Hand writing Income Tax with marker, concept background

🍇 TDS for Non-filers of Income Tax Return

The Finance Act 2021 has introduced a new section called Section 206AB of the Income Tax Act 1961, which mandates the person paying the amount to deduct TDS in case of non-filing of an income tax return by the specified person.

👉 Section 206AB of Income Tax Act – After Section 206AA of the Income-tax Act 1961, the following section shall be inserted with effect from the 1st day of July, 2021, namely-

🌴 Meaning of the term ‘Specified Person’ for Section 206AB
The term ‘specified person’ includes the person who satisfies all the following criteria-
👉 1. The person has not filed income tax return of two previous years immediately before the previous year in which TDS is required to be deducted;
👉 2. The time limit of filing of an income tax return as per section 139(1) is expired; and
👉 The total TDS and TCS is INR 50,000 or more in each of the two previous years.

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

🍉 Non Applicability of 206AB
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
Rate of TDS under section 206AB

🫐 TDS under section 206AB will be deducted at higher of the following rates-
👉 Twice the rate as specified under the relevant provision of the Income Tax Act; or Twice the rate in force; or At the rate of 5%.

⛲ Effective date of section 206AB
The newly inserted provisions of section 206AB of the Income Tax Act will be effective from 1 July 2021

🥭 Conclusion
Therefore for application of this section, a declaration should be obtained from the deductee that he has filed the return of income for the previous two assessment years, where limit under section 139(1) is expired, or the TDS amount is not equal or more than 50000 rupees in case of non-filing of return. For considering the TDS deduction rate in the FY 2021-22, from July 1, 2021, onwards, income tax return and the TDS amount of the AY 2020-21 and AY 2019-20 will be considered. However, more clarification would be required from the government to understand Section 206AB of Income Tax Act better.

Team – Intellex Strategic Consulting Pvt Ltd

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