Till date higher TDS was being deducted under Income tax Act u/s 206AA only where assessee was not having valid PAN along with some exceptions.
However, now government also wants to encourage more and more people to become aware about filing of Income tax return and hence it is bringing such provisions which attract higher tax rate if earlier Income tax return’s were not filed.
In earlier Finance act, provision was introduced to deduct higher TDS u/s 194N if return of income is not filed and now government has brought a general section i.e. 206AB for higher deduction of TDS if assessee has not filed the return of income for earlier years as section 194N deals specifically with withdrawal of cash from bank.
The new section 206AB introduced by Finance Act, 2021 for higher TDS for not filing Income tax return read as under:
“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 non-resident 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.’
Thus, if we breakdown this section we can read this as under:
Applicable on which TDS section: On all TDS section except 192, 192A, 194B, 194BB, 194LBC or 194N.
TDS rate prescribed: Higher of 1) Twice the TDS rate mentioned in that section or 2) Twice the TDS rate in force, or 3) 5%.
In case of conflict with section 206AA: In a situation where an assessee doesn’t have PAN and is also falling under section 206AB, in that case higher of rate coming in section 206AA and 206AB will be applicable. In most cases the rate of section 206AA would be higher.
On whom this will be applicable: The above provision will be applicable on a person who has not filed return of income for past 2 years for which due date u/s 139(1) has expired and 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.
For eg: If a person wants to deduct TDS on July 10, 2021 he needs to see whether the other person has not filed return of income for past 2 years i.e. FY 2019-20 and FY 2018-19 and TDS/ TCS for each of these years in his case was Rs. 50,000 or more.
We won’t count FY 2020-21 here because due date for filing return of this year has still not expired.
As Income tax department has released utility to check applicability to check tax rate u/s 194N we can except similar utility from government for this section as well.