TDS For Non-Filers of Income Tax Returns [Section 206AB]

Bare Act Provision:

Section 206AB – Special provision for deduction of tax at source for non-filers of income-tax return

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 sections 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) 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

 Analysis:

1. Meaning of relevant terms:

(i)  “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.

(ii) “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.’.

2. Applicability

Applicable to ANY PERSON who is required to make payment to any specified person or a non-resident having a permanent establishment in India and deduct tax under the provisions of Chapter XVIIB other than Salaries u/s 192, Premature withdrawal of EPF u/s 192A, Prize Money from Lottery etc u/s 194B, Winning from Jackpots/Horse races u/s 194BB, Inc from Invt in Securitization Trust u/s 194LBC or Cash withdrawals with Banks etc u/s 194N.

 3. When shall this provisions apply:

1. Any sum, income or amount is paid, payable or credited on which TDS is applicable under aforesaid provisions.

2. The Specified Person has provided his PAN.

3. The Specified Person has not filed his Income Tax Return in either of the 2 previous years for which the time limit of filing return of income under sub-section (1) of section 139 has expired.

4. The aggregate of tax deducted at source in his case is Rs. 50,000/- or more in each of these two previous years.

4. Rate of TDS applicable shall be Higher of the following:

1. at twice the rate specified in the relevant provision of the Act; or

2. at twice the rate or rates in force; or

3. at the rate of five per cent. 

5. When these provisions are NOT applicable:

1. The payer is not liable to deduct TDS.

2. TDS is applicable under sections 192, 192A, 194B, 194BB, 194LBC or 194N.

3. PAN is not provided by the Specified Person, in which case Section 206AA or Section 206AB shall apply.

4. PAN and IT Returns of 2 previous years for which the time limit of filing return of income under sub-section (1) of section 139 has expired BUT aggregate of tax deducted at source in his case does NOT exceed Rs. 50,000/- or more in each of these two previous years.

5. Specified Person shall not include a non-resident who does not have a permanent establishment in India.

Actionable Points:

1. Identify list of deductees to whom TDS is applicable during the current year except sections 192, 192A, 194B, 194BB, 194LBC or 194N.

2. Identify deductees from (a) above, whose aggregate of tax deducted at source and tax collected at source have exceeded Rs. 50,000/- in each of the two previous years whose time limit of filing return of income under sub-section (1) of section 139 has expired. For instance, AY 2019-20 & AY 2020-21 until the due date for filing of return for A.Y. 2021-22 expires.

3. Identify residents and non-residents from list of deductees identified in (b) above.

4. Obtain Copies of ITR-V or Declaration incorporating E-filing Acknowledgement Number of ITRs filed from the Specified Persons from list identified in (c.) above.

We hope the new income tax portal on www.incometax.gov.in provides utility to verify the return filing status.