The Government of India vide Finance Act 2021 has rolled out a new Section 206AB of Income Tax Act, 1961 to deduct Tax at Source (TDS) at penal rate if a stated person has not filed their income tax return for previous two preceding years. This provisions would be valid from 1st July 2021.

With this the organizations has to provide a signed declaration on their entity letterhead in the template given that would aid in applying the appropriate TDS rate. However, failing to provide the declaration would presume that the organisation has not filled the income tax return as required 206AB of the Act and would accordingly initiate deducting TDS at penal rate. To avoid that the organizations are expected to share the declaration before June 18, 2021.

Insertion of new section 206AB. 57. Post section 206AA of the Income-tax Act, the following section could be inserted with effect from the 1st day of July, 2021, such as '206AB. Special provision for deduction of tax at source for non-filers of income-tax return. Notwithstanding anything contained in any other provisions of this Act, where tax is required to be deducted at source under the provisions of Chapter XVIIB, other than section 192, 192A, 194B, 194BB, 194LBC or 194N on any sum or income or amount paid, or payable or credited, by a person that is referred to as deductee to a specified person, the tax shall be deducted at the higher of the following rates, like:

• at twice the rate specified in the relevant provision of the Act; or
• at twice the rate or rates in force; or
• at the rate of five per cent.

Secondly, if the provisions of section 206AA is applicable to a specified person, in addition to the provision of this section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA. Also, for the purposes of this section "specified person" means a person who has not filed the returns of income for both of the two assessment years relevant to the two previous years immediately prior to the previous year in which tax is required to be deducted, for which the time limit of filing return of income under sub-section (1) of section 139 has expired; and the aggregate of tax deducted at source and tax collected at source in his case is rupees fifty thousand or more in each of these two previous years: Provided that the specified person shall not include a non-resident who does not have a permanent establishment in India.

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