Non-filers of ITRs would be subject to a higher rate of TDS.

For those who are not eligible for a tax deduction at source (TDS) but who do not file their income tax return, the TDS levy would increase. If you don’t have the PAN, the tax deduction limit is even higher. As announced by the Finance Minister, these new TDS rules shall come into force from July 2021.

On new TDS rule

In Budget 2021, the Finance Minister introduced in the IT Act a Separate TDS clause. This section has established a higher TDS for people who have not filed income tax returns but who, in the two previous years, have been responsible for TDS deductions above 50 000 Rs. TDS rates are higher than those set by:

  • Twice at rates as set out in the applicable income tax law provisions.
  • With the rate of 5%.

With effect from 1 July 2021, this TDS rule will apply. Non-filers of ITRs would be subject to a higher rate of TDS.

The new provision has been established to improve enforcement by persons whose income is subject to TDS with income tax return filings.

It would allow more people to file ITRs and provide the government with accountability. The new clause shall apply in particular to the following persons:

Who has not produced a return of income tax for two financial years immediately before the tax year for which the deadline for filing the return on income tax expired;

The number of TDS deducted by the payer is Rs 50 000 or more in both of these two preceding years.

The new provision does not apply to a non-resident without a permanent position in India.

On which transactions will it apply

The new rule applies to payments of any kind, including interest, contracts, professional services, rent, and so on.

This rule, however, would not apply to transactions in which the full amount of tax is expected to be deducted. As a consequence, the following transactions are prohibited:

  • Earnings/Wages
  • Premature withdrawal from an employee’s provident fund
  • Any lottery, crossword puzzle, or card game winnings
  • Winnings from any kind of horse race
  • TDS on cash withdrawals totalling Rs. 1 crore from investments in securitization trusts.




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