Several thousand stock market investors and individual taxpayers said they have received notices from companies on ‘double TDS’ on dividend and interest income even though they have filed tax returns, and linked their PAN and Aadhaar with their demat and bank accounts. This follows a recent Income-Tax Department TDS diktat.

A recent Central Board of Direct Taxes (CBDT) circular warned of double TDS deduction if a taxpayer does not file returns or has not linked his PAN and Aadhaar numbers. The CBDT has created a database to check on who has complied with the requirement. Bbut, instead of checking this database, companies are putting the onus on shareholders to either file compliance declarations or face double tax. TDS is applicable on interest earned on fixed deposits and dividend on equity holdings above ₹5,000.

“Kindly note that as per Section 139AA of the Income Tax Act,1961 your PAN has become inoperative, as your Aadhaar is not linked with PAN. Accordingly, TDS will be deducted @ 20 per cent w.e.f. July 1, 2021. Also note that if form 15G/H is submitted by you for the current year, the same will now be invalid,” read a communication by a company to a tax filer. BusinessLine has seen several such notices/communication sent by companies to individuals.

“Now the onus is on those earning dividend and interest income to prove that their PAN and Aadhaar are linked. But not everybody knows how to present a proof for this,” said a person who has received such a notice.

With no recourse available as of now, these taxpayers are staring at extra outgo of thousands of crore of rupees, tax experts say. TDS forms nearly 40 per cent of India’s ₹10-lakh crore gross direct tax revenue.

Due diligence of taxpayers

The CBDT recently advised TDS deductors to conduct a due diligence of taxpayers who have not linked their PAN and Aadhaar (residency proof) with their demat and bank accounts. TDS deductors are to check this database and deduct TDS at 20 per cent only for non-compliant tax filers. Since the CBDT database is large, companies are appear to be finding it difficult to isolate the non-compliant individuals under their purview, and hence have been issuing the Double TDS letters indiscriminately.

Considering the significant quantum of the TDS, “Imagine the pain to tax filers even if a part of this is charged at double the rate for no fault of theirs,” a tax lawyer said. Companies will gain a huge float temporarily since most do not immediately deposit the TDS collected with the government.

“The deductors are just insensitive as they are neither giving guidance nor redressing the grievance. Such indiscriminate TDS will deprive liquidity in the hands of retail investors and the investible surplus the government is eyeing will become a dream. Investors will have to wait for refund till the following assessment year after filing returns, another tax expert said.

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