SECTION 206AB

Greetings from AKGVG & Associates !!!

We sincerely hope that you and your families are safe and healthy.

We are here to share an update with you on the Higher Rate of TDS for non-filers of ITR. A new Section 206AB of the Income Tax Act 1961, has been introduced by the Indian Government recently, which instructs that a higher rate of TDS will be charged from those Vendors/ Suppliers who have not filed their Income Tax Returns for the last 2 years. The section has been attached herewith for your ready reference.

To understand the amendment, take a look at the underneath summary:

Effective date?

The date of applicability of higher TDS is 1st July 2021.

Applicability

Higher TDS will get charged from a person who satisfies these two conditions:

• Who has not filed its Income Tax Returns (ITR) for both the last 2 years (for which the time limit of filing ITR as per section 139(1) has expired; and
• The total of Tax deducted at Source (TDS) and Tax Collected at Source (TCS) of the person deducted/ collected by all the deductors/ collectors taken together is INR 50,000 or more in each of such two years

Non applicability

This provision does not apply if tax is required to be deducted under following sections:

1. 1) 192 (salary),
2. 2) 192A (Premature withdrawal from the accumulated balance of Provident Fund which is taxable in the employee’s hands.),
3. 3) 194B (Winning from the card game, crossword, lottery, puzzle or any other games.),
4. 4) 194BB (Winning from horse race.),
5. 5) 194LBC (Income against investment in the securitization trust.) or
6. 6) 194N (TDS on cash withdrawals)
7. 7) 195 for non-resident who is not having a Permanent Establishment in India

Rate of TDS?

Higher of the following rates will be charged as TDS:

• Double the rate defined in the provision of the Act; or
• Double the rate or rates in force; or
• At the rate of 5 %.
• As per Section 206AA, if applicable

Problem Area?

The government mentioned that it will bring a feature whereby the payer can check whether receiver has filed ITR or not using recipient’s PAN. However, this feature is still awaited.

Solution?

Till the time the feature is provided by the government, everyone is looking for a way out to avoid any impact of this provision on the business, both from the perspective of recipient and payer.

For not letting your business be charged under the provision 206AB, business entity is advised to issue DECLARATION to each Vendor/ Supplier as proof that you have filed your ITR for the last 2 Financial years i.e., FY 18-19 & FY 19-20 and accordingly increased rate of TDS is not applied on payments received.

Further, to avoid any interest and penalty for not deducting TDS on the higher rate, business entity is advised to obtain DECLARATIONS from each Vendor/ Supplier as proof that they have filed their ITR for the last 2 Financial years i.e., FY 18-19 & FY 19-20 and accordingly increased rate of TDS is not applicable on payments to be made to them.

We have also enclosed herewith a sample format of declaration for your ready reference.

Trust you find the above update useful in your business

File 1 File 2