Double TDS if you don't file your ITR on time

The Government is coming down heavily on the people who earn income but fail to file their returns or pay their due share of taxes. The Government is literary using “Sama, Dama, Dand, Bheda” for increasing the tax base.

To add to the already huge list of “dand”, the government has inserted a new section – 206AB to provide for the tax deduction at source (TDS) at double the rate specified if:

• If the person to whom the payment is made has failed to file his Income Tax Return (ITR) within the due date (generally 31 July) for the past 2 consecutive years and

• The amount of TDS/TCS is INR 50,000/- in each of the two previous years.

This new section 206AB applies from 1 July 2021 onwards.

Lets take an example to understand this better:

Mr. A is a commission agent who facilitates the sale of goods and earns commission on it. His total income is INR 25 Lakhs.

Tax is deducted at source @ 5% from the commission amount paid to him. Mr. A has not filed his ITR for FY 2019-20 and FY 2020-21.

Thus, as per the provisions of the newly inserted section 206AB, tax will be deducted at double the rate specified. Therefore, for the FY 2021-22, tax will be deducted @ 10% (instead of the stipulated rate of 5%).

Note: The above provision also applies in case you file a belated return.

Hence, in the above example, if Mr. A had filed his ITR on 15 January for both the years, apart from the penalty of INR 10,000 and interest payable by him @ 1% per month, tax would be deducted at source at double the rate from FY 2021-22 onwards.

Many people may think what is the harm if tax is deducted at a higher rate. Well, there are many ways to look at it:

• In case where a person after filing his ITR claims a refund, the amount of refund would increase.
  

• The refund is issued once the ITR is processed. There is a possibility of delay in processing of ITR and hence delay in issue of refund
  

• The refund would be available only after filing the ITR for that year which could be as far as 12-15 months from date of TDS
  

• This would lead in a lower amount of money coming in the bank account and would lead to increased working capital requirement.
  

• You would earn a higher rate of return on the funds than the 6% p.a. given by the government
  

• Reduction in disposable income

Thus, it is advisable to file your ITR by the due date specified.

Note: For the sake of convenience, the due dates are as under:

The provisions of section 206AB is not applicable while deducting tax under the following sections:

TDS deductors

It is also important for people who are deducting tax at source to comply with the aforementioned provisions.

The person deducting tax at source needs to satisfy himself that the payee (the person to whom the payment is being made) has filed his income tax return in time.

The Income Tax Department in a tweet had mentioned that they would be introducing a portal where one is able to check for TDS under 206AB. However, the portal has not yet been introduced by the department.

In the absence of any portal, it is pertinent that the payer satisfies himself so as to avoid any penalty or prosecution. A written consent containing all the particulars should be obtained from the payee to insure oneself from any future legal claims.

Are you a TDS deductor who needs help? Or are you looking to file your ITR? Feel free to contact us. Our team of experts will be happy to help!