Section 206AB- Higher TDS rate for Non-filers of ITR

Section 206AB of Income Tax act, 1961 has applied with effect from 1st July 2021 which is related to applicable TDS rate for non-filers of Income Tax returns.

If the individual is not filing his ITR’s then TDS rate will be applicable as per this section 206AB.

Let’s understand in detail what section 206AB is:

 

What is Section 206AB of Income Tax Act?

Section 206AB provides the higher rate of TDS (Tax deducted at source) which is applied if the transactions are done with non-filers of Income Tax return.

Like if you are required to deduct TDS @10% in any section, let’s say section 194I (TDS of Rent), but the person whose TDS is deducted is not filing his returns then you have to deduct TDS at higher rate as per section 206AB.

Also Read: Section 194P: Exemption from filing ITR for Senior Citizen

 

When you are required to deduct TDS under section 206AB?

This section applies to specified persons.

Specified person is a person who satisfies the following conditions:

• Person who has not furnished Income Tax return for previous year immediately prior to previous year in which TDS is required to be deducted.

Example:

Mr. A is required to deduct TDS of Mr. B in FY 2021-2022, but Mr. B has not filed ITR of FY 2019-20 and FY. 2020-21, then section 206AB applies.

• And the time limit of filing Income Tax return under subsection (1) of section 139 is expired.
• And TDS and TCS in aggregate is Rs. 50,000 or more in the said previous year.

Note: Non-resident not having permanent establishment is excluded from the scope of specified person.

So if the above 3 conditions are satisfied then the person becomes the specified person and section 206AB applies to that person and he has to pay a higher rate of TDS.

Important point to be noted:

Section 206AB does not apply where TDS is required to be deducted under section 192, 192A, 194B, 194BB, 194IA, 194IB, 194LBC, 194M or 194N. 

Also Read: HSN Code (6 digits / 8 digits) Mandatory from 1st April 2021

 

What is the rate of TDS under section 206AB?

If you are required to deduct TDS under section 206AB then you have to deduct a higher rate of tax.

Tax is required to be deducted under the provision of chapter XVIIB other than sections 192, 192A, 194B, 194BB, 194IA, 194IB, 194LBC, 194M or 194N on any sum paid or credited to specified person then TDS rate will be higher of the following:

• At twice the rate specified in the relevant provision of the act; OR
• At twice the rate or rate in force; OR
• At the rate of 5%

 

What if both section 206AA and 206AB apply?

What happens if on an individual both the section 206AA and 206AB applies then TDS to be deducted at what rate and in which section?

For this let’s have a glimpse of section 206AA.

As per section 206AA when the deductee (when TDS is deducted) has not furnished his PAN (Permanent Account Number) to the deductor then the deductor has to deduct TDS at higher rate as per section 206AA.

TDS rate will be higher of the following:

• At rate specified in the relevant provision of the act; OR
• At the rate of rates in force; OR
• At the rate of 20% 

Now if the specified person fails to furnish PAN as well as not filed return then both sections 206AA and 206AB will apply. In this case TDS is required to be deducted at the higher rate amongst section 206AA and 206AB.

Also Read: Section 51 of CGST | TDS under GST | with Example

 

Conclusion

Section 206AB of Income Tax act will apply to those who have not filed their Income Tax return. It is similar to section 206AA where a higher rate is applicable in case of non-furnish of PAN.

And in section 206AB rate of TDS is applicable if Income Tax returns are not filed.

So in this way this section will encourage people to file their ITR’s timely.