Tax Deductions under Section 206AA and 206AB

Tax Deductions under Section 206AA and 206AB

Higher deduction of tax at source in certain cases (section 206AA and Section 206AB)
Where any person is entitled to receive any income on which tax is deductible at source, he is  required to furnish his PAN to the deductor. In case the PAN is not furnished, the tax shall be  deducted at a higher rate under section 206AA. Similarly, where any person fails to furnish his return of income for a specified period and tax deducted/collected during that period exceeds the specified limit, the deductor shall deduct the tax at a higher rate under section 206AB.

Section 206AA – Non-furnishing of PAN
It is mandatory for the deductee to furnish his PAN to the deductor to enable him to deduct  tax at source. As per Section 206AA, if the recipient fails to furnish his PAN to the deductor  then tax shall be deducted at the higher of the following rates:
(a)  At the rate specified in the relevant provision
(b)  At the rate or rates in force
(c)  At the rate of 20%

Section 206AB – Non-filers of income-tax return
This provision shall apply, and the tax shall be deductible at the higher rates prescribed under this provision if the following conditions are satisfied:
a) Deductee has not filed the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted;
b) The due date to file the return of income of such assessment year, as prescribed under Section 139(1), has expired; and
c) The aggregate amount of tax deducted and collected at source is Rs. 50,000 or more in the said previous year.  
Such deductee liable for a higher TDS rate is referred to as a 'specified person'.

Rate of TDS
Where tax is required to be deducted under this provision, the tax shall be deducted at the higher of the following rates:
a) Twice the rate specified in the relevant provision;
b) Twice the rate or rates in force; or
c) 5%.

The provisions of Section 206AB override all other provisions of the Income-tax Act. It will  apply even if the assessee has a lower or nil TDS certificate or he has filed a declaration under Section 197A for non-deduction of tax. However, this provision will be attracted only if the tax is otherwise deductible under Chapter XVII-B.

Effective tax rate u/s 206AB -
- 194J (Fees for Professional or Technical Services) - will be 20%
- 194C (Contractor Individual or HUF) - will be 5%
- 194C (Contractor Others) - will be 5%

How to check the return filing status of the deductee?
The Department has issued a new functionality "Compliance Check for Sections 206AB & 206CCA" on https://report.insight.gov.in to check the IT Return filing status of the deductee.  The tax deductor can feed the single PAN or multiple PANs of the deductee and get a response from the functionality if such a deductee is a specified person.

Section 206AA v. Section 206AB
Where both the provisions of Section 206AA and Section 206AB are applicable, that is, the deductee has neither furnished his PAN to the deductor nor furnished his return of income for  the specified periods, the tax shall be deducted at the rates provided in Section 206AA or Section 206AB, whichever is higher.
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