Practical Issues regarding Double TDS – Section 206AB

In order to encourage taxpayers to file ITR and discourage non-filers of ITR, new provisions of the Income Tax Act will be applicable from 1st July 2021 under which TDS would be applicable at double rates for specified category of persons. These new provisions were announced in Budget 2021 vide introduction of Section 206AB and will be applicable from 1st July 2021.
Applicability of Provisions of Section 206AB
The provisions of newly introduced Section 206AB would only be applicable to those persons (including Individuals, Partnership Firms, LLP’s, Companies etc) who have not filed ITR for the past 2 consecutive years and the TDS Deducted in each of these past 2 consecutive years is more than Rs. 50,000.
If the above condition holds true, then the person making the payment to the person falling in the above category would be required to deduct TDS at Double the rate or 5% (whichever is higher).
Non-applicability of this New Section
Apart from the above mentioned condition of more than Rs. 50,000 TDS Deduction and non-filing of ITR for 2 years, the provisions of this newly introduced section shall also not apply to Non-Residents who don’t have permanent establishment in India.
The provisions of this section shall also not apply where the payment is being made to a Resident Indian under any of the following sections:-
Section 192: Payment of Salaries
Section 192A: Withdrawal from Provident Fund
Section 194B: Winning from Lottery
Section 194BB: Winning from Horse Race
Section 194LBC: Income in respect of Investment in Securitization Trust
Section 194N: Cash Withdrawal in excess of specified limit
Thus, if the payment is being made under any of the above mentioned sections for the above mentioned purposes, this new section regarding double TDS would not apply. However, if the payment is being made for any other purpose, then the provisions of this section will get applicable.