The Government of India (GOI) has proposed a new provision in Budget 2021 to increase the number of people filling the Income Tax Return (ITR). Under the proposed section 206AB of the Income Tax Act (Act), in a case where a person is required to deduct TDS while making a payment to another person (deductee), the deductor will be liable to deduct TDS at a higher rate, if the deductee has not filed the ITR related to the previous two years. This rule shall come into force starting 1st July 2021.
In line with the said proposal, TDS will be deducted at twice the applicable rates as per the Act or 5%, whichever is higher. As per the Budget, the said stringent provision would be applicable if below mentioned both the conditions fulfilled: –
1. The person has not filed the ITR for the past two years,
2. TDS amount deducted in respect of that person is more than 50,000 rupees in each of the past two years.
The reason behind this provision: –
The basic idea of the Government towards this step is to make more people file ITR. Actually, there is an existing provision under the IT Act, under which TDS need to be deducted at a higher rate in case of non-furnishing of Permanent Account Number “PAN”. After this provision, it has been observed that there is an increment in the number of people having PAN Cards, but the number of people to file ITR did not peek that high as it was anticipated.
Responsibility of the Deductor: –
The said provision put all the responsibilities on the deductor with respect to deduction and submission of tax. According to this, if any deductor is a failure to do so, he can be held liable for the amount of tax he fails to withhold within specified time limits.
What are the issues in the implementation of said provision?
1. The primary challenge that emerges from the proposed amendment is How the deductor will come to know whether both the condition to deduct tax at a higher rate has been met or not?
2. There is no clarity with respect to that assessee who does not fall under any taxable bracket, or assessee like NRI earning only dividend, interest, royalty, etc, as specified in section 115 of the Act will they also be penalized?
What could be the suggested solutions with respect to said problems related to the above amendment?
1. At the time of deducting TDS, the deductor can ask for a declaration from the deductee or he can use the ITR acknowledgment number to identify whether ITR has been filled or not;
2. Form 26AS would also be helpful to some extent in the identification of tax deducted with respect to the deductee in the past two years.
After analyzing the above facts, for the proposed amendment, collection of documents from the deductee may become difficult consequently may enforce additional compliance burden on deductor. Even we could say that without a proper mechanism, it will be difficult for the Government to identify the cases where TDS is deducted at a lower rate.
The best solution to overcome the said situation is to launch a platform by the GOI, that can help the deductor to comply with the provisions for its smooth implementation.