They cannot be expected to track the non-filers
Where income tax is deductible at source, the person responsible for deducting is required to ask for the permanent account number (PAN) of the payee so that the amount so deducted can be deposited into the treasury to the credit of the payee.
This is reassuring for the payee in the sense that he can confidently claim to the department he has paid his income tax to that extent when it is time for filing return.
There were a lot of payees who defied this PAN disclosure mechanism in the hope that no deduction would be made by the payer in the face of absence of a number to which the deduction could be related. But a few years ago such brinkmanship was effectively discouraged by a salutary provision — 20 per cent TDS would be deducted if the payee refuses to share his PAN with the payer.
People started complying and made a beeline for getting the PAN. Hit them where it hurts and it works. Suppose an advocate refuses to share his PAN. The consequence would be the payer would deduct 20 per cent instead of 10 per cent under Section 194J.
Apart from a larger amount getting blocked in TDS, the payee will have another problem — sifting his amount from the mass of such deductions made by the deductor at the time of filing his return and claiming credit for the tax deducted.
Buoyed by the success of this initiative, Finance Minister Nirmala Sitharaman has, in her Budget 2021, sought to amend the Income Tax Act to provide that from non-filers TDS would be twice the normal rate.
This once again looks of a piece with the hit-them-where-it-hurts formula except that it is fraught with a lot of imponderables not thought through by the bureaucrats.
For one, how will the deductor find out that the payee is a defaulter insofar as filing of income tax returns is concerned? The proposed regime says anyone who has not filed his income tax return for two financial years in succession is a non-filer.
Well you may make him a marked man like police does with history-sheeters and hardened criminals but to expect a deductor to know such non-filers is too much to expect.
It is one thing to ask them to obtain the PAN of the payee but altogether another to foist on them the responsibility of fostering the income tax return filing habit. Can a person ask the payee bluntly: ‘Hey, have you filed your returns for the last two years on time?’Even if that is the mandate, it would be an impossible one to fulfil.
How will the payer obtain copies of returns of his payees for the last two years and store them even electronically?
Nor is the payee going to put his head on the chopping block by disclosing to every possible TDS deductor that he is a non-filer. No one wears his non-filer status on his sleeves.
The government is guilty of abdicating its responsibility by foisting it on to the payers. While it is true that TDS has improved vastly tax compliance by compelling the payees to disclose their income, the job of filing returns is entirely that of the earners. And the enforcement of such requirement is entirely that of the government.
A number of companies — like Infosys, for instance — has a full-fledged TDS department employing as they do lakhs of employees.
They do it perforce as labour of love or duty to the nation. For this job of tax collector, they do not get rewarded but instead are penalised if they are even slightly remiss.
It is too much for the government to push the envelope further and expect them to enforce the return filing habit too.
The writer is a Chennai-based chartered accountant