From July 2021 there is a requirement to take a declaration from all Retainers / Consultants who are a a part of your company's payroll. There are three conditions which need to be checked -
1. Employee has not filed his/her Income Tax return for the two years preceding the previous year in which tax is to be deducted
2. The time limit for filing the return has expired under section 139(1)
3. Total of tax deducted/collected at source in each of the two financial years is INR 50,000 or more

If an employee is meeting all the three conditions then his tax has to be deducted u/s 206AB. Effective tax rate for
- 194J (Fees for Professional or Technical Services) - will be 20%
- 194C (Contractor Individual or HUF) - will be 5%
- 194C (Contractor Others) - will be 5%

Refer to the article on "Submitting 206AB declaration" for more details.

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Example

- Suppose Rahul Singh is a Consultant and receiving professional fees as a consultant from your company
- The deadline for filing ITR for Financial Year 2018-19 and 2019-20 has expired on 31-Jul-2020
- Before you process his invoice / payment in July 2021 you will need to take a declaration from him for filing ITR for FY 2018-19 and 2019-20
- If he fails to submit a declaration or if his declaration details meet the three conditions listed above then the tax applicable would be twice (as per notification)

Every year 31-July is the deadline for filing of Income Tax return as per section 139(1). Extensions to this deadline do not impact the condition.

After 1-August-2021 Rahul will be required to submit the declaration for financial year 2020-21 and the conditions will be checked based on is 2019-20 and 2020-21 declarations.
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Notification
After section 206AA of the Income-tax Act, the following section shall be inserted with effect from the 1st day of July, 2021, namely:—
'206AB. Special provision for deduction of tax at source for non-filers of income-tax return.—(1) 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 (hereafter referred to as deductee) to a specified person, the tax shall be deducted at the higher of the following rates, namely:—
(i) at twice the rate specified in the relevant provision of the Act; or
(ii) at twice the rate or rates in force; or
(iii) at the rate of five per cent.
(2) 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.
(3) 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.
Explanation—For the purposes of this sub-section, the expression "permanent establishment" includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.'
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