Facing higher TDS due to non-filing of ITR? Here's how to get out of the list

As of July 1, 2021, those who did not file income tax returns (ITR) for the fiscal year 2018-2019 and fiscal year 2019-20 and the total taxes payable and TCS in each of these Fiscal years will face Rs 50,000, more in total tax refunds. / TCS on most unpaid income.

The Income Tax Department has created a list of persons (called Specified Persons) to whom this higher rate of TDS and TCS will be applicable. The deduction of taxes like banks, mutual funds, corporations, etc. You can check if a higher tax will be deducted from the interest/dividends paid to an individual. This list can be found here: https://report.insight.gov.in. by the deductors.

Now, can the person to whom the highest VAT applies to remove his name from the list of specified persons? Yes, that person can remove the name from her list and avoid a higher TDS / TCS for the rest of the months of the fiscal year. This can be done by filing an ITR for the 2020-2021 fiscal year.

The Income Tax Department issued a circular on June 21, 2021, stating that if a person files an ITR for the 2020-21 fiscal year, his/ her name will be removed from the list and the highest TDS / TCS already will not apply to him/her. Additionally, a person can also remove his/her name by submitting an ITR for the 2018-19 fiscal year or the 2019-20 fiscal year. However, the deadline for ITR filing for fiscal years 2018-2019 and fiscal year 2019-20 has passed.

According to the circular, "If a specific person files a valid income declaration (filed and verified) for the Fiscal year 2021-22, their name will be removed from the list of specified people. This will be done on the declaration filing deadline date of revenue for AY 2021-22 or the actual filing date for valid recognition (filed and verified) whichever is later. 

Sachin Vasudeva, a practicing public accountant, says:  "Section 206AB provides that a person who has not filed his return of income for two consecutive assessment years preceding the relevant previous year in which tax has to be deducted, would become a specified person provided his aggregate tax deducted at source is more than Rs 50,000 in each of those assessment years. Accordingly, if a person has not filed his/her return for FY 2018-19 and FY 2019-20, such a person would be a specified person. If such person files his return for FY 2020-21, then his/her name would be removed from the list of specified persons for FY 2021-22 as returns for one assessment year prior to FY 2021-22 would have been filed by such person."

The last date to file ITR for the fiscal year 2020-21 is September 30, 2021. Vasudeva says:  "The individual will be excluded from the specified list only after the later of the two events, filing and verification of income tax return or expiry of the due date of filing the return (September 30, 2021). Till such exclusion, the person would be a specified person."

So, once you've submitted your ITR for FY2020-21, be sure to review it as well. Her name will be removed from the nominee list after September 30, 2021, provided you have submitted and verified her ITR by then.

Sudhakar Sethuraman, Partner at Deloitte India says: "The new law emphasizes the importance of filing a valid return of income for the financial year 2020-21 which is due by September 30, 2021, for individual taxpayers and November 30, 2021, for individual taxpayers whose accounts are required to be audited. In addition, it is imperative that the ITR-V is electronically verified or sent to the Centralized Processing Centre, Bengaluru manually for the return of income to be treated as valid. If the ITR is filed but not verified, then the individual's name would not be removed from the specified person list. The deductor will continue to deduct TDS at higher rates."

What happens if you file a late ITR?

Sethuraman says, "There is no clarity whether a belated return filed and verified after the expiry of the original ITR filing deadline can be treated as a valid return. This is because the first condition to not be treated as a specified person requires taxpayers to file the ITR as per the time limits specified under section 139 (1) [Currently September 30, 2021] whereas, for the FY 2020-21, it is given that ITR can be filed by the specified persons even after the expiry of original ITR filing deadline."

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