TDS (Tax Deducted at Source) is a part of the Income Tax and is deducted right at the root from where a person’s income is generated. The government uses it as an instrument to collect taxes (as per specified rates) in advance to minimize tax evasion and to keep a check on people’s income. The amount deducted as TDS is credited back to the taxpayer’s account after filing an ITR and clearing the tax liability.

In Budget 2021, the government introduced a new mandate regarding the TDS rules. It specified that people who have not filed ITR for the past two years would have to pay double TDS rates from July 2021. The primary intent behind this provision was to ensure a clear account of the income of the people. 

To know more about the new TDS rule, which payments will be affected, and how. Keep reading!

Rules as per the Finance Act, 2021

A new section named 206AB was introduced in the Finance Act, 2021, to incorporate the rules of higher TDS

As per the new rules, if an individual has not placed ITR (Income Tax Return) for the previous two financial years, i.e., 2018-19 and 2019-20 and a TDS/TCS deduction of more than Rs. 50 thousand has been made in each of these two years, and higher or double TDS rates will apply. And these increased rates will apply from July 2021.

New TDS Rates

Before this new TDS mandate, a higher TDS was only deducted for people who could not present a valid PAN. But with this law in function, a steeper TDS rate will be deducted if you have not filed ITR, too.

Now, let’s take a closer look at the new TDS rates. 

The new TDS rates applicable will be higher than the ones mentioned below:

  • Double (2x) the rate provided in the relevant section of the Income Tax Laws or,
  • Twice of the applicable rates or
  • At a rate of 5 percent

In TCS (Tax Collected at Source), the higher rates will be applicable as per section 206CCA. The new rates will the higher of:

  • Twice the rate mentioned in the relevant slab or
  • 5 percent rate   

Who will be Impacted by the New TDS Rule?

The rule of higher TDS will not be applicable to every payment section. First, let’s look into the cases where this rule of higher TDS applies. 

  • New TDS rates will apply if a person has not filed ITR in the previous two years (2018-19 and 2019-20). And the due date for filing ITR for these two years has expired according to sections of the Income Tax Rules, and
  • If the government has deducted a TDS amount of more than Rs. 50 thousand in each of these two years. 

In which Areas will this New TDS Rule not Apply?

Now, we will talk about the payment sections where the new TDS rule will not be applicable even if a person satisfies the cases mentioned above.

Section 206AB of the Finance Act, 2021 will not be applicable if the TDS was deducted under:

  • Section 192A: Due balance paid to an employee
  • Section 192: From a person’s salary
  • Section 194BB: Money won from horse racing
  • Section 194N: For cash withdrawals (including Provident Fund)
  • Section 194B: Winnings from crossword puzzles or lottery
  • Section 194LBC: Income accrued from the investments made in securitization trusts

Moreover, the new TDS rules will not apply to non-residents who do not own a permanent venture or organization in our country.

Now, if both the 206AB (new TDS rule) and 206AA (steeper TDS rates for no PAN) apply, one will have to pay higher TDS rates from the next month. 

How is the GOI Planning to Implement the New TDS Law?

After incorporating the new mandate of higher TDS rules in the Budget 2021, the Central government has launched a new income tax portal on June 21. This new facility can quickly identify the people who have not filed ITR in the previous two years, even if the TDS/ TCS amount has crossed the limit of Rs. 50 thousand in these two years. 

As per a circular released by the Income Tax Department on June 21, 2021, a new facility called “Compliance check for Sections 206CCA and 206AB” has been initiated by the CBDT. Entering multiple PANs or a single PAN of the deductee/collectee in this functionality will reveal all the information quickly.

Additionally, the circular states that the tax department is preparing a list of people who have not filed ITR from the beginning of 2021-22, counting 2018-19 and 2019-20 like the previous two years. This list will comprise people who have been non-filers for both of these financial years and have been subject to an aggregate TDS/ TCS of Rs. 50,000 in both 2018-19 and 2019-20. 

Note for the Taxpayers Who are Due for ITR Filing 2020-2021

As per the Income Tax rules, one can file belated tax returns (of course, penalty) for the assessment year 2020-21 up to March 31, 2022. The due date for filing ITR for 2020-21 has been set to September 2021, and since the due date is far, it’s a given that not many have filed their returns yet. 

If you file the return within the specified time (or as per the latest extension made by the government), you can have your name removed from the compliance checker on the newly launched income tax portal. Then, you will not have to worry about paying double TDS/ TCS rates anymore! 

Key Takeaway

With time, the government has come up with various new mandates to reduce the chances of tax evasion. And incorporating this rule of higher/ double TDS/TCS rates is one of them. So, try to skim through the details nicely and act fast to get your name removed from the list of non-filers.

However, when asked to submit ITR proof in various entities, make sure you are masking the critical areas like acknowledgment details to avoid misuse and fraud. 

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