The government introduced section 206AB in the finance bill 2021. Section 206AB provided a provision for the deduction of TDS and TCS at a higher rate when payment was made to specified person who have not furnished their Income Tax Return. Want to know more about Section 206AB of the Income Tax Act? Read this article to understand its applicability, examples, and implications for taxpayers.
Section 206AB of the Income Tax Act is a new provision introduced by the Finance Act 2021 and came into effect on 1st July 2021. It aims to ensure compliance with filing income tax returns by specified persons who have not filed their returns for the previous two assessment years and have a high amount of tax deducted or collected at source. According to this section, any person who pays or credits any sum to such a specified person must deduct tax at source at a higher rate than the normal rate prescribed under the relevant section of the Act. The higher rate is either twice the normal rate or 5%, whichever is higher. This section applies to all payments or credits that are subject to TDS, except for those covered under sections 192, 192A, 194B, 194BB, 194LBC, and 194N of the Act
Any payment made to a specified person mentioned in Section 206AB, TDS shall be deducted at a higher rate:
Any payment made to a specified person mentioned in Section 206AB, TCS shall be collected at a higher rate:
Suppose A is a specified person who has not filed his income tax returns for the past two years and has a turnover of more than 50 lakhs in the previous year. He receives a payment of 1 lakh from B, who is liable to deduct TDS under any provision of the Income Tax Act.
According to Section 206AB, B has to deduct TDS at a higher rate from A's payment. The higher rate is the highest of the following:
Let us assume that the normal rate of TDS for A's payment is 1% as per the Income Tax Act, and there is no change in the rate by the Finance Act. In this case, the higher rate will be:
A specified person under section 206AB of the Income Tax Act, 1961:
Provision for TDS deduction under section 206AB does not apply to:
| Section | Nature of Payment |
|---|---|
| 192 | TDS on Salary |
| 192A | TDS on Premature withdrawal of EPF |
| 194B | TDS on lottery Prize |
| 194BB | TDS on Horse race winning |
| 194LBC | TDS on Income of Investment Securitization |
| 194N | TDS on Cash withdrawal |
| Non-residents do not have a permanent establishment in India. | |
| More Transactions Added in union budget 2022 | |
| 194-IA | Consideration payment for the sale of immovable property |
| 194-IB | Rent paid to landlord above Rs. 50,000 |
| 194M | Payment for professional or contractual services above Rs. 50 lakh |
*** As per Section 194S Transfer of virtual assets to the following is excluded from the TDS deduction:
The specified person has not filed their income tax return for the previous year and whose aggregate TDS and TCS is Rs. 50,000 or more in the said previous year.
TDS deduction is compulsory under section 192 of the Income Tax Act. The employer who pays salary to his employee is required to deduct TDS from the salary if it exceeds the threshold limit .