Those who have not filed their Income Tax Return (ITR) and their income falls under the category of TDS deduction, now such taxpayers will have to pay TDS at a higher rate. Apart from this, if such taxpayers do not have PAN, then they will have to pay TDS at an even higher rate. According to the Finance Minister’s budgetary announcement, this new TDS rule will come into effect from July 1, 2021.
This new rule related to TDS has been brought to file ITR to more and more such individuals whose income comes under the purview of TDS. With the new rule, more and more individual taxpayers will file ITR and transparency will be ensured. This new provision will not apply to non-residents who do not have a permanent residence in India.
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This is the new rule
The Finance Minister has added a new provision in the Income Tax Act regarding TDS in Budget 2021. Under this new provision, Individuals taxpayers who have not filed their ITR and their income falls in the category of TDS deduction of more than Rs 50,000 from the last two previous years, will have to pay TDS at a higher rate. According to the announcement made by the Finance Minister, TDS will have to be paid at the rate of double or 5% of the specified rates, whichever is the maximum, in the appropriate provisions of the Income Tax Act.
The new provision will apply to these
- If the ITR is not filed exactly two years before the fiscal year in which the tax deduction is required, the time limit for filing the ITR is over.
- In two previous years, TDS deduction should be 50 thousand rupees or more every year.
These deals will not be applicable
The new provision will apply to payments like interest, contract, professional services, rent etc. But where the entire amount of tax will need to be deducted, this rule will not apply. They are excluded from the rule.
- the wages
- Premature withdrawal from Employee Provident Fund
- Amount won in lottery or crossword puzzles or cord games
- Horse race
- Income from investment in Securitization Trust
- TDS on cash withdrawal of more than 1 crore
When PAN information is not provided
In addition to not filing ITR till due date, if the particular person has not given the PAN information to the TDS payer, then the TDS rate can be more than 20 percent. Under the new rule, it is very important to certify three things before deducting TDS at the time of payment to the payers.
- Was Payi’s tax deduction in the last two years more than 50 thousand rupees?
- The person on whom TDS is made liable, has filed ITR in the last two years?
- Due to an original return in the last two previous years, the due date has expired? If there is still a due date to file ITR for any year while making a payment, there is no need to deduct TDS at higher rates at the time of payment.
Understand this with an example
- Let’s say XYZ Co. Ltd. For the last two years, Mr. B is paying a contract of Rs 70 lakhs. On this, XYZ will deduct tax (70 thousand rupees per annum) at the rate of 1 percent.
- Mr. B has not filed ITR in both the years and his due date has also passed.
- Now, after confirming this in the third year, XYZ will deduct tax at the rate of 5 per cent, which is more than double of 1 per cent.
- Now if Mr. B is not informed about the PAN, then TDS will have to be given at the rate of 20 percent, which is more than 5 percent and 2 percent.