If you have not filed income tax returns for financial years 2018-19 and 2019-20, you will have to face a sharper TDS cut from the amount you receive. So far, a higher TDS rate was deducted only for those who didn’t have PAN. But now, a substantially higher rate of TDS would be deducted if you haven’t filed tax returns for last 2 years. This is done by government to make sure the transactions are reported to the income tax department and tax payers file their IT Returns, which currently they are avoiding. Government wants to ensure the filing of return of income by those people who have suffered a reasonable amount of TDS/TCS.
From July 1, 2021, a higher Tax Deducted at Source (TDS) rate would be applicable for Income Tax Return (ITR) non-filers, according to the Finance Act, 2021. So, if a taxpayer has not filed TDS in the last 2 years and TDS deducted each year exceeds Rs.50, 000, person making payer will deduct much higher TDS.
New TDS rule
The higher rate of TDS will be higher than the below limits:
1. Double the TDS rate specified in the relevant provision (specified below) or
2. At the rate of 5%.
3. This rule applicable if total TDS is more than Rs.50,000/-
4. If you haven’t filed tax returns for financial year 2018-19 and 2019-20
What is the normal rate of TDS & Enhanced (for Non-filers of IT RETURNS?)
Types of Payments Normal TDS % Threshold limits Enhanced TDS % *
Interest- Bank FD, Others 10% Rs.40,000 (Rs.50,000 for Sr. Citizens) 20%
Rent from Property 10% Rs.2.40 lakhs 20%
Dividend 10% Rs.5,000/- 20%
Sell of Property 1% Rs.50 lakhs 5%
Professional Fees 10% Rs.30,000/- 20%
Contractor Payment-Ind. Or HUF
1% Single Transaction Rs.30,000/-with annual cap of Rs.1 lakh 5%
Contractor Payment-Others
2% Single Transaction Rs.30,000/-with annual cap of Rs.1 lakh 5%
Insurance Commission 5% Rs.15,000/- 10%
· *Applicable if total TDS is more than Rs.50,000/-
Where new TDS rule will not apply:
1. The provisions of this section will not be applicable if the total TDS deduction in each previous year is less than Rs.50, 000 or you are filing your income tax return regularly for the last 2 years.
2. TDS to be deducted on Salary income (192), Lottery (194B), Horse race (194BB), PF (192A), Trust income (194LBC), and on cash withdrawals (194N), then the provisions of this section will not apply.
Remember that the deadline to file IT returns this year (FY 2020-2021) has been extended to 30th September, 2021 and thus file your IT Returns even if your taxable income is below taxable limits.
Which of my payments would widely be affected?
Taxes are deducted (TDS) before paying your dividend, fixed deposit interest, service payments (as Contractor), rent on property, TDS on Property sale above Rs.50 lakh.
Some Examples:
Dividend: Up to Rs.5, 000 TDS is Nil, up to Rs.5 lakh TDS will be 50,000 (10%) and any Dividend received above Rs. 5 lakh, then TDS will be 10% if you have filed your last 2 financial years (2018-2019 & 2019-2020) IT Returns, and if however you have not filed your last 2 financial years (2018-2019 & 2019-2020) IT Returns then TDS will be @ 20%
Interest: Up to Rs. 40,000 (Senior Citizen Rs.50,000, , up to Rs.5 lakh TDS will be 50,000 (10%) and any Interest received above Rs. 5 lakh, then TDS will be 20% on entire Interest. Thus if you have Bank FD is say Rs. 70 lakh, TDS and Interest Rate 7% will be Rs.4,90,000/-, TDS will be @ 10% i.e. Rs.49,000. If Bank FD is Rs.1 cr TDS and Interest Rate 7% will be Rs.7,00,000/-, TDS will be @ 20% i.e. Rs.1,40,,000/ if you have not filed your IT Return. Thus Banks will look at FDs above Rs.75 lakhs to verify whether Deposit holder has filed his IT Returns or not.
Property Sell: If you are planning to sell Property and market value is below Rs.50 lakhs, no TDS. If Property sell consideration is above Rs.50 lakhs applicable TDS is 1%, If your sell Consideration is say Rs.2 cr and you have filed your last 2 financial years (2018-2019 & 2019-2020) IT Returns then TDS will be @ 1% (Rs.2 lakh) however, if you have not filed your last 2 financial years (2018-2019 & 2019-2020) IT Returns then TDS will be @ 2% (Rs.4 lakh).
Payment to Contractor (Individual & HUF): If you are making payment to Contractor, No TDS for payment up to Rs.1 lakh, If payment is Rs.50 lakh then TDS will be @ 1% i.e. Rs.50,000/-. However for Payments above Rs.50 lakh to Contractors (Individuals & HUF), ensure that you have their your last 2 financial years (2018-2019 & 2019-2020) IT Returns otherwise TDS rate will be 2%
Will the TDS on my salary too be affected?
No, the newly introduced rule will not apply to TDS on payment of salary and even provident fund withdrawal.
Would my fixed deposit interest be affected?
No effect on FDs up to Rs.75 lakhs. Thus all persons having Bank FDs above that should ensure that they should have filed their last 2 years IT Returns.
How will tax deductor know if my TDS is above Rs 50,000?
The Income tax department has prepared a list of individuals who have hasn’t filed tax returns for the financial years 2018-2019 and 2019-20 and who have a TDS of more than Rs 50,000.
Unless one can check the tax filing status, there is no way to ascertain how much tax to deduct. Though there was a system in place for banks to assess whether the return has been filed, there was no such alternative for large corporates or even individuals to check the status of tax filing. The compliance checker would help in assessing the amount to be deducted.
Yet, due to the teething issues with the new income tax portal, many companies, and vendors are asking individuals to share the tax return filing acknowledgement or a declaration with vendors, tenants (paying a rent of more than Rs 50,000 per month.
How should I protect my tax return from frauds?
If you share your tax returns with various entities and even individuals for rental income etc., then you must safeguard your returns before sharing the same. Masking critical information is essential to avoid its misuse. If you share the acknowledgement details, there are chances that one can break the security system and try to log in to your Income tax account and even reset the password. One must also block the date of birth (DOB), as a combination of name and DOB becomes the access password for many financial documents.
What if I file my returns late?
The income tax laws allow you to file belated tax returns (with penalty) for earnings of financial year 2020-21 up to March 31, 2022.
So, if you do file the return, then the compliance checker on the portal would remove your name from the “specified persons” list. The list essentially comprises the people who need to pay double the rate of TDS.