As perSection 206AA, if the recipient fails to furnish his PAN to the deductor then tax shall be deducted at the highest of the following rates:
(a) At the rate specified in the relevant provision of the Income-tax Act; or
(b) At the rate or rates in force; or
(c) At the rate of 20%
Q3. Is there any exception to the higher rate prescribed as per section 206AA?
Ans: The rate of 20% shall be reduced to 5% in the case where:
a) Tax is required to be deducted by an e-commerce operator undersection 194-O; or
b) Tax is required to be deducted by a buyer under section 194Q.
Q4. Is there any exemption available to a person from the provisions of section 206AA?
Ans: The provisions ofsection 206AA shall not be applicable in respect of the following income received by a non-resident (or a foreign company):
(a) Interest on bonds referred to underSection 194LC;
(b) Specified payments as referred underRule 37BC; and
(c) Income in respect of investment in Category I or Category II AIFs as referred under Rule 114AAB.
Q5. What are the provisions of Section 206AB?
Ans: 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.
Q6. When do provisions of section 206AB apply?
The provisions of section 206AB apply if the following conditions are satisfied:
a) Deductee has not filed the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted;
b) The due date to file the return of income of such assessment year, as prescribed under section 139(1), has expired; and
c) The aggregate amount of tax deducted and collected at source is Rs. 50,000 or more in the said previous year.
Q7. Which sum or income is liable for a higher rate of TDS under section 206AB?
Ans: Tax is required to be deducted at higher rates in respect of every sum or income or amount from which tax is deductible under any provision of Chapter XVII-B except the sum or income or amount on which tax is deductible under any of the following provisions:
a. Section 192: TDS on Salary;
b. Section 192A: TDS on withdrawal from EPF;
c. Section 194B: TDS on winning from lotteries, crossword puzzles, gambling, betting, etc.
d. Section 194BB: TDS on winning from racehorses;
e. Section 194-IA: TDS from payment of consideration to buy an Immovable Property other than rural agricultural land;
f. Section 194-IB: TDS from payment of rent by certain Individuals or HUF;
g. Section 194LBC: TDS on income in respect of investment in Securitization Trust;
h. Section 194M: TDS from payment to the contractor, commission agent, broker, or professional by certain Individuals or HUF;
i. Section 194N: TDS on cash withdrawal; and
j. Section 194S: Payment on transfer of Virtual Digital Asset (if the payer is a specified person)
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.
Q8. What is the rate of tax under section 206AB?
Ans: Where tax is required to be deducted under this provision, the tax shall be deducted at the higher of the following rates:
a) Twice the rate specified in the relevant provision of the Act; or
b) Twice the rate or rates in force; or
c) 5%.
Q9. How to check the return filing status of a person for deduction of tax at source under Section 206AB?
Ans: 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.
Q10. What is the applicable rate of deduction of tax in case both Section 206AA and Section 206AB apply to a person?
Ans: 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 inSection 206AA or section 206AB, whichever is higher.
