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New Section 206AB: Higher rate for deduction of tax at source (TDS) for non-filers of income-tax return

New Section 206AB: Higher rate for deduction of tax at source (TDS) for non-filers of income-tax return

Budget 2021 has introduced new provisions for deduction of higher rate of TDS for non-filers of income tax return (ITR). In order to discourage the practice of not filing returns by the persons in whose case substantial amount of tax has been deducted, it is proposed to provide that a person in whose case TDS of Rs. 50,000 or more has been made for the past two years and who has not filed return of income, the rate of TDS shall be at the double of the specified rate or 5%, whichever is higher.

The provisions of section 206AB shall not be applicable for the transactions where the full amount of tax is required to be deducted e.g. salary income, payment to non-resident, lottery, etc.


Section 206AA of the Act provides for a higher rate of TDS for non-furnishing of PAN. It is seen that while this provision has served its purpose in ensuring obtaining and furnishing of PAN by various person, there is need to have similar provisions to ensure filing of return of income by those person who have suffered a reasonable amount of TDS.



Hence, it is proposed to insert a new section 206AB in the Act as a special provision providing for higher rate for TDS for the non-filers of income-tax return


Proposed section 206AB of the Act would apply on any sum or income or amount paid, or payable or credited, by a person (herein referred to as deductee) to a specified person. This section shall not apply where the tax is required to be deducted under sections 192, 192A, 194B, 194BB, 194LBC or 194N of the Act. The proposed TDS rate in this section is higher of the followings rates:-


(i) twice the rate specified in the relevant provision of the Act; or


(ii) twice the rate or rates in force; or


(iii) the rate of five per cent


If the provision of section 206AA of the Act is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA of the Act.



The specified person is a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years which are immediately before the previous year in which tax is required to be deducted, as the case may be. Further the time limit for filing tax return under sub-section (1) of section 139 of the Act has expired for both these assessment years. There is another condition that aggregate of tax deducted at source in his case is rupees fifty thousand or more in each of these two previous years. Specified person shall not include a non-resident who does not have a permanent establishment in India.


Clause 51 of the Finance Bill, 2021 seeks to insert the new section 206AB.


Insertion of new section 206AB.


Special provision for deduction of tax at source for non-filers of income-tax return


51. After section 206AA of the Income-tax Act, the following section shall be inserted with effect from the 1st day of July, 2021, namely:––


‘206AB. (1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than sections 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely:––


(i) at twice the rate specified in the relevant provision of the Act; or


(ii) at twice the rate or rates in force; or


(iii) at the rate of five per cent..


(2) If the provisions of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.


(3) For the purposes of this section “specified person” means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years:


Provided that the specified person shall not include a nonresident who does not have a permanent establishment in India.


Explanation.––For the purposes of this sub-section, the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.’.


Provisions of Section 206AB Explained 


Clause 51 of the Bill seeks to insert section 206AB of the Income-tax Act relating to the deduction of tax at source on non-filers of income-tax return.


Sub-section (1) of the proposed new section 206AB seeks to provide that notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than sections 192, 192A, 194B, 194BB, 194LBCor 194N on any sum or income or amount paid, or payable or credited, by a person (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely, 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..


Sub-section (2) thereof seeks to provide that if the provision of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.


Sub-section (3) thereof seeks to define the expression “specified person” to mean a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years.


Proviso to proposed sub-section (3) seeks to provide that the specified person shall not include a non-resident who does not have a permanent establishment in India.


Explanation to the said section seeks to provide that for the purposes of this sub-section the expression “permanent establishment” includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.


This amendment will take effect from 1st July, 2021.

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