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What is Section 206AB?
The new Section
206AB and 206CCA are proposed to be added in the Income Tax Act, 1961
by the Finance Bill, 2021. These Sections impose a higher rate of TDS / TCS if
the transactions are done with the non-filers of income tax return (ITR).
This will be added
after Section 206AA and Section 206CC respectively of the Act which provides
for a higher rate of TDS/TCS for not furnishing Permanent Account Number (PAN).
Section 206AB as
proposed in the 2021 Union Budget will come into effect from 1st July 2021.
The higher TDS is
applicable to those having interest income, dividend income, annuity pensions,
income from capital gains.
The deductor/collector
will now have to request documentation validating proof of ITR submission in
the previous 2 years. Thus, it will increase the burden of compliance for such
deductors/collectors.
Note: Section 206AB is not applicable for the
transactions where the full amount of tax is deducted e.g. salary income,
payment to a non-resident, lottery, etc.
The main purpose of
Section 206AA and Section 206CC was to encourage the person to obtain the PAN.
Rate of deduction
under Section 206AB
Sub-section (1) of
Section 206AB gives the
applicable TDS rate if the amount is paid/ credited to a specific person being
higher than the below rates:
§ at twice the rate specified in the relevant
provision of the Act; or
§ twice the rate /rates in force; or
§ the rate of 5%.
Applicability of
Section 206AB
Sub-section (2) of
Section 206AB states that if
both Section 206AA and 206AB are applicable i.e. the “specified person” has not
submitted the PAN and not filed the return; TDS is deducted at the higher rates
amongst Section 206AA and 206AB.
This section applies
to any sum or income or the amount paid, or payable or credited, by a person
(deductee) to a “specified person”.
Sub-section (3) of
Section 206AB gives a list of
conditions to be considered as “specified person”:
§ Person who has not filed the Income Tax Return
(ITR) for 2 previous years immediately before the previous year in which tax is
required to be deducted;
§ The time limit of ITR filing under sub-section
(1) of Section 139 is expired; and
§ The aggregate tax deducted at source (TDS) or
tax collected at source (TCS), is Rs. 50,000 or more in each of the 2 previous
years.
Note: The non-resident who does not have a
permanent establishment is excluded.
Non-Applicability of
Section 206AB
Deduction under Section 206AB does not apply
if tax is deducted under the following sections:
|
SECTION |
DETAILS |
|
192 |
TDS
on Salary |
|
192A |
TDS
on Premature withdrawal from EPF |
|
TDS
on Lottery |
|
|
194BB |
TDS
on Horse Riding |
|
194LBC |
TDS on Income in respect of
investment in securitization trust |
|
TDS on cash withdrawal in excess
of 1 crore |
Example
ABC Ltd made a contract payment of Rs.90 lakhs
to Arjun for 2 consecutive years and tax under Section 194C was deducted
(Rs.90,000 every year) and remitted by ABC Ltd. Arjun however, did not file his
Income Tax Return (ITR) for both the years. Then, in the 3rd year, the payer
must deduct tax at source (TDS) at the higher rates given above.
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