The Finance Minister in Budget 2021 has introduced a special provision of TDS in the Income Tax Act, 1961. Section 206AB has been inserted which will be applicable from July 01, 2021.
This new section requires deduction of TDS at the higher rate while making payment to the “Specified person”*. TDS rates would be higher of the following –
-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 per cent.
*Meaning of 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:
Provided that the specified person shall not include a non-resident who does not have a permanent establishment in India.
In addition to non-filing of the income tax returns within the due dates, if the specified person does not furnish PAN to the payer, then the TDS rate shall be higher of the rates mentioned above or 20%.
Non – Applicability of this section
This provision is not applicable to deduction of tax at source under –
1. Section 192 (i.e. Salary),
2. Section 192A (i.e. Premature withdrawal of employees provident fund),
3. Section 194B (i.e. Winnings from lottery or crossword puzzle),
4. Section 194BB (i.e. Winnings from horse race.),
5. Section 194LBC (i.e. Income from investment in securitisation trust) or
6. Section 194N (i.e. Payment of certain amounts in cash.)
The new rule requires the payers to verify below three things every time while deducting TDS on making payments to the specified persons:
Note: While making a particular payment, if the due date to file ITR of any of the year has not expired, there is no need to deduct tax at higher rates on that payment.
The object of the above section is to make the taxpayer file their income tax returns without fail. To identify the deductee’s return filling status, the deductor may have to collect the return filed acknowledgement or declaration from the deductee.
This provision might be an additional burden on the taxpayer, however, it is an additional step taken by the Government in order to catch people who do not file their ITRs even when their tax has been deducted and is shown in Form 26AS.