To ensure the taxpayer’s income tax return filing compliance is fulfilled, the government has implemented a new provision in the Income-tax Act, 1961. Furthermore, there have been thousands of cases where TDS on interest income have been deducted, but the individual does not file ITR. Thus, to ensure the correct income gets reported, the government has taken one step ahead by issuing a stringent circular. As per the new CBDT circular, It has become mandatory to file ITR in order to avoid higher TDS deduction on future income.
This new rule introduced is more stringent as corresponds to the previous provision where a payment receiver must report their PAN( Permanent Account Number) to pay in order to avoid higher TDS at the rate of 20%.
Therefore, taxpayers must understand and comply with these new circulars and else face higher TDS deductions while receiving the payments. In this article, we will read about Higher TDS deduction in cases of failing to file ITR.
Double TDS Deduction if previously not filed income tax returns
As per new circular 11/2021 dated 21 June 2021, If you did not previously file your income tax returns, be prepared to be punished in the form of a larger tax deduction at source (TDS). The increased TDS rate is double the standard rate for those who did not file their IT returns for consecutive 2 preceding financial years. These rules are effective from July 1, 2021.
However, the government is also providing relief to taxpayers suffering from the outbreak of the coronavirus pandemic by extending the deadline to file ITRs till September 30, 2021.
Nevertheless, it is best to file ITR as soon as possible to avoid the last-minute rush.
Moreover, the government has launched a new income tax portal filled with new features to facilitate the taxpayers. One such feature in the portal is for the taxpayers deducting TDS to check if you have filed your IT returns. We will read about this new feature later in this article.
Who will be penalized under the new Higher TDS Deduction Rule?
An individual or specified person would be liable to a higher TDS rate if –
- They did not file ITR in the last two consecutive financial years,
- The total TDS and TCS deducted in respect of each of those previous years exceeds or is equal to Rs 50,000.
Let’s understand this by an example in simple words.
Suppose that you did not file income tax returns for FY 2018-19 and 2019-20. In addition, your total TDS is fifty thousand rupees or more in each of these two previous years. In this case, you will be penalized under the new rule and the payer will apply higher TDS rates and be categorized as a specified person.
How much will be the Higher TDS deduction rate if Income Tax Return is not filed for 2 Years?
If you haven’t filed ITR, then twice the rate mentioned under the TDS provision or 5%, whichever is higher for specific transactions, would be deducted.
| Section of the Income Act | Nature of Payment | TDS Rate as per normal provision | Higher TDS Rate as per circular |
| 192 | Payment of Salary | Slab Rate | Not Applicable |
| 194 C | Payment of Contractors and sub-contractors | 1% (individual/HUF)
2% (others) |
5% |
| 194 J | Fee for Professional or Technical Services (FTS), Royalty, etc. | 2% (FTS, certain royalties, call center)
10% (others) |
5%
20% |
| 194 H | Commission or Brokerage | 5% | 10% |
| 194 A | Interest other than interest on securities | 10% | Not Applicable |
| 194 B | Income by way of winnings from lotteries, crossword puzzles, card games, and other games of any sort | 30% | Not Applicable |
| 194 BB | Income by way of winnings from horse races | 30% | Not Applicable |
| 194LBC | payment of Income in respect of investment in securitization trust. | 25% (if the payee is resident Individual & HUF)
30% Other |
Not Applicable |
| 194N | cash withdrawals of more than Rs 1 crore during a financial year | 2% | Not Applicable |
Important Note: The TDS on taxpayers’ salaries will not be affected by this rule. Furthermore, the PF(Provident’s Fund) incomes are also exempted from the same. However, the income from other sources such as fixed deposit interest, service payments, rent on the property, or even TDS before paying your dividend will attract higher TDS deduction if Income Tax Return is not filed for 2 Years.
How to check whether anyone has filed ITR or not?
The government has launched a new income tax portal, and it has a special new feature for Compliance Check for sections 206AB & 206CCA.
The tax deductor or collector can fill the single PAN or multiple PANs of the taxpayers or deductee in the portal. As a result, they will be able to see if the selected person/taxpayer has failed to file ITR or not.
Furthermore, financial institutions can deduct tax at a higher rate if an individual does not submit their PAN details.
In conclusion, rules for ITR filing are getting more strict now. Taxpayers must file their Income tax returns at the earliest to remove their name from the “specified persons” list and avail the benefits of ITR Filing.
Essentials point to keep in mind before filing ITR this year
Moreover, If you want any other guidance concerning ITR Filing, please feel free to talk to our business advisors at 8881-069-069.
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