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Budget2021: Didn’t file income tax returns? Be prepared for higher TDS

Budget 2021-22 a proposes steeper tax rate for those who have PAN, but don’t file income tax returns

February 01, 2021 / 09:10 PM IST

Budget 2021 has laid out stringent norms for those not filing tax returns. So, if you have not been fling your income-tax returns, you have to pay a higher tax deducted at source (TDS). Even the Tax collected at Source (TCS) will increase for those who do not file their income-tax returns. Starting July 1, 2021, the penal TDS and TCS rates are 10-20 percent, as against 5-10 percent normally.

The widened scope of TDS and TCS comes under the freshly created income-tax act sections – 206AB and 206CCA.

Higher taxation

So far, a higher TDS rate was only applicable if you did not mention your PAN number. “The Government realised that due to the earlier move of increasing TDS rates for non-PAN holders, the number of PAN cards issued increased. But that did not translate to more people filing their income-tax returns,” states Paras Savla, partner at KPB & Associates.

But there is a complication. The entity that needs to deduct the TCS would not know if the giver has been filing his income-tax returns. For instance, the tenant, while paying the rent to the landlord, deducts TCS. According to Budget 2021, he is now supposed to deduct a higher TCS if the landlord hasn’t been filing his own income-tax returns. The question is: how would the tenant know?


“Banks have access to income tax records to verify. How will individuals and smaller entities verify whether a person has filed taxes or not,” says Savla.

It remains to be seen whether one is asked to freely present a copy of the income tax return, just like today many are forced to supply PAN card copies for several financial and even non-financial transactions.

The Finance Bill, 2021-22, however, mentions that the tax deducted on premature provident fund withdrawals, winnings from lotteries and horse races, cash withdrawal above Rs 1 crore and investment in securitization trust would be exempt from the steeper rate of tax collection. Note that the taxation rates on these are already high.

For all the other areas, the TDS/TCS could be twice the specified rate or 5 percent, whichever is higher, for those who do not file income tax returns.
Khyati Dharamsi
first published: Feb 1, 2021 09:10 pm

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