The Minister of State for Commerce & Industry (Independent Charge), Smt. Nirmala Sitharaman addressing a press conference, in New Delhi on October 14, 2016.
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Bengaluru, NFAPost: With the announcement of Union Budget 2021, the finance minister Nirmala Sitharaman has introduced higher rates of tax deducted at source (TDS) or tax collected at source (TCS) to encourage more people to file their income tax returns in stipulated time.

Several PAN card holders have been found skipping their IT returns, despite allowing the new provision of issuing more PAN cards to facilitate an easy process for all the eligible tax payers.

Consequently, the budget has proposed new policy change under sections 206AB and 206CCA to deduct higher rates of TDS and TCS, respectively.

As per the change, TDS or TCS deductions will be twice the applicable rates or 5 per cent, whichever is higher. This new proposal applies to individuals who have not filed the tax return for the past two years and whose total TDS or TCS exceeds ₹50,000.

Nevertheless, the existing provisions enforce higher rates of TDS or TCS deduction rates when PAN details are not declared. According to section 206AA and 206CC of the Income Tax Act, higher rates of TDS or TCS will apply 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 per cent TDS will be deducted on the interest earned instead of the original 10 per cent TDS rate.

Although more PAN cards are issued to ensure the application of these provisions, it 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 cardholders who do not file their returns.

“In cases where the TDS or TCS provisions were up to 1 or 2 per cent, 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 provision for TDS is not applicable for transactions like salary income, payment to a non-resident, among others where the full amount of tax is required to be deducted.

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