In order to bring more people in the income tax return bracket, the finance minister Nirmala Sitharaman proposed for higher rates of tax deducted at source (TDS) or tax collected at source (TCS) in the 2021 budget. The move has come to include those who hold a PAN card but don’t file their returns. A new section, Sections 206AB and 206CCA, have been proposed in the budget to deduct higher rates of TDS and TCS, respectively.
As per the Act, TDS or TCS will be deducted at twice the applicable rate or 5 percent, whichever is higher. This new proposal will include individuals who have not filed the tax return for the past two years and those whose total TDS or TCS deducted was more than Rs 50,000.
However, there are existing provisions that allow higher rates of TDS or TCS deduction in case PAN card details are not provided. According to section 206AA and 206CC of the Income Tax Act, higher rates of TDS or TCS is applicable for those who have not furnished their PAN details. For instance, if an individual has not furnished his/her PAN details to the bank, then 20 percent TDS will be deducted on the interest earned instead of original 10 percent TDS rate.
More PAN cards are issued to ensure application of these provisions, but the same has not reflected in more people filing their income tax return.
The new move has been introduced to ensure a higher number of people file their tax returns and decrease the number of PAN card holders who do not file their returns.
“In cases where the TDS or TCS provisions were up to 1 or 2 percent, people used to treat it as a cost of business and absorbed it. The increase in the TDS and TCS rate will prevent them from doing so,” Pwc India’s senior tax partner Rahul Garg said.
The new setup is not applicable for transactions like salary income, payment to a non-resident, among others where full amount of tax is required to be deducted.
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