Finance Act 2021 introduced a new section 206AB which mandated higher TDS deduction for payment to the specified persons. The specified person is defined as a person who has not filed the income tax return for the last two years, and the TDS deducted in the last two years is Rs.50,000 or more. This section was introduced to broaden the scope of compliance and enable accurate reporting of income through the filing of ITRs.
The rate of TDS in such a case for the ‘specified persons’ will be higher of the following-
- Twice the TDS rate mentioned in the provision specified for such payment
- Twice the rates in force (if modified by CBDT)
- 5 per cent
This new provision is all set to apply to all the payments like rent, interest, professional fees etc., received by the non-filers of income tax returns subject to TDS. However, the act has kept certain payment out of the ambit of the new provision.
The new section does not apply to salary payments under section 192, withdrawal from the provident fund account under section 192A, TDS on winning from lottery, card games or crossword puzzles, horse races under section 194B and 194BB, TDS deduction for income gainst investment in the securitisation trust under section 194LBC as well as TDS on cash withdrawals above Rs 1 crore under section 194N.
This section is also not applicable to the non-resident deductee and collected who does not have a permanent establishment in India.
Also, if the specified person is levied higher TDS/ TCS rates due to non-filing of the ITR and non-furnishing of PAN, the TDS will be applicable at higher rates at 20%.
Under this section, a higher TDS needs to be deducted for payments in respect of specified persons. Hence it will be the responsibility of the deductor to check whether the deductee has filed the income tax return for the last two financial years.
The government has launched a new e-filing portal, 2.0, on 7th June 2021. People expect functionality that will provide them with the information related to the ITR filing status of the deductee. In the absence of it, compliance with this new section 206AB will get a cumbersome process. A similar feature is available in the GST portal to check the GSTR compliance status of the suppliers, which is also expected to be embedded in the ITR filing portal to make the compliance smooth.
For any clarifications/feedback on the topic, please contact the writer at jyoti.arora@cleartax.in
I am a Chartered Accountant by profession with 4+ years of experience in the finance domain. I consider myself as someone who yearns to explore the world through travelling & Reading. I believe, the knowledge & wisdom that reading gives has helped me shape my perspective towards life, career and relationships. I enjoy meeting new people & learning about their lives & backgrounds. My mantra is to find inspiration from everyday life & thrive to be better each day.
