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From 1 July, new rules for tax deduction at source (TDS) under Section 206AB have come in effect. Under this new section of the Income Tax Act, non-filers of income tax return (ITR) will be subject to higher TDS rates in case TDS in the previous two years was 50,000 or more.

So, if you did not file ITR for the past two years, your bank may deduct TDS at double the applicable rate now. For example, if a person has earned an interest income of 5 lakh in both the preceding years on fixed deposits with banks and TDS of 50,000 has been made in each year. If he/she has not filed return in each of the two years, tax will now be deducted at double the rate, that is, 20%.

“The tax shall be deducted at twice the applicable TDS rate or at the rate of 5%, whichever is higher," said Tarun Kumar, a New Delhi-based chartered accountant.

“At times, some taxpayers don’t want to get into the hassle of filing an ITR as they may not have any tax liability. But, they may have earned an interest on 5 lakh and their bank may have deducted TDS of 50,000. The taxpayer may not have claimed a refund by filing ITR thinking that it is the tax to be paid to the government," said Prakash Hegde, a Bengaluru-based chartered accountant. In such cases, the bank may deduct TDS at higher rates now, he added.

“Also, it may happen in case of housewives who may not have a regular business or profession but may have received some payment for any job they have done in the previous financial years. If the payor had deducted TDS (of more than 50,000), and she didn’t file ITR and now, if she has earned interest income this year, the bank may deduct TDS at a higher rate," said Hegde.

Banks need to ensure that the person to whom the interest is paid is not a non-filer of ITR. Therefore, taxpayers should file their return of income to avoid TDS at a higher rate. The tax department has made a compliance portal where banks and other entities can check if the person has filed ITR in the previous years or not and the amount of TDS deducted.

“The provisions of Section 206AB override all other provisions of the Income Tax Act. It will apply even if the assessee has lower or nil TDS certificate or he has filed a declaration in Form 15G/15H for non-deduction of tax or is otherwise not liable to file the return of income," said Kumar.

Therefore, it is important that if you are liable to file ITR, you should, as there will be consequences in case of non-filing of ITR. “Even if a person has filed a belated return, he or she will be subject to higher TDS under the new provisions," said Hegde.

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