TDS under Section 206AB

Special provision for deduction of tax at source for non-filers of Income Tax Return

• Section 206AB For TDS
• Section 206CCA For TCS
• Effective Date: 01st July 2021
• Effective Assessment Year: 2022-23

Introduction

• The Finance Budget was presented on 1st Feb 2021 by our Hon'ble Finance Minister.
• Several amendments in various sections of the Income-tax legislations were proposed.
• Out of all the above proposals, one amendment which caught special attention was the introduction of TDS/TCS at higher rates in case of non-filers of Income-tax returns

What is Sec 206AB?

• Where tax is required to be deducted on any sum or income or amount paid under Chapter VIIB except as specified by a person to a specified person, TDS shall be deducted at higher of (i) at twice the rate in relevant provisions (ii) at twice the rate in force (iii) at 5%
• Applicable for payments made or sums or income on or after 1st Jul, 2021(previous year 2021-22)
• Relevant two previous year shall be 2019-20 and 2020-21

Applicability of section 206AB on various sections under Chapter XVIIB

Sections excluded under Chapter XVIIB

• 192- TDS on Salary
• 192A- TDS on payment of accumulated balance due to an employee
• 194B- TDS on winnings from lottery or crossword puzzle
• 194BB- TDS on winnings from horse race
• 194LBC- TDS on income in respect of investment in securitization trust
• 194N- TDS on payment of certain amounts in cash

Sections included under Chapter XVIIB

• All other sections which are specifically excluded

Definition of Specified Person

• Not filed the returns of income for both of the two assessment years immediately prior to the previous year in which tax is required to be deducted, and 
• Time limit of filing return of income u/s 139(1) has expired; and
• Aggregate of tax deducted & collected at source is rupees >=50,000 in each of these two previous years

Note: In order to calculate the applicability for TDS/TCS>=50,000 u/s 206AB/206CCA, both TDS and TCS credits should be aggregated. This is a drafting error in the opinion of author as TCS is governed and regulated u/s 206CCA read with 206C. One cannot deduct TDS on amounts/incomes/sums on which TCS is applicable.

Double Taxation

To increase the taxpayer base in the country, the non-filers are now obligated to file income-tax return. 

Further, the same income would be taxed at two different points of time:

(i) at the time of payment or credit
(ii) at the time of determination of non-compliance

Higher TDS

• at twice the rate specified in the relevant provision of the Act; or
• at twice the rate or rates in force; or
• at the rate of five per cent.

To read the full article, find the enclosed file