The law for higher TDS, TCS in case of not filing ITR was announced in Budget 2021 and amended in Budget 2022. If an individual does not file ITR for FY 2020-21 by this date, then higher TDS will be applicable on certain incomes such as interest, dividend etc. from April 1, 2022.
If you still have not filed your income tax return (ITR) for FY 2020-21, then you will have to pay higher TDS, TCS from April 1, 2022, in case total TDS, TCS was Rs 50,000 or more in FY 2020-21. This is because the government has amended the law wherein not filing ITR for one year and having TDS exceeding Rs 50,000 in the previous FY will lead to deduction of TDS, TCS at a higher rate in the next financial year. The higher TDS, TCS rate will be applicable on specified sources of income such as interest income from recurring deposits, fixed deposits, dividend income, annuity payments etc.
What is the new rule regarding higher TDS, TCS?
The law related to higher TDS, TCS was announced in Budget 2021. For FY 2021-22, if an individual has not filed ITR for FY 2018-19 and FY 2019-20 and TDS and TCS deducted in each year exceeded Rs 50,000, then higher tax will be deducted from the taxpayer’s interest income, dividend income, annuity payments etc.
The above law was amended to make it more stringent in Budget 2022. From FY 2022-23, as per the amended law, if an individual has filed ITR for FY 2019-20 but not filed ITR for FY 2020-21 and total TDS in FY 2020-21 exceeded Rs 50,000, then higher TDS, TCS will be deducted from his/her income from April 1, 2022.
Abhishek Soni, CEO, Tax2Win.in, an ITR filing website says, “For the purpose of section-206AB, as per the amended provisions, TDS will be applicable at a higher rate on the transactions executed in FY 2022-23 if the ITR of FY 2020-21 is not filed and the amount of TDS, TCS exceeds Rs 50,000 in FY 2020-21.”
The income tax department has also tweeted about the same from their official Twitter handle. As per the income tax department tweet, “Not filing ITR can result in higher TDS next year. The last date to file ITR for AY 2021-22 is 31st March 2022. Let’s not wait for the last day.”
AY 2021-22 means financial year 2020-21.
Rate for higher TDS/TCS
As per the Income-tax Act, 1961, the TDS, TCS will be deducted at the rate which is highest of the following:
a) Twice the rate specified in the relevant provision of the Act; or
b) Twice the rate or rates in force; or
c) The rate of five per cent
It is important to note that higher TDS, TCS provision will not be applicable on the TDS rates applicable to salary, provident fund, cash withdrawals from bank account etc.
How will higher TDS, TCS be deducted?
The Central Board of Direct Taxes (CBDT) released a circular in June 2021 specifying the mechanism by which deductors can check the list of persons on whom higher TDS, TCS is to be applied. Financial institutions such as banks, companies who are required to deduct TDS can enter the PAN of an individual at a specified place on the income tax e-filing portal to check if higher TDS, TCS is applicable to that individual.
As per the circular, once an individual files ITR, then his/her name would be removed from the list of persons on whom higher TDS, TCS is applicable. Thus, even if an individual misses ITR filing for FY 2020-21 but files ITR for FY 2021-22 (where the last date is July 31, unless extended by the government), the name of the individual will be removed from the list of persons on whom higher TDS, TCS is applicable. However, the name will be removed only after the expiry of the due date of filing ITR or after ITR is filed and verified, whichever is later.
Till the time one’s name is removed from the list, higher TDS, TCS will continue to be levied. Hence, it is better to file ITR for FY 2020-21, to avoid higher TDS, TCS from the start of FY 2022-23.