Under Budget 2021, there are amendments to the Income Tax Act,1961, and in order to ensure that you are complied with all those provisions, we would like to provide you a glimpse of such provision and the procedure to be followed from your end.
Section 206AB introduced by Finance Act 2021 introduced higher Tax Deducted at Source [TDS] Rate for Non-Filers of Income Tax Returns [ITRs]. Similarly, Section 206 CCA which was also introduced by Finance Act 2021 proposed a higher Tax Collected at Source [TCS] Rate for Non- Filers of Income Tax Returns [ITRs].
Section 206ab of Income tax act 1961
The insertion of two new sections ‘206AB’ and ‘206CCA’ in the Income Tax Act mandates tax deduction or collection at a higher rate for non-filing of returns in the previous two financial years. Section 206AB is related to the higher rate of TDS and 206CCA is for TCS. This section will be in effect from 1st July,2021.
In order to penalize those who do not file income tax returns (ITRs) despite being liable to, the government has proposed new Section 206AB in Union Budget 2021. This Section imposes a higher rate of TDS if the transactions are done with the non-filers of income tax return (ITR).
Applicability of new Section 206ab of Income tax act 1961
TDS under this section shall be deducted at a higher rate than the amount paid to the specified person.
The specified person here refers to those,
(a) who have not filed their income tax returns for 2 previous years immediately before the year in which tax is required to be deducted
or
(b) those who have done TDS return filing after the due date for filing the original returns (belated returns)
and
(c) the aggregate TDS is Rs. 50,000 or more in each of the 2 previous years.
Example:Â If your vendor has not filed their income tax returns for the FY 2018-19 (AY2019-20) and FY 2019-20 (AY2020-21), and their TDS for each of the previous years mentioned is above Rs.50,000/-, then this section shall be applicable for the FY2021-22.
Non-Applicability of new Section 206ab of Income tax act 1961
Deduction under Section 206AB does not apply if tax is deducted under the following sections
(i) 192 TDS on Salary
(ii) 192A TDS on Premature withdrawal from EPF (Guide on Filing Annual Provident Fund Returns)
(iii) 194B TDS on Lottery
(iv) 194BB TDS on Horse Riding
(v) 194LBC TDS on Income in respect of investment in securitization trust
(vi) 194N TDS on cash withdrawal in excess of  Rs. 1 crore
The specified person shall not include a non-resident who does not have a permanent establishment in India.
Rate of TDS to be deducted U/S 206AB
Higher of the below rates
(a)Â at twice the rate specified in the relevant provision of the Act
(b)Â twice the rate /rates in force
(c)Â at the rate of 5%
(d) at the rate 20% (in case of non-furnishing of PAN)
Declaration under section 206ab of the Income Tax Act
(a) The deductor can ask for declarations on the letter head of the specified person or use the ITR acknowledgement to check if the person has filed the ITR or not.
(b) If the specified person does not furnish the declaration or required details, the TDS/TCS should be deducted /collected at a higher rate as per the provisions.
Guidance of section 206ab of income tax act bare act
We would request you to get the declaration form attached with this mail from your suppliers of service and keep it for your record. In case you are deducting TDS, please consider this declaration form before deducting, as the rates should be as per this section if they are covered under the definition of a specified person.
