Section 206 AB of the Income Tax Act was introduced in the Union Budget 2021 and came into effect on July 1, 2021. The section pertains to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) and is applicable to certain categories of taxpayers who have not filed their income tax returns (ITRs) for the previous two years and whose aggregate TDS or TCS in each of those two years was Rs. 50,000 or more. The section aims to encourage timely filing of ITRs and ensure greater tax compliance.

What is Section 206AB of the Income Tax Act?

Section 206AB of the Income Tax Act is a new provision introduced in the Union Budget 2021. The section pertains to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) and is applicable to certain categories of taxpayers who have not filed their income tax returns (ITRs) for the previous two years and whose aggregate TDS or TCS in each of those two years was Rs. 50,000 or more.

The section requires that such taxpayers, who are referred to as “specified persons,” be subject to a higher rate of TDS/TCS than the rate specified in the relevant provisions of the Income Tax Act.

Reason behind the Introduction of Section 206AB

The introduction of Section 206 AB is aimed at promoting timely filing of ITRs and ensuring greater tax compliance. The government has been making efforts to increase the number of taxpayers in India and reduce tax evasion. The introduction of this section is seen as a step in that direction.

Scope of Section 206AB

Section 206 AB applies to specified persons who have not filed their ITRs for the previous two years and whose aggregate TDS/TCS in each of those two years was Rs. 50,000 or more. The section provides for a higher rate of TDS/TCS for such persons than the rate specified in the relevant provisions of the Income Tax Act.

The section applies to all payments subject to TDS/TCS, including salary, interest, commission, rent, and professional fees. The higher rate of TDS/TCS under Section 206AB is applicable from July 1, 2021.

Who is applicable for Section 206AB?

Types of Taxpayers Subject to Section 206AB

Section 206AB applies to “specified persons,” which includes individuals, HUFs, AOPs, BOIs, firms, LLPs, companies, and any other person who is subject to TDS/TCS under the Income Tax Act.

Criteria for Determining Applicability

To determine whether a taxpayer is subject to Section 206 AB, the following criteria must be met:

The taxpayer has not filed their ITR for the previous two years.

The aggregate TDS/TCS in each of those two years was Rs. 50,000 or more.

Examples of applicability

If an individual has not filed their ITR for the previous two years and their aggregate TDS/TCS in each of those two years was Rs. 50,000 or more, they will be subject to Section 206 AB. Similarly, if a company has not filed its ITR for the previous two years and its aggregate TDS/TCS in each of those two years was Rs. 50,000 or more, it will also be subject to Section 206 AB.

Compliance with Section 206AB

Compliance with Section 206AB entails filing ITRs for the previous two years and ensuring that the TDS/TCS is deducted at the higher rate specified in the section.

Consequences of Non-Compliance

Non-compliance with Section 206AB may result in penalties, interest, and legal action.

Tips for Ensuring Compliance

To ensure compliance with Section 206 AB, taxpayers should ensure that their ITRs are filed on time and that their TDS/TCS is deducted at the higher rate specified in the section.

How to Check Section 206AB Status

A. Checking Section 206AB Status

To check whether a taxpayer is subject to Section 206 AB, they can check their ITRs for the previous two years and their TDS/TCS statements.

B. Different Methods for Checking Status

Taxpayers can check their ITRs and TDS/TCS statements online through the income tax department’s website or by contacting a Chartered Accountant. You may also click here to get in touch with us.

C. Examples of Resources for Checking Status

Resources for checking Section 206 AB status include the income tax department’s website, the services of a Chartered Accountant, and other online tax portals.

Changes in Section 206 AB

A. Recent Changes to Section 206 AB

Section 206AB was amended in the Finance Act 2021 to expand its scope and make it more comprehensive. The key changes include:

1. The inclusion of the “specified persons” category, which includes individuals, HUFs, AOPs, BOIs, firms, LLPs, companies, and any other person subject to TDS/TCS under the Income Tax Act.

2. The increase in the TDS/TCS threshold from Rs. 50,000 to Rs. 1,00,000.

3. The provision for a higher TDS/TCS rate, which is twice the rate specified under the relevant provisions of the Income Tax Act or twice the rate specified in the relevant notification issued under Section 206AB(1).

B. Implications of Changes for Taxpayers

The changes to Section 206 AB have made it more stringent for taxpayers. The higher TDS/TCS rates and increased threshold limit will result in increased compliance requirements and higher costs for taxpayers.

C. Examples of Relevant Scenarios

If an individual has not filed their ITR for the previous two years and their aggregate TDS/TCS in each of those two years was Rs. 1,00,000 or more, they will be subject to Section 206AB. Similarly, if a company has not filed its ITR for the previous two years and its aggregate TDS/TCS in each of those two years was Rs. 1,00,000 or more, it will also be subject to Section 206AB at the higher TDS/TCS rate specified under the section.

Changes in Section 206 AB

A. Recent Changes to Section 206 AB

Section 206AB was amended in the Finance Act 2021 to expand its scope and make it more comprehensive. The key changes include:

1. The inclusion of the “specified persons” category, which includes individuals, HUFs, AOPs, BOIs, firms, LLPs, companies, and any other person subject to TDS/TCS under the Income Tax Act.

2. The increase in the TDS/TCS threshold from Rs. 50,000 to Rs. 1,00,000.

3. The provision for a higher TDS/TCS rate, which is twice the rate specified under the relevant provisions of the Income Tax Act or twice the rate specified in the relevant notification issued under Section 206AB(1).

B. Implications of Changes for Taxpayers

The changes to Section 206 AB have made it more stringent for taxpayers. The higher TDS/TCS rates and increased threshold limit will result in increased compliance requirements and higher costs for taxpayers.

C. Examples of Relevant Scenarios

If an individual has not filed their ITR for the previous two years and their aggregate TDS/TCS in each of those two years was Rs. 1,00,000 or more, they will be subject to Section 206AB. Similarly, if a company has not filed its ITR for the previous two years and its aggregate TDS/TCS in each of those two years was Rs. 1,00,000 or more, it will also be subject to Section 206 AB at the higher TDS/TCS rate specified under the section.

A. In this article, we have discussed Section 206 AB of the Income Tax Act and its implications for taxpayers. We explained what Section 206 AB is, who is subject to it, how to check Section 206AB status, compliance requirements, and recent changes to the section.

B. It is essential for taxpayers to comply with Section 206AB to avoid any penalties and additional costs. Non-compliance with Section 206AB can result in a higher TDS/TCS rate, which can significantly impact a taxpayer’s cash flow.

C. We encourage readers to seek professional advice for their specific tax situations. A qualified chartered accountant can help taxpayers understand their Section 206AB status, ensure compliance with the section, and provide advice on minimizing their tax liability.