Section 206AB of the Income Tax Act is recently introduced vide the Finance Act, 2021. Section 206AB mandates the person to deduct TDS in case of non-filing of an income tax return by the specified person.

The present article briefly explains the provisions of section 206AB; the meaning of the term specified person; rate of TDS deduction; effective date of provisions of section 206AB and exemption available under section 206AB.

Provision of section 206AB of the Income Tax Act

The provision of section 206AB of the Income Tax Act are simplified and explained below-

Particulars Details
Who is liable to deduct TDS? The person paying any sum to the specified person.
Amount on which TDS is to be deducted Any amount/ sum/ income paid or payable or credited to the specified person.

From the above table, one can easily figure out that it is important to understand the term ‘specified person’ and the same is briefly explained below.

Meaning of the term ‘Specified Person’ for Section 206AB

The term ‘specified person’ is explained under section 206AB(3). The coverage and non-coverage of the term is explained hereunder-

Coverage Non-coverage
The term ‘specified person’ includes the person who satisfies all the following criteria-

1. The person has not filed income tax return of two previous years immediately before the previous year in which TDS is required to be deducted;

2. The time limit of filing of an income tax return as per section 139(1) is expired; and

3. The total TDS and TCS is INR 50,000 or more in each of the two previous years.

The term ‘specified person’ doesn’t include a non-resident not having a permanent establishment in India.

Rate of deduction of TDS under section 206AB

TDS under section 206AB will be deducted at higher of the following rates-

  • Twice the rate as specified under the relevant provision of the Income Tax Act; or
  • Twice the rate/ rates in force; or
  • At the rate of 5%.

The effective date of provisions of section 206AB

The newly inserted provisions of section 206AB of the Income Tax Act will be effective from 1st July 2021.

Exemption under section 206AB

Provisions of section 206AB do not apply to the following tabulated TDS sections of Income Tax Act-

Sr. No. Section Description
1 Section 192 Salary
2 Section 192A Premature withdrawal from the accumulated balance of Provident Fund which is taxable in the employee’s hands.
3 Section 194B Winning from the card game, crossword, lottery, puzzle or any other games.
4 Section 194BB Winning from horse race.
5 Section 194LBC Income against investment in the securitization trust.
6 Section 194N Payments of certain amount/ amounts in cash.

Applicability of both section 206AA and 206AB-

Section 206AA of the Income Tax Act mandates the person to deduct TDS at higher rates in case of non-availability of PAN.

Now, in case both the provisions of section 206AA and section 206AB applies to the ‘specified person’. Then, TDS would be deducted at the higher of the two rates prescribed under section 206AA and section 206AB.

Synopsis-

Particulars Details
When the provision of section 206AB get attracted?
  • Deductor is already deducting TDS of the deductee under any provisions of the Income Tax Act; and
  • Deductee-

1.  Has not filed an income tax return for preceding two previous years;

2.  The time limit for filing the return is expired; and

3.  TDS and TCS is INR 50,000 or more in each of the two previous years.

When to deduct TDS under section 206AB? When any sum/ income/ amount is either paid or payable or credited.
TDS is deductible at which rates? Higher of-

  • Twice the specified rate;
  • Twice the rate in force;
  • 5%
Provisions of section 206AB are to be applied while deducting TDS under all the sections? No, provisions of section 206AB are not applicable when TDS is deductible under section 192; section 192A; section 194B; section 194BB; section 194LBC or section 194N.

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16 Comments

  1. Gopalakrishnan says:

    Last two years i am not eligible to file the IT… if current year i am eligible to deduct tds…then TDS is deductible at which rates?

  2. consultrajaca says:

    WHETHER HIGH RATE OF TDS WILL BE APPLICABLE IF RETURNS OF LAST YEARS HAD BEEN FILED BUT TDS IN ONE YEAR IS LESS THAN RS. 50000.

  3. Vipan verma says:

    If assessee filling ITR previous last two years below Rs. 1.5 lac I. e. Gross Total income. It is not mandatory to file ITR as the Gross Total Income is below Rs. 2.5 lac. My question is that to avoid the notice from income tax department for non filling ITR what correspondence should do earlier by the assessee.

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