Not filing Income Tax Return (ITR) before the due date is going to be costly for some taxpayers! Higher TDS will become applicable on certain incomes of some taxpayers during the current financial year if s/she missed filing ITR for AY 2021-2022 (FY 2020-2021), according to a new rule under Sections 206AB and 206CCAA. The new rule, which became effective from 1st of April 2022, was introduced through Union Budget 2022. 

The provision to impose higher TDS on non-filers was first introduced through Finance Act 2021. However, as per the previous rule, a non-filer became liable to pay higher TDS on certain incomes after two years. Through a new circular dated May 17th 2022, the Central Board of Direct Taxes (CBDT) has clarified that this time limit has now been reduced to 1 year. 

“…now a person can become a specified person for default in one year instead of earlier provision of default in two years,” the circular said. Income Tax calculation: How tax on leave encashment of salaried employees is calculated

The last date to file ITR for FY 2020-21 was December 31, 2021.

The “specified person” as defined in the new circular is 

• Someone who has not furnished the return of income for the assessment year relevant to the previous year immediately preceding the financial year in which tax is required to be deducted/collected. The previous year to be counted is required to be the one whose return filing date under sub-section ( I) of section 139 has expired. 
• Someone whose aggregate TDS and TCS is more than Rs 50,000 in the previous year.

Commenting on the new circular, Sanjay Kumar, Partner, Deloitte India, said, “This circular is going to help the taxpayers in determining the non-filers and remove difficult in interpretation of the compliance provisions. Such circulars are beneficial to the taxpayers who file their tax returns in time, dutifully.”

The circular further said that the definition of “specified person” does not include someone whose aggregate of TDS and TCS in 2021-2022 is less than Rs 50,000. 

The “specified person” definition also does not include a non-resident who does not have a permanent establishment in India. 

“Belated and revised TCS & TDS returns of the relevant financial year filed during the financial year 2022-23 would also be considered for removing persons from the list of specified persons on a regular basis,” the circular said.