Paying taxes may look complicated to some. They may not file returns intentionally or unintentionally. To solve this problem, the government proposed a solution. ‘Don’t bother the people! Collect taxes from the payer instead.’ And this led to the introduction of TDS.
What’s more, the government has implemented a new rule which may force people to file their returns. In short, the government was like: Either file your returns or pay two times the amount of tax!
Before learning more about the new rule, let’s understand the concept of TDS first.
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What is TDS?
Tax is the most vital source of revenue for the government. But people may not pay tax. It may affect the spending of the government. Overall, it can hamper the progress of the nation.
To avoid this situation, the government introduced the concept of Tax Deducted at Source (TDS). As the name suggests, it means deducting the tax while making specific payments by the payer, i.e., the source of the transaction. Generally, tax is levied on the income received by a person. Through TDS, the payer deducts the tax and remits you the remaining amount. He directly deposits the tax into the government account.
Let’s understand it with an example.
Suppose you receive interest of Rs 1 Lakh in the preceding year. And TDS is applicable at 10%. In this case, the bank will deduct Rs 10k on your behalf and pay you Rs 90k. Then, it deposits Rs 10k into the government account.
Deduction of TDS
The Income Tax Act, 1961 specifies the payments which are liable for a tax deduction. It’s a very long list. So we won’t bore you with the same. You can read about it on the Income Tax Portal if you want.
Deposit of TDS
Merely deducting the tax won’t do any good to the payer. He will have to deposit the tax to the government as well. If he doesn’t do the same, the tax amount may be added to the income. So, he will have to pay tax on TDS as well! Also, he has to pay penalties and fines as applicable.
The due date for depositing the tax is the 7th of the subsequent month. But the government knows about the work pressure in March. That is why the time limit is 30 days. Hence, the payer will have to deposit the tax by 30th April. You can deposit the tax either online or physically.
TDS Returns
Besides deducting and depositing the tax, you have to file TDS returns as well. It is a massive workload, isn’t it? But you can’t do anything about it.
Anyways, filing quarterly returns is necessary for tax deductors. The Income Tax Department has prescribed the forms for filing the returns. The time limit is 30 days from the end of the quarter except for 31st May in Q4 (January to March).
TDS Certificates
If you think that the role of the tax deductor ends here, you are misled. Besides filing TDS returns, you will have to issue a certificate to the assessee from whose income you deduct the tax. The government has prescribed specific forms for various transactions. Generally, the tax deductor has to give the certificate within 15 days of the transaction.
TDS is linked to the PAN Number of the receiver. After all, how will the government identify the deductee of tax, if not for this unique ten-digit code?
Form 26AS contains the details of the tax deducted. It is available to every PAN holder. Hence, it makes you aware of the tax already deducted. Based on it, you can take credit for the tax already deducted. So, you can plan your taxes accordingly. And try to make them as low as possible.
New TDS Rules
From July 1, 2021, the government has implemented new TDS rules to encourage people to file Income Tax returns. If a person didn’t file the return for the past two years, he will have to bear higher rates of tax.
To identify the defaulters, the government has developed a utility tool called ‘Compliance Check for Section 206AB and 206CCA.’ The tax deductors can search PAN individually or in bulk to check the compliance status of the assessees. If the person is a defaulter, he will have to face higher TDS Rates.
Applicable Rates
The applicable rate will be higher of the following:
- Double the rate specified in the relevant provision of the Income Tax Act
- Double the rates in force
- 5 percent
Non-Applicability
You don’t have to worry about it if less than Rs 50k is deducted. Of course, it won’t be applicable if you have filed your Income Tax Returns regularly.
The provision is not applicable for TDS deducted on Salary, Lottery, Horse Race, PF, and cash withdrawals.
But it wasn’t such that the government announced the new rule out of the blue. They had it in mind since the Budget 2021.
The Bottom Line
The government introduced TDS to prevent tax evasion. It merely changes the taxpayer. But the ultimate effect remains the same. Various provisions are made for deduction and deposit of tax to ensure that the government receives the tax deducted on a timely basis.
New TDS rules are being implemented from 1st July 2021. It states that higher rates of TDS and TCS will be applicable for people who haven’t filed their Income Tax Returns. It is to encourage the filing of returns.
If it is implemented successfully, the day isn’t far when the number won’t be limited to just 4% of the population!
