The elementary trouble in the Indian taxation technique is the tiny quantity of earnings tax payers against the significant quantity of earnings producing residents. Although tax authorities acknowledge the require to educate taxpayers of their obligations, introduction of strict tax provisions is from time to time expected to push higher compliance.
For instance, Section 206AA and 206CC of Income Tax Act provide for larger prices of TDS and TCS for non-furnishing of PAN. These provisions ensured that a valid PAN is furnished by taxpayers deriving earnings from different sources. The government, vide Budget 2021,introduced new provisions beneath Section 206AB/206CCA that prescribe a double price of TDS/TCS for these, who in spite of possessing a affordable quantity of TDS accruing, do not file earnings tax returns.
Newly introduced provisions
The newly introduced provisions that come into force with impact from July 1, 2021, provide that in case of a “specified person” (i.e. a particular person who has not filed the returns of earnings for last two monetary years or aggregate of TDS/TCS is Rs 50,000 or more in every single of these two monetary years), tax shall be deducted/ collected at twice the price prescribed or 5%, whichever is larger, on the quantity paid or payable to such particular person.
The new provisions are stipulated to be applicable to all payments in the nature of interest, specialist service charges, rent, and so on. However, particular payments have explicitly been kept out of the ambit of the new guidelines. It has been directed the new law shall not apply exactly where tax is expected to be deducted on salary payment (Section 192), accumulated balance of EPF (Section 192A), winnings from lotteries or crossword puzzles or card games (Section 192B), winnings from horse races (Section 192BB), earnings from investment in securitization trust (Section 194LBC) or money withdrawals in excess of specified limits (Section 194N).
If the specified particular person is topic to larger prices of TDS/TCS on account of non-furnishing of PAN, in addition to non-filing of ITR, the tax shall be deducted at larger of the prices specified above or 20%.
Difficulties probably for taxpayers
The introduction of above provisions may well have the impact of generating earnings tax return filing mandatory even for these taxpayers who are otherwise not expected to file the exact same. Such men and women involve taxpayers from reduced-earnings groups or senior citizens, who have passive earnings like interest and dividend, but their total earnings does not exceed the simple exemption limit, requiring submission of return. Normally, Form 15G/ 15H is filed by such taxpayers, so as to safe an exemption from TDS on their earnings. Now, if such persons inadvertently overlook to file the exact same, then they may well be topic to TDS at double the prices generally applicable.
With the introduction of the new provisions, compliance burden has improved for deductors. They shall have to verify whether or not payee has filed ITR for the duration of the preceding two years, for which time limit of filing has expired. Further, they will have to ascertain whether or not the aggregate of TDS and TCS in every single of the two years is Rs 50,000 or more.
In the absence of a right portal/ mechanism to verify deductee compliance, deductors may well obtain it complicated to conform to the new legal provisions. Until the government finds a way out, deductors may well ask for declarations/ ITR acknowledgement/ Form 26ASto confirm whether or not or not the deductee falls in the purview of the new law.
The writer is director, Nangia Andersen LLP. With inputs from Vasudha Arora