Section 206AB of the Income Tax Act, 1961 was introduced in the Union Budget 2021 to ensure that non-compliant taxpayers do not have access to the benefit of lower tax rates or exemptions. It is a provision that imposes a higher rate of TDS (Tax Deducted at Source) on non-compliant taxpayers. This provision came into effect from 1st July 2021.
Who does Section 206AB apply to?
This provision applies to all taxpayers who are eligible to receive payment, including salary, interest, royalty, and others. However, it does not apply to non-resident taxpayers and taxpayers who have already been subject to a higher rate of TDS under any other provisions of the Income Tax Act.
Who is considered a non-compliant taxpayer?
A taxpayer is considered non-compliant if he or she has not filed the income tax return for the previous two financial years, and the due date for filing the return has expired. Additionally, if the taxpayer has not deducted tax at source on payments made, and the amount exceeds Rs. 50,000 or if he or she has deducted tax at source but has not deposited the same within the prescribed time limit, the taxpayer is considered non-compliant.
Higher TDS rate under Section 206AB
The TDS rate under Section 206AB is higher than the normal TDS rate prescribed under the Income Tax Act. The rate of TDS under Section 206AB is equal to the higher of the following rates:
- Twice the rate specified under the relevant section of the Income Tax Act, or
- Twice the rate or rates in force, or
- The rate of 5%
For instance, if the normal TDS rate under the Income Tax Act is 10%, the TDS rate under Section 206AB would be 20%. If the normal TDS rate is 5%, the TDS rate under Section 206AB would be 10%, and so on.
Impact on Taxpayers and their Responsibilities
The implementation of Section 206AB has put the onus on taxpayers to ensure that they are compliant with their tax obligations. Taxpayers must file their income tax returns on time and deposit TDS on payments made. They must also ensure that they do not cross the threshold of Rs. 50,000 for any payment made without deducting TDS. Failure to comply with these requirements can result in a higher TDS rate being applied.
It is crucial for taxpayers to stay updated with the tax regulations and deadlines to avoid any penalties or higher TDS rates under Section 206AB. Non-compliance with tax regulations can also lead to scrutiny by the tax authorities and can cause unwanted legal hassles and expenses.
Exemptions and Clarifications
The Central Board of Direct Taxes (CBDT) has issued a circular clarifying some of the exemptions and clarifications related to Section 206AB. According to the circular, TDS rates under Section 206AB will not apply to payments made to non-residents, non-resident sportsmen, and non-resident entertainers who earn income from sources within India.
The circular has also clarified that taxpayers who have filed their income tax returns for the previous two financial years but have not disclosed their taxable income or have disclosed lower taxable income than the actual amount, will still be considered non-compliant under Section 206AB.
Conclusion
Section 206AB of the Income Tax Act has been introduced to ensure that taxpayers comply with their tax obligations. The provision imposes a higher rate of TDS on non-compliant taxpayers, discouraging them from evading tax. Taxpayers must stay updated with the tax regulations and comply with the requirements to avoid penalties and higher TDS rates. The exemptions and clarifications issued by the CBDT have brought some relief to taxpayers who were previously unsure about the applicability of Section 206AB.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
What is Section 206AB of the Income Tax Act?
Section 206AB of the Income Tax Act is a provision that imposes a higher rate of TDS on non-compliant taxpayers. It came into effect from 1st July 2021.
Who does Section 206AB apply to?
This provision applies to all taxpayers who are eligible to receive payment, including salary, interest, royalty, and others.
What is considered non-compliance under Section 206AB?
A taxpayer is considered non-compliant if he or she has not filed the income tax return for the previous two financial years and the due date for filing the return has expired.
Additionally, if the taxpayer has not deducted tax at source on payments made, and the amount exceeds Rs. 50,000, or if he or she has deducted tax at source but has not deposited the same within the prescribed time limit, the taxpayer is considered non-compliant.
What is the TDS rate under Section 206AB?
The TDS rate under Section 206AB is higher than the normal TDS rate prescribed under the Income Tax Act. The rate of TDS under Section 206AB is equal to the higher of the following rates:
- Twice the rate specified under the relevant section of the Income Tax Act, or
- Twice the rate or rates in force, or
- The rate of 5%
When does the TDS rate under Section 206AB apply?
The TDS rate under Section 206AB applies only to non-compliant taxpayers who have not filed their income tax returns for the previous two financial years, and the due date for filing the return has expired.
Does Section 206AB apply to non-resident taxpayers?
No, Section 206AB does not apply to non-resident taxpayers.
Is there any exemption under Section 206AB?
TDS rates under Section 206AB do not apply to payments made to non-residents, non-resident sportsmen, and non-resident entertainers who earn income from sources within India.
What is the penalty for non-compliance with Section 206AB?
Non-compliance with Section 206AB can result in a higher rate of TDS being applied. Taxpayers may also face penalties and scrutiny by the tax authorities.
Can taxpayers request a lower TDS rate under Section 206AB?
No, taxpayers cannot request a lower TDS rate under Section 206AB. The rate of TDS under this provision is prescribed by law.
What is the impact of Section 206AB on taxpayers?
Section 206AB puts the onus on taxpayers to ensure that they are compliant with their tax obligations. Taxpayers must file their income tax returns on time and deposit TDS on payments made. Failure to comply with these requirements can result in a higher TDS rate being applied.
