Introduction
Tax Deducted at Source (TDS) is an essential mechanism employed by the Indian government to ensure the collection of taxes at the time of payment for various types of income. With the aim of enhancing tax compliance, the Income Tax Act, of 1961, has introduced Section 206AB, which provides for the provision of Double TDS in certain cases. This article delves into the intricacies of Section 206AB, its applicability, rates, exceptions, compliance requirements, and the legal and practical implications associated with it.
Understanding Double TDS
Double TDS, as the term suggests, refers to the deduction of tax at a higher rate than the regular TDS rates specified under the Income Tax Act. The objective of Section 206AB is to address cases where certain individuals, who have not filed their income tax returns, are subjected to higher TDS rates. By imposing higher rates, the legislation seeks to encourage the timely filing of tax returns and promote tax compliance.
Applicability of Section 206AB
Section 206AB applies to specific categories of individuals who have not filed their income tax returns. The following criteria determine the applicability of this provision:
- Non-filers of income tax returns: Section 206AB applies to individuals who have not filed their income tax returns for the preceding two assessment years and for whom the due date for filing has expired.
- Specified threshold limit: The provision becomes applicable if the total TDS deducted or collected from such individuals exceeds ₹50,000 in each of the two preceding years.
- The time period for determining non-filing status: The non-filing status is determined as of the specified due date for filing the income tax return.
Consult CA Arun Tiwari for more info at 📞 8080088288 or cs@aktassociates.com
Rates of TDS under Section 206AB
Under Section 206AB, the rates of TDS are significantly higher compared to the regular rates. The higher rates can range from twice to five times the normal rates, depending on the nature of income. This implies that recipients of income from such individuals will experience a larger deduction of taxes at source, leading to reduced cash flows.
Exceptions and Exemptions
While Section 206AB aims to ensure compliance, certain exceptions and exemptions exist under this provision. These include:
- Exceptions to Section 206AB: The provision does not apply if tax is required to be deducted under Section 192 (Salaries) or Section 192A (Premature withdrawal of accumulated balance from the recognized provident fund) at the higher rates mentioned therein.
- Exemptions for specific categories of taxpayers: Certain taxpayers are exempted from the application of Section 206AB. These include Foreign Institutional Investors (FIIs), non-resident taxpayers, and transactions covered under specified sections of the Income Tax Act.
Compliance and Consequences
To comply with Section 206AB, deductors are required to determine whether the recipient’s PAN is available and whether they fall within the purview of the provision. The consequences of non-compliance can be severe and include penalties for non-deduction or lower deduction of TDS, as well as interest on late deposit of TDS.
Procedural Aspects
To facilitate the implementation of Section 206AB, a new form, Form 26QD, has been introduced for reporting transactions covered under this provision. This form is to be filed by the deductor while making the payment, and it contains details such as the deductee’s PAN, the amount paid, and the TDS rates applied.
Validity and enforcement of certificates under Section 206AB are subject to the provisions of Section 197 (certificate for lower deduction or no deduction of tax) and Section 206CC (mandatory furnishing of PAN). This ensures that appropriate certificates are obtained and considered before applying the higher rates of TDS.
Legal and Practical Implications
The introduction of Double TDS under Section 206AB has both legal and practical implications. From a legal standpoint, this provision reinforces the government’s objective of tax compliance and acts as a deterrent for non-filing of income tax returns. Practically, it may result in reduced cash flows for individuals subjected to higher TDS rates and an increased compliance burden for deductors, who must diligently verify the non-filing status of recipients.
Comparison with Other Provisions
Do not confuse Section 206AB, which also deals with higher TDS rates, with Section 206AA. While both provisions aim to ensure tax compliance, they differ in their applicability and scope. When a recipient does not provide their PAN, Section 206AA triggers, whereas Section 206AB focuses on the non-filing of income tax returns.
Conclusion
Section 206AB, which introduces the provision for Double TDS, serves as an important tool in promoting tax compliance and encouraging the timely filing of income tax returns. By imposing higher rates of TDS on individuals who have not filed their returns, the government aims to deter non-compliance and ensure a more robust tax collection mechanism. However, it is crucial for deductors and taxpayers to understand the nuances of this provision, including its applicability, rates, exceptions, compliance requirements, and potential legal and practical implications.