“Suppose you are making payment to a contractor. And, when you’re getting the work executed, you’re supposed to deduct TDS at 2% — that’s the normal rate. If I made a payment of ₹ 1 crore, I deducted TDS of ₹2 lakh and deposited it in his account.,” explained Ved Jain, former President of The Institute of Chartered Accountants of India (ICAI) told Business Insider.

“Starting from December 2021-22, I will ask him if he has filed returns for the last two years or not. For years 2018-19 and 2019-20. If he has filed for any of these, I will continue to deduct 2%. But, if he has not filed returns of the last two years, then I need to deduct at 5%,” he said.

This provision has been brought in by Finance Minister Nirmala Sitharaman in the latest budget to tighten the leash on those who haven’t filed their income tax returns. This new provision comes into effect from 1 July 2021.

However, it may be the case that some of the stick may hit those making the payment to the lax taxpayer, and therefore collecting the tax at source. The burden of compliance is on the the person⁠— who may be a prompt filer of returns⁠— deducting the tax.

Team  – Intellex Strategic Consulting Pvt Ltd

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