Section 206AB and Higher TDS

The Finance Act, 2021 has recently introduced section 206AB of the Income Tax Act. According to this section, higher TDS/TCS would be applicable for Income Tax Return non-filers from July 1st. The purpose of this section is to broaden the scope of collection of tax to ensure proper income reporting by every assessee.

If a person has failed to file Income Tax Returns for the last two years and has aggregate TDS/TCS credit of Rs.50,000 or more in each of the two years, he/she shall have to pay TDS at a higher rate.

The Income Tax Department has declared that the above section be inserted with effect from the 1st day of July 2021.

The new TDS rate applicable would be the highest of:

  • Double the rate specified in the relevant provision of the Income Tax Act, or
  • Double the rate of rates in force,
  • At the rate of five percent. 

Irrespective of anything else in this Act, where tax is to be deducted at source mandatorily under the provisions of Chapter XVIIB, other than sections 192,192A,194B,194BB,194LBC, or 194N on any amount or income or the amount paid, payable or credited by an individual to a specified person, the tax shall be withheld at higher of the rates mentioned above.

For TCS collection, the rate under section 206CCA of the Act will be higher of 

  • Twice the rate specified in the relevant section, or
  • 5 percent.

To understand the provisions of section 206AB, the explanation given below would be helpful-

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.

Specified person includes:

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

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

-The total TDS and TCS in 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.

Non applicability of the new rule:

Section 206AB of the Act will not be applicable for the following sections.

  • Section 192-Salary
  • Section 192A-Premature withdrawal from the accumulated balance of Provident Fund which is taxable in the employee’s hands.
  • Section 192AB-Winning from the card game, crossword, lottery, puzzle of any other games.
  • Section 194BB-Winning from horse race.
  • Section 194AN-Payments of certain amount/amounts in cash.

Applicability of both section 206AA and section 206AB-Section 206AA of the Income Tax Act requires the person to deduct TDS at higher rates in case of non-availability of PAN. In case both the provisions of section 206AA and 206AB are applicable to the ‘specified person’ then the TDS would be deducted at the higher of the two rates prescribed under section 206AA and section 206AB.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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