Section 206AB of the Income Tax Act

CA Sadiq Ali
Director, Chartered Accountant

11-May-2024

According to this section, any person who pays or credits any sum to such a specified person must deduct tax at source at a higher rate than the normal rate prescribed under the relevant section of the Act. The higher rate is either twice the normal rate or 5%, whichever is higher.

If the person provides the PAN but has not filed the return for the last 3 years then the above rate shall apply. Just to save from this if he doesn’t provide the PAN then tax shall be deducted at 20% or a much higher rate as per section 206AA.

Specified person as per 206AB 

A specified person under section 206AB of the Income Tax Act, 1961:

• Any person who has not filed the ITR for the preceding year.
• Any person who has not filed the ITR on or before the due date
• The total amount of TDS and TCS in the last financial year is Rs. 50,000 or more

Excluding individuals who are not obligated to submit their income tax returns for the relevant assessment year and also non-residents with no permanent establishment in India.

Non Applicability Section 206AB

• Salary (Section 192)
• Premature withdrawal of EPF (Section 192A)
• Winnings from any lottery or card games, or crossword puzzles (Section 194B)
• Winnings from any online game (Section 194BA)
• Winnings from any horse races (Section 194BB)
• Income concerning investment in securitization trust (Section 194LBC)
• Cash withdrawals (Section 194N)
• Non-residents who do not have a permanent establishment (PE) in India.

Union Budget 2022 further provides more transactions on which higher TDS cannot be deducted: –

•  Consideration paid for the sale of immovable property (Section 194-IA)
•  Rent payment to the landlord above Rs 50,000 (Section 194-IB)
•  Payment for contractual or professional services above Rs 50 lakh (Section 194M)
•  Transfer of virtual digital assets (Section 194S) to:

Individual or HUF, whose gross business turnover is less than Rs 1 crore or gross receipts from the profession are less than Rs 50 lakhs during the preceding financial year, or Individual/HUF who does not have ‘income from business or profession’.

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