SECTION 201 – CONSEQUENCE OF FAILURE TO DEDUCT OR PAY
Non-initiation of penalty and prosecution proceedings in certain cases of defaulters under Chapter XVII-B
It has come to the notice of the Board that some of the employers, including foreign companies operating in India, have been defaulting in deducting tax at source as required under section 192, on the salaries and allowances paid abroad, or perquisites provided abroad, to their employees for services rendered in India. In some cases, tax might have been deducted at source, but not remitted to Government. All payments and perquisites to employees for services rendered in India are taxable in India irrespective of the place where the payment occurs. The employers are, therefore, liable to deduct tax at source even on payment of salary, allowances and perquisites paid or provided abroad to their employees who have rendered service in India. They are also required to remit such deducted tax to Government. Failure to comply with these requirements would render the employer an assessee in default, and would attract interest under section 201(1A). Penalties under sections 221 (assessee in default) and 271C (failure to deduct tax) are then leviable and prosecution proceedings under section 276B can also be initiated in such cases.
2. To encourage immediate voluntary compliance, the Board has decided that proceedings under sections 221 and 271C for levy of penalties and proceedings under section 276B for prosecution need not be initiated in cases where an employer voluntarily comes forward and pays the whole of the tax due under section 192, along with interest liability under section 201(1A) on or before July 31, 1994.
3. Employers (Indian and foreign), who committed default in the past are advised to make use of this opportunity to pay up arrears of TDS (tax deductible at source) together with interest on or before 31-7-1994 and avoid penalty and prosecution proceedings.
4. Wide publicity may be given regarding this opportunity.
5. From 1-8-1994, penalty provisions under sections 221 and 271C and prosecution provisions under section 276B will be strictly implemented according to law.
Circular : No. 685, dated 17-6-1994.