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Section 206AB of Income Tax Act 1961

Topic: TDS

Section: 206AB inserted from Finance Act, 2021

Applicable from: 01/07/21

Purpose: Promotion to file ITR

An Overview

  • Section 206AB overrides all provisions of the IT Act 1961.

  • It replace the applicability of TDS rate with a higher rate of TDS for those who have not filed income tax returns for previous two years despite the fact that the aggregate of tax deducted and collected is beyond 50000 rupees in each of those two previous years.

Default by deductees:

  • Who hasn’t filed the income return for both of the two assessment years that are immediately before the previous year where the tax is to be deducted;

  • Where the time limit to file tax return under Section 139(1) of the Act has expired for both assessment years;

  • Where the TDS amount in each of the two assessment years is more than Rs 50,000/-.

Higher rates of TDS under Section 206AB

  • Twice the rate mentioned in the relevant provision of the Act, or;

  • Twice the rate or rates in force (i.e. Present Rates), or;

  • Rate of 5%

Section 206AB not to apply on:

  • Section 192- TDS on salary;

  • Section 194A- TDS on premature withdrawal of EPF;

  • Section 194B- TDS on winnings from lottery;

  • Section 194BB- TDS on winning from horse race;

  • Section 194LBC- TDS by securitization trust;

  • Section 194N- TDS on withdrawal of cash;

  • Non-resident not having permanent establishment in India.

If PAN is not furnished:

The TDS will be deducted at higher of-

  • Rates according to section 206AB or;

  • Rates according to Section 206AA.

Questions require answer:

The deductor is to determine that:

  • Whether the deductee mandatorily required to furnish its income tax return.

  • Whether the deductee has filed its income tax return for the previous two years;

  • Whether the TDS aggregate in the previous two years is more than 50000 rupees;

What is the solution?

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.


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