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TDS on non filing of Income Tax return

  • Akshatha Sajumon
  • 14 Dec
  • 5 minutes

Have you been filing your income tax returns? If not, get ready to pay a higher Tax Deducted at Source (TDS). This comes with the introduction of a new section in the Finance Bill, 2021. As per this, taxpayers must now prepare for deduction and collection of tax at source at higher tax rates if an amount is paid or payable to them but it is observed that income tax returns have not been filed by the said taxpayers. 

What is TDS on non filing of income tax return?

Non-filers of Income Tax returns should know that the new TDS rates applicable for them will be double the regular tax rates. The two new sections introduced in the Finance bill 2021 are discussed below:

Section 206AB 

Section 206AB states higher tax rate for tax deduction at source (TDS) while making payments or collections. This is applicable to those who did not file their income tax return.

Section 206 CCA 

This section states that a collection of tax at source (TCS) on receipts should be made from the buyers at higher rates than specified in the Income Tax Act.

How much TDS rate is applicable for non-filers of ITR?

For those who haven’t filed income tax returns, the applicable tax rate for specific payments will be twice the usual TDS rate. Here are the details:

TDS

Those who come under the purview of conditions laid in the above-mentioned sections will see a tax deducted at source (TDS) at below rates, whichever is higher:

  • Two times the rates prescribed in the Income Tax Act.
  • At the tax rate stated in the Finance Act
  • At 5%

If a person has not filed an income tax return and does not furnish PAN, tax will be deducted or collected at 20% or as per rates stated in the section, whichever is higher.

TCS

Tax is collected at source (TCS) on higher of the below-mentioned:

  • Twice the rate stated in the relevant Income Tax Act provisions
  • At the applicable rate in force as prescribed in the Finance Act
  • At 5%

Similar to TDS, if a person has non filed income tax returns and also does not furnish PAN, tax is to be collected at 20% or as per rates applicable under the section, whichever is higher.

How will non-filers of IT returns be penalised?

Before some form of payments are made, a portion of the amount is deducted upfront as tax which is known as Tax deducted at source. It helps to ensure that the transactions are duly reported to the income tax department.

Until recently, TDS was deducted at a higher rate specifically for those who do not have a PAN. With the announcement of new TDS rules, there will also be a steeper TDS rate applicable for those who haven’t filed tax returns. 

Which payments are affected by the new TDS on non-filing of ITR?

TDS is deducted before paying 

  • dividend
  • fixed deposit interest
  • service payments
  • rent on property 
  • sale of property. 

In case you haven’t filed income tax returns for the past two years, the TDS rates applicable will be double on these payments.

What are the conditions for higher TDS / TCS to be collected?

Tax is deducted/collected at source at higher rates than originally prescribed in the Act. This is, provided the transaction is concerning the person who meets the following conditions:

  • If an individual has not filed the income tax return for immediately preceding two Financial Years (FYs) before the current FY in which tax has to be deducted,
  • If the income tax return filing due date is expired (except belated returns filing date) and
  • The total TDS and TCS is Rs. 50,000 or higher in each of the previous two years

These conditions do not apply to a non-resident who has no permanent establishment in India. Here, permanent establishment means a fixed place of business to be carried out wholly or partially.

Conclusion

As per the Income tax department, a specified persons list has been created to include those who haven’t filed their income tax returns for financial years 2018-19 and 2019-20. This list is expected to be updated once at the beginning of a financial year, and an individual does not have to check for compliance regularly.

Since the income tax return filing due date for 2020-21 has been extended to December 31, 2021, the income tax returns for the same will not be considered for TDS at higher rates.

FAQs

When will the new TDS rate on non filing of ITR be applicable?

As per Budget 2021-22, the new TDS rate on non-filing of ITR has come into effect since July 1, 2021.

Which two financial years will be considered for a new tax deduction on non-filing of ITR?

As per the newly introduced Section 206AB, new TDS rates will be applicable if the due date for ITR filing for the previous financial years expires as per Section 139(1).

Is the new TDS rate for non-filing of returns applicable to salary payment too?

No, the salary earnings along with a few other income categories have been exempted from the new TDS rule on non-filing. Another excluded payment is provident fund receipts.

How do I know if I come under the new TDS law for non-filing of ITR?

The Income tax department has prepared a list of individuals who have haven’t filed tax returns for the financial years 2018-2019 and 2019-20 and who have a TDS of more than Rs. 50,000.

What if I file my returns late? Will I have to pay more TDS on the non-filing of ITR?

As per the income tax laws, you can file belated income tax returns (along with penalty) up to March 31, 2022 for earnings made in the financial year 2020-21.

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Akshatha Sajumon

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