In Recent past we noticed that department has taken late payment of TDS very seriously and in addition to imposing Interest and Penalty for Late Payment, they also start initiating Criminal Prosecution against those responsible for Deduction and Payment of TDS. Recently and MD of a Hyderabad based company been jailed for TDS payment defaults –  Company’s MD Sentenced 3 months rigorous imprisonment for TDS default.  We are discussing here the consequences of Non Payment or Late Payment of TDS.

A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit it to the credit of Central Government’s account

a) Disallowance of expenditure: As per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

However, if tax is deducted or deposited in the subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.

Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.

b) Levy of interest–  If a person fails to deduct the whole or any part of the tax at source, or, after deducting, fails to pay the whole  or any part of the tax to the credit of the  Central Government  within the prescribed time, he shall be  liable  to action in accordance with the provisions of section 201 and shall be deemed to be an assessee-in-default in respect of such tax and liable for  penal action u/s 221 of the Act. Further Section 201(1A)  lays down that such person  shall  be liable to pay simple interest

(i) at 1% for every month or part of the month on the amount of such tax from the date on  which such tax was deductible to the date  on which such tax is deducted; and

(ii) at one and one-half percent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.

Such interest, if chargeable,  is mandatory in nature and has to be paid before furnishing of quarterly statement of TDS for respective quarter.

c) Levy of Penalty–  Penalty of an amount equal to tax not deducted could be imposed under section 271C. Penalty shall be charged under section 221 if deductor fails to deduct and pay tax to the credit of Central Government. The penalty shall be levied to the extent the Assessing Officer directs, however, the total amount of penalty shall not exceed the amount of tax in arrears.

d) Prosecution: Further, section  276B  lays  down that  if  a person fails to pay to the credit  of  the Central  Government  within  the prescribed  time, as above, the  tax  deducted at  source  by him, he shall be punishable with rigorous imprisonment  for a term which shall be between 3 months and 7 years, along with fine.

Due date for deposit of TDS to the credit of Central Government:

Tax deducted at source shall be deposited to the credit of Central Government in accordance with the following provisions:

1) In case deductor is an office of the Government

Particulars Due Date

a) Where tax is paid without production of an income-tax challan On the same day when tax is deducted

b) Where tax is paid accompanied by an income-tax challan. On or before 7 days from the end of the month in which the deduction is made or income-tax is due under Section 192(1A)

2) In case of any other deductor

Particulars Due Date

a) Where the amount is credited or paid in the month of March On or before 30th day of April

b) In any other case On or before 7 days from the end of the month in which the deduction is made or income-tax is due under sub-section (1A) of section 192

Any sum deducted under section 194-IA shall be paid to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No. 26QB.

Mode of payment of TDS:

Taxes deducted at source shall be deposited to the credit of the Central Government in following modes:

  • 1) E-Payment: E-Payment is mandatory for :
    • a) All the corporate assesses.
    • b) All assesses (other than company) to whom provisions of section 44AB of the Income Tax Act, 1961 are applicable.
  • Physical Mode: By furnishing the Challan No. 281 in the authorized bank branch

Note:

When tax is deducted/collected by government office, it can remit the amount to the Central Government without production of an Income-tax challan and by making only book adjustment. In such a case, it has to furnish Form No. 24G to NSDL with in prescribed time-limit.

(Republished with Amendments)

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