Section 206AB

[Ethirajan Parthasarathy]

Section 206AB of Income Tax Act provides for higher rate of TDS on payments to “Specified Persons”.

Definition of specified person spells out two cumulative conditions

The aggregate of TDS/TCS in the case of deductee concerned should be ₹ 50,000/- or more in each of the two assessment years relevant to the previous year in which tax is to be deducted. And

The deductee has not filed the ITR for both of those two assessment years referred to in condition (1) above.

Condition (1) is fairly simple. For AY 22-23, the deductor himself will have data for a particular deductee regarding quantum of tax deducted for AY 21-22 or 20-21 relating to two preceding previous year.

As regards condition (2), the due for filing ITR for AY 21-22 is extended upto 31/1/22.

My doubt is, till 31/1/22 are we to deduct tax at normal rate provided the deductee has filed his ITR for AY 20-21 and 19-20. And deduct higher rate of TDS from 1/2/22 provided the concerned deductee has not filed his ITR for AY 21-22 by 31/1/22.

I request expert to give their opinion on above points.

[DR.MARIAPPAN GOVINDARAJAN]

Section 206AB came into effect from 01.07.2021. The higher rate of tax is to be deducted, in my view, from 01.07.2021 if the specified person does not file the returns for the previous two years.

[DeepakArya DGA]

Dear Querist,

In our humble view, section 206(AB)(3) refers to the non-compliance during immediately 2 preceding assessment years prior to the financial year in which tax to be deducted. This means we have to only check ITR filing status for AY 2019-2020 & 2020-2021 for deducting tax during FY 2021-2022.

[DR.MARIAPPAN GOVINDARAJAN]

Yes. You are correct

AI Summary

Higher TDS for specified non-filers applies when a deductee fails to file returns for the two relevant assessment years. Section 206AB requires deductors to apply a higher TDS rate to payments to a 'specified person' where two cumulative conditions are met: the deductee's aggregate TDS/TCS met the statutory threshold in each of the two relevant assessment years, and the deductee failed to file income tax returns for both of those two assessment years. Applicability is determined by examining the two assessment years immediately preceding the financial year of deduction; the statute's effective commencement date determines from when the higher rate may be applied.