1. Non-filing of income tax return for each of the two years prior to the current year, in which TDS is required to be deducted, and
2. The total amount of TDS and TCS in his/her case exceeds Rs 50,000 in each of the two prior years.
Let us understand the calculation of higher rates as per the special provision in the below scenarios:
| Particulars | Scenario 1 | Scenario 2 |
| TDS rate as per relevant provisions of the Act (A) | 2% | 10% |
| Twice the rate provided under the relevant provisions of the Act (B = A*2) | 4% | 20% |
| Applicable rate as per special provision – Higher of (B) or 5% | 5% | 20% |
In general, this provision is not applicable for transactions where full amount of tax is required to be deducted, for example, salary income, payment made to non-resident, lottery income, etc.
If the above special provision is applicable to a person, he/she shall qualify as ‘specified person’. From a tax deductor/collector perspective, the income tax department has recently released ‘Compliance Check Functionality’ on https://report.insight.gov.in to identify such specified persons. This would enable the tax deductors/collectors to ascertain the correct amount of tax to be deducted/collected.
In case a person qualifies as a specified person, the additional taxes deducted/collected shall be allowed to be adjusted with the actual tax liability while filing of the income tax return. If the credit of TDS/TCS exceeds the actual tax liability during a particular financial year, refund of such excess TDS/TCS can be claimed in the income tax return.
Also, for individuals having income less than the basic exemption limit, there is no tax liability and requirement to file income tax return. According to the Act, the basic exemption limit for individuals differs based on their age, under the old tax regime. Individuals up to the age of 60 years have a basic exemption limit of Rs 2.5 lakh, individuals between the ages of 60 years and 80 years (i.e., senior citizens) have exemption limit of Rs 3 lakh and individuals above 80 years of age (i.e., super senior citizens) have exemption limit of Rs 5 lakh. In such cases, the taxes deducted/collected could be claimed as refund by filing the income tax return. On the other hand, an individual opting for the new tax regime will have the basic exemption limit of Rs 2.5 lakh, irrespective of his/her age.
From a legal perspective, a person who has obtained a lower deduction certificate from an income tax officer or has submitted a declaration under Form 15G/Form 15H should not fall under the purview of the provision of higher TDS/TCS.
An individual or senior citizen submits Form 15G/Form 15H (as applicable) to avoid deduction of taxes on the income if there is no tax liability in a financial year. Also, from a practical perspective, it is a rare situation that an individual suffering from TDS/TCS of Rs 50,000 in earlier financial years will have income less than the basic exemption limit or have no tax liability. Therefore, they should not fall under the purview of these special provisions. However, no specific exclusions have been provided under the Act for such cases. Hence, a clarification from the Income Tax Department would be helpful on this issue.
The government is trying to bring much-needed change by implementing special provisions for higher TDS/TCS to ensure filing of income tax returns by taxpayers in order to increase the rate of compliance. However, there are few ambiguities in the newly inserted provisions, which needs to be addressed by the tax authorities so that individuals do not face any hardships. These ambiguities include lack of clarity on the applicability of special provision in the cases where the income tax returns are not required to be filed under the Act (such as income below basic exemption limit, senior citizens above 75 years of age provided they satisfy specified conditions, etc.) or where the individuals have procured lower/NIL tax deduction certificate from the income tax officer or submitted Form 15G/Form 15H.
As the tax return filing due date is fast approaching for the financial year 2020-21 (September 30, 2021), it is recommended that, an individual should file his/ her income tax return to ensure continuity of tax records and avoid falling under punitive provisions of higher TDS/TCS. As per the CBDT circular, if a specified person files a valid return of income for the financial year 2020-21, his/ her name would be removed from the list of specified persons.
(The writer is a Tax partner and India Mobility Leader, EY India. Views expressed are personal. Ankur Agrawal, senior tax professional with EY has also contributed to this article.)
