Section 206AB: Special provision for deduction of tax at source (TDS) for non-filers of ITR
In this era where filing ITR on time is important for tax payer, the tax deductor or tax collector is also required to do a due diligence of satisfying himself if the deductee or the collectee is a specified person.
New Section 206AB is inserted after section 206AA of the income tax act 1962 which was introduced in the Finance Bill, 2021 to deduct TDS at higher rates when the amount is paid to specified
d persons who have not filed their income tax returns in the two preceding Financial Years and TDS/TCS is Rs. 50,000 or more.
Where Section 206AA provides for the deduction of TDS at higher rates for those who do not furnish their PAN, Section 206AB applies to certain specified persons who fulfils specified conditions.
It is to be noted that where both the sections are applicable to a person then the section which provides for Highest Tax Rate shall prevail.
Let’s have a look on what this section says.
Extract of Section 206AB
206AB. (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, 194B, 194BB, 194-IA, 194-IB, 194LBC, 194M 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 per cent.
(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 furnished 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, for which the time limit for furnishing the 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 the said previous year:
Provided that the specified person shall not include–
(i) a non-resident who does not have a permanent establishment in India; or
(ii) a person who is not required to furnish the return of income for the assessment year relevant to the said previous year and is notified by the Central Government in the Official Gazette in this behalf.
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.
Thus it is clear that higher rate of tax is applicable to any type of transactions excluding certain nature of payments such as:
- Salary (Section 192)
- Premature withdrawal of EPF (Section 192A)
- Winnings from any lottery or card games, or crossword puzzles (Section 194B)
- winnings from any online game (Section 194BA)
- Winnings from any horse races (Section 194BB)
- Consideration paid for the sale of immovable property (Section 194-IA)
- Rent payment to the landlord above Rs 50,000 (Section 194-IB)
- Income concerning investment in securitisation trust (Section 194LBC)
- Payment for contractual or professional services above Rs 50 lakh (Section 194M)
- Cash withdrawals (Section 194N)
- Non-residents who do not have a permanent establishment (PE) in India.
- a person who is not required to furnish the return of income and is notified by the Central Government in the Official Gazette in this behalf.
Say for example,
Mr. Om runs a mobile shop and TDS u/s 194R of Rs. 50,000 had been deducted by his vendors at the time of purchase for two years consecutively and Mr. Om failed to file his ITR for the said two years within the time limit for furnishing return of income then section 206AB will become applicable to him.
The tax rate shall be higher of:
(i) twice the rate specified in the relevant provision of the Act i.e. 10%*2= 20%; or
(ii) twice the rate or rates in force; or
(iii) the rate of 5%.
So in the given case TDS rate will be 20%.
Further it is clarified via circular no. 10/2022-Income Tax that –
If any specified person files a valid return of income (filed & verified) for the assessment year during the said financial year, his name would be removed from the list of specified persons. This would be done on the date of filing of the valid return of income during the financial year.
Thus if Mr. Om files and verifies his ITR belatedly, then TDS at higher rate shall not be applicable to him.
(Note: Section 194R is applicable when any business, company or professional gives any perks, gift, incentive or any other benefit (monetary or non-monetary) in cash, kind, or partially in cash and kind to a person exceeding Rs.20,000 during the financial year.)
Conclusion: When it is important to file your ITR on time one should also keep a watch over such specified persons who are liable for higher rate of TDS. An online functionality is available on Income tax portal to check such specified persons. Deducting taxes and filing return on time is thus necessary for avoiding intervention of such sections.
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