Section 206AB of the Income Tax Act, 1961

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.

In this article, the following things are covered

• provisions of section 206AB
• exemption available under section 206AB
• rate of TDS deduction
• applicability of Section 206AB with Section 206AA
• the meaning of the term specified person
• effective date of provisions of section 206AB

Bare text of Section 206AB of Income Tax Act – 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 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-

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

2. If the provisions of section 206AA is 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.

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 sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.

Possible questions that may arise about the applicability of Section 206AB

A. 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

B. Whether Section 206AB is applicable on all the payments liable to TDS?

This section is applicable only on the payments where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than the provisions of section 192, 192A, 194B, 194BB, 194LBC or 194N.

C. At what rate TDS is required to be deducted 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

D. Whether Section 206AB is applicable even when section 206AA regarding deduction of tax also applies to a transaction?

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.

E. What is the meaning of specified person for the purpose of Section 206AB?

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

i. 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

ii. for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and

iii. 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 term specified person shall not include a non-resident who does not have a permanent establishment in India.

F. From which date, the provisions of Section 206AB is applicable?

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