To simplify this: let’s say you haven’t filed tax returns for fiscal years 2018-19 and 2019-2020. However, you have term deposits, dividend income, interest on recurring deposits, etc. where the total TDS exceeded Rs 50,000 in each fiscal year. In such a scenario, you will be subject to a higher TDS rate on earnings as of July 1, 2021.
Abhishek Soni, CEO and Founder of Tax2win.in, said: “The purpose of this new provision in the Income Tax Act 1961 is to ensure that taxpayers comply with the tax return. It may happen that TDS on interest income has been deducted, but the ITR is not filed by the individual. Thus, to ensure that the correct income is reported to the government, the filing of the RTI will effectively become mandatory to avoid a higher TDS on future income. This is similar to the rule that requires an individual to report their PAN to a taxpayer to avoid a higher TDS. ”
A higher TDS will be deducted from a person’s income if they meet the following conditions:
a) The natural person has not filed an income tax return in the previous two fiscal years for which the due date has expired in accordance with Section 139 (1) of the Income Tax Act 1961 ;
b) The sum of the TDS and TCS for each of the years is Rs 50,000 or more.
Higher TDS / TCS rate
The TDS rate that will apply to these people will be the higher of the following:
a) Twice the rate specified in the relevant section;
b) Double the rate or rate in effect; or
“Rate twice as high as provided in the relevant section” means the TDS rate mentioned in the Income Tax Act while “twice the rate or rate in effect” means the TDS rate in effect for the year . For example, last year the government reduced the TDS / TCS rate by 25% on self-employed payments due to the novel coronavirus pandemic. Thus, the rate in force went from 7.5% to 10% as mentioned in the law.
In case of TCS, the higher of the following will apply
a) Twice the rate specified in the relevant section or
Here is how many TDS will be applicable using an example. For example, TDS on interest income from term deposits is deducted at the rate of 10% (provided the PAN is remitted to the bank). Now, if the above mentioned conditions are met, the new TDS rate will be higher than the following:
a) Twice the rate specified in the relevant section, i.e. 20% (10% X 2));
b) Twice the rate or rate in effect 20% (10 X 2); or
The highest rate is 20%. This rate is the same as in the case where the PAN is not remitted to the bank. Thus, this will apply to interest income from term deposits if the RTI is not deposited for the previous two fiscal years and the TDS for each fiscal year exceeds Rs 50,000.
- How will the debtor verify
The income tax service by circular of June 21, 2021, specified the modalities by which the deductor / collector can verify the status of deductible or collector.
In accordance with the circular, “To alleviate this compliance burden, the Central Council of Direct Taxes publishes a new feature“ Verification of compliance for sections 206AB and 206CCA ”. This feature is available through the Income Tax Department’s reporting portal. the beneficiary can feed the single PAN or several PANs of the beneficiary or the beneficiary and can obtain a response from the functionality if this beneficiary is a specified person. ”
In addition, a list is compiled by the tax service from the start of the 2021-22 fiscal year, taking 2018-19 and 2019-20 as the relevant previous years. The list contains the names of taxpayers who have not filed an RTI for two years and have a cumulative TDS and TCS of Rs 50,000 or more during each fiscal year, the circular said.
- Income outside the scope of this new law
Keep in mind that not all income to which TDS is applicable falls under the newly inserted law. Certain income is exempt which is as follows:
B) Payment of the accumulated balance received by an EPF employee
C) Lottery or crossword wins
D) Horse racing wins
E) Income from investment in a securitization trust
F) Cash withdrawals exceeding Rs 20 lakh during a financial year
If the income is from the sources mentioned above, the tax will be deducted at the applicable normal rates, i.e. not at the higher rates due to non-reporting of RTI.
For other income such as dividends received from stocks and mutual funds or interest received from term deposits, recurring deposits, annuities, etc. years, income tax will be deducted at the higher rate.
- What to do if the PAN is not given by the beneficiary
Usually, if an individual does not mention / cite their PAN, the financial institution deducts the tax at a higher rate. For example, if the PAN is not updated in the bank’s records, it will deduct tax on interest charged on term deposits (assuming interest exceeds the specified limit) at the rate of 20% instead of 10%.
Dr Suresh Surana, founder of RSM India, a tax consultancy firm, said: “In case the PAN is not updated and the person has not filed a tax return, in this case , the TDS will be deducted at the higher rate of the two. In the case of term deposits, it would be 20%. Similarly, when an individual provides professional services to a company on which TDS in normal course is 10% and he fails to provide his PAN, the company would be required to deduct TDS @ 20% and pay the balance to that person. ”