What Is New TDS Rule And How Does It Affect NRIs?

Under a new tax rule that came into effect from July 1, 2021, those who have failed to file income tax for the past two financial years will be subjected to higher taxation. These non-filers of income tax would have to bear higher tax deducted at source (TDS) and tax collected at source (TCS) if tax deduction amounted to Rs 50,000 or more in each of the past two years. 

The Central Board of Direct Taxes has introduced a utility tool known as the Compliance Check for Section 206AB & 206CCA to enforce the rule. With the toll easing the compliance burden of tax deductions, it will be easy to use this functionality to identify non-filers. 

Read More: A Peek Into Investment Opportunities And Tax Implications For NRIs

“To ease this compliance burden, the Central Board of Direct Taxes has issued a new functionality. Compliance Check for Sections 206AB & 206CCA. This functionality is already functioning through reporting portal of the income tax department,” CBDT was quoted as saying

The tax deductor can use the tool to either conduct a single PAN or permanent account number search or a bulk search. 

When it comes to the case of a single search, the dedicator can get income tax return filing information on the portal about a particular person. One can also download the data in PDF format. 

Further, a bulk search involving multiple PANs can be conducted — the results of which one can download in the form of a file. 

However, the tax deductors and collectors will have to check the functionality of the PAN of the vendor. TDS is to be deducted from the vendor at the beginning of the year. The deadline has been extended to July 15 for those taxpayers who have not filed TDS for the last quarter of the financial year 2020-21. 

Here’s what the new TDS rule is: According to the CBDT, people who have not filed income tax returns for two years will be faced with a higher TDS or TCS rate. For them, DS or TCS will be charged at double the specified rate in the relevant provision of the Income Tax Act or 5 per cent. 

The provisions of this section do not apply to salary, winnings from lottery or crossword, horse race, trust income and cash withdrawals. It will be applicable to TDS deductions on resident payments like shareholder dividends, service payments to vendors, rent. 

If non-resident Indians (NRIs) do not have a permanent establishment in India, a higher TDS rate is not applicable. 

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