In the Union Budget 2021 there has been made a proposal to charge higher TDS and TCS on non-filers of income tax return (ITR). This is done to put off the practice of not filing returns by taxpayers in whose case considerable sum of tax has been deducted or collected.
As per the proposal, if any individual in whose case TDS or TCS of Rs. 50000 or more has been deducted or collected in the last two years and if such a person has not filed ITR, then the TDS/TCS rate will be double of the specified rate or 5 percent, whichever is higher. For the higher TDS implication, a new Section 206AB has been introduced, while higher TCS rate shall apply as per the new Section 206CCA in the following year. So accordingly, higher TDS will be applicable to those having interest income, dividend income, annuity pensions, income from capital gains.
Further, this newly proposed section shall not apply where the tax is required to be deducted under sections 192 (Salary income), 192A (PF), 194B (Winning from lottery etc), 194BB (Winning from horse rates), 194LBC (income received from a securitisation trust) or 194N (Cash withdrawal exceeding Rs 20 lakh) of the Income-tax Act, 1961.
"The onus of ensuring a higher rate of tax is deducted/collected have been placed on the deductor/collectee, who will now have to request documentation validating proof of submission of ITR in the previous 2 years, increasing the burden of compliance for such deductors/collectee", said Archit Gupta, founder and CEO, ClearTax. Additionally, in a case where TDS or TCS applies, it should automatically come in Form 26AS and return filing could be ascertained through it.
"This is an additional burden of compliance for deductors/collectee, besides no additional remedy is provided for cases where ITR filing was not applicable in the 2 previous years. Taxpayers who foresee facing this issue should prepare to file ITR for FY 2020-21 in due course," he added.
This new provision comes into effect from July 1, 2021.