Tax Talk: Is it possible for tax deductors to verify if payee has filed ITR in last 2 years?

If the required individual is topic to greater charges of TDS/TCS on account of non-furnishing of PAN, along with non-filing of ITR, the tax shall be deducted at greater of the charges specified above or 20%.

The elementary drawback within the Indian taxation system is the small variety of revenue tax payers towards the massive variety of revenue producing residents. Though tax authorities acknowledge the necessity to educate taxpayers of their obligations, introduction of strict tax provisions is usually required to push better compliance.

For example, Part 206AA and 206CC of Earnings Tax Act present for greater charges of TDS and TCS for non-furnishing of PAN. These provisions ensured {that a} legitimate PAN is furnished by taxpayers deriving revenue from numerous sources. The federal government, vide Funds 2021,launched new provisions beneath Part 206AB/206CCA that prescribe a double price of TDS/TCS for these, who regardless of having an inexpensive quantity of TDS accruing, don’t file revenue tax returns.

Newly launched provisions
The newly launched provisions that come into power with impact from July 1, 2021, present that in case of a “specified individual” (i.e. an individual who has not filed the returns of revenue for final two monetary years or mixture of TDS/TCS is Rs 50,000 or extra in every of those two monetary years), tax shall be deducted/ collected at twice the speed prescribed or 5%, whichever is greater, on the quantity paid or payable to such individual.

The brand new provisions are stipulated to be relevant to all funds within the nature of curiosity, skilled service charges, hire, and so on. Nevertheless, sure funds have explicitly been stored out of the ambit of the brand new guidelines. It has been directed the brand new regulation shall not apply the place tax is required to be deducted on wage cost (Part 192), accrued steadiness of EPF (Part 192A), winnings from lotteries or crossword puzzles or card video games (Part 192B), winnings from horse races (Part 192BB), revenue from funding in securitization belief (Part 194LBC) or money withdrawals in extra of specified limits (Part 194N).

If the required individual is topic to greater charges of TDS/TCS on account of non-furnishing of PAN, along with non-filing of ITR, the tax shall be deducted at greater of the charges specified above or 20%.

Difficulties seemingly for taxpayers
The introduction of above provisions might have the impact of constructing revenue tax return submitting obligatory even for these taxpayers who’re in any other case not required to file the identical. Such people embody taxpayers from lower-income teams or senior residents, who’ve passive revenue like curiosity and dividend, however their complete revenue doesn’t exceed the fundamental exemption restrict, requiring submission of return. Usually, Type 15G/ 15H is filed by such taxpayers, in order to safe an exemption from TDS on their revenue. Now, if such individuals inadvertently overlook to file the identical, then they could be topic to TDS at double the charges usually relevant.

With the introduction of the brand new provisions, compliance burden has elevated for deductors. They shall must examine whether or not payee has filed ITR in the course of the previous two years, for which era restrict of submitting has expired. Additional, they must verify whether or not the combination of TDS and TCS in every of the 2 years is Rs 50,000 or extra.

Within the absence of a correct portal/ mechanism to examine deductee compliance, deductors might discover it troublesome to adapt to the brand new authorized provisions. Till the federal government finds a method out, deductors might ask for declarations/ ITR acknowledgement/ Type 26ASto confirm whether or not or not the deductee falls within the purview of the brand new regulation.

The author is director, Nangia Andersen LLP. With inputs from Vasudha Arora