You could end up paying double TDS if you fail to file ITR
From July 1, a person will be required to pay extra TDS at a higher rate under certain conditions as we explain below
From July 1, 2021 onwards, a person will be required to pay extra TDS at a higher rate if he/she fails to file their Income Tax Returns for the last two years and has aggregate TDS/TCS credit of Rs 50,000 or more in each of the two years.
Do note that the Section 206AB of the Income Tax Act 1961 states that the new TDS rate levied would be the highest of Double the rate specified in the relevant provision of the Income Tax Act; or Double the rate of rates in force; or At the rate of five percent.
The tax collector or tax deductor has to check the eligibility of the person to pay TDS at a higher rate from July. This can lead to extra compliance burden on such tax deductor or tax collector.
To ease the burden, the regulator has issued a new functionality “Compliance check for Sections 206AB & 206CCA”. This functionality is made available through the reporting portal of the Income-tax department.
If both section 206AA (higher TDS rate in case of no PAN) and section 206AB of the Act are applicable, then the TDS rate will be much higher than the TDS rates according to the aforesaid sections.
The Section 206AB of the Act will not be required for TDS deduction under sections 192 (Salary); 192A (Payment of accumulated balance due to an employee); 194B (Winnings from lottery or crossword puzzles); 194BB (Winnings from horse race); 194LBC (Income from investment in securitization trust); and 194N (Cash withdrawals). Section 206AB will further not be applicable to non-resident deductee/collectee, who do not have a permanent establishment in India.
Section 206AB is basically an extension of Section 206AA (TDS) & 206CC (TCS) respectively and the purpose is to bring more people into the tax net. The move has come to include those who hold a PAN card and have taxable income but for some or other reason don’t file their ITRs.