SECTION 206AB- SPECIAL PROVISION FOR DEDUCTION OF TAX AT SOURCE FOR NON-FILERS OF INCOME TAX RETURN
Effective date: 206AB is effective from 1st July 2021

206AB deals with the deduction of tax at a higher rate for specified persons.


RATE:
IF PAN IS SUBMITTED:
  1. At twice the rates specified in the relevant provisions of the act (or)
  2. At twice the rate or rates in force (or)
  3. At the rate of 5%

Whichever is higher

IF PAN IS NOT SUBMITTED:

The tax shall be deducted at higher of the two rates specified in this section and in section 206AA.

206AA:

  1. The rates specified in the relevant provisions of the act (or)
  2. The rate or rates in force (or)
  3. AT the rate of 20%

Whichever is higher

SPECIFIED PERSONS:

Meaning: Specified person means a person who is satisfying all the below-mentioned conditions.

Conditions:

  • A person who has not filed an income tax return for 2 previous years immediately preceding the previous year in which tax is to be deducted.
  • The time limit for filing such a return of income is expired under section 139(1).
  • The aggregate of TDS is 50000/- or more in each of these previous years.

Exception:
Non- Resident who doesn’t have a permanent establishment in India.

Example:
Mr Ajay doesn’t file his Income-tax return before the due date as per section 139 for the following two previous years even if the TDS amount deducted was :

FINANCIAL YEAR                                   TDS AMOUNT
2019-2020                                                      61000/-
2018-2019                                                      54000/-

Considered as a specified person.
Then deductor has to deduct TDS for Mr Ajay as per section 206AB

IF PAN SUBMITTED

1) At twice the rates specified in the relevant provisions of the act (or)
2) At twice the rate or rates in force (or)
3) At the rate of 5%
Whichever is higher

IF PAN NOT SUBMITTED

1) The rates specified in the relevant provisions of the act (or)
2) The rate or rates in force (or)
3) AT the rate of 20%, whichever is higher

Non- Applicability of the Section 206AB

1. If the specified person is a non-resident who does not have a permanent establishment in India.
2. The section has an overriding effect on all provisions of Chapter XVIIB of the Income Tax Act, 1961 except the below-mentioned sections

Table Representing Applicability of Section 206AB

TDS/TCS Provisions – Specified Assesses Identification – As per Circular No. 11/2021 dated 21/06/2021

Section 206AB and 206CCA requiring a higher rate of TDS & TCS are applicable from 1st July 2021 requiring deduction of TDS (other than salary, horse racing, etc) or TCS at twice the normal rates or 5% whichever is higher, in case, deductee or collected are specified persons ie not filed ITRs for 2 years, a total of TDS and TCS is Rs 50,000 or more.

Considering the fact that it is practically impossible for the deduction or collector to identify the specified persons, the new functionality has been issued by CBDT ‘Compliance check for 206AB and 206CCA’.

As per the functionality, Single or multiple searches of PAN can be made to identify the specified persons and bulk data can in fact be downloaded in pdf format.
A list of specified persons would be prepared at the start of the FY and no new specified person would be added during the FY.  If a specified person fulfils the conditions specified above, he would be removed from the list during the FY.

Digital payments up 30.2% in FY21: According to RBI data 

So as a rule, a new specified person list on the portal would be drawn at the start of the FY and no new person would be added during the year even if he becomes a specified person. So we just have to check at the start of the FY for specified persons. Only while adding a new vendor during the year, we might have to look if he is a specified person. Also, if the status of a specified person gets converted into a non-specified person, we might have to update our records.

Important Points

From the perusal of the above section, the following points are to be noted:

  • This punitive rate on the payee will be in addition to the interest, penalty, prosecution and other consequences of non-filing of ROI.
  • Credit will be available to the payees for the higher taxes paid while filing his return of income Interpretation of the threshold condition:
  • To compute a threshold of INR 50,000 or more, both TDS and TCS of respective FY needs to be aggregated. For example I Co is making an FTS payment to Mr A of Rs. 1 Lac on which TDS is required to be deducted u/s. 194J @10%. He had not filed ITR for the last 2 PY and due date u/s. 139(1) has also expired. For each of the last 2 PY, the tax deducted of Mr A was Rs. 20,000 and Rs. 35,000 respectively and TCS collected was Rs. 30,000 and Rs. 40,000 respectively.
  • Aggregate of TDS and TCS in year 1 – 20,000 + 30,000 = 50,000
  • Aggregate of TDS and TCS for year 2 – 35,000 + 40,000 = 75,000
  • The condition of having TDS & TCS of Rs. 50,000 or more in each of the 2 FY is satisfied in the given case.

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