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Collecting TDS from employees and not transferring it to the income tax (I-T) department has become a common practice, as the department discovered last week during a series of surveys on firms specialising in producing TV programmes.

The survey was carried out to verify whether tax was deducted under the provisions of tax deducted at source (TDS). While examining documents, the department found out that in several cases, companies have defaulted in transferring TDS to the I-T department, even though tax was deducted by employers from the parties concerned. Most of those who commit such an offence are unaware that it is an offence punishable under Section 276 (B) of the Income-Tax Act, with a jail term ranging from three months to seven years, said an I-T official .

Even though the law stipulates that employers are duty-bound to pay to the department within one month of collecting TDS from the employees or parties concerned, many companies chose to default, in order to keep the cash with them as long as possible. The I-T department finds this practice unacceptable since the TDS component of the total tax collection usually exceeds 35-40%.

“This is a major crime. Once the tax is deducted from the parties concerned, it is the department which has the right over it, not the employer. The latter is duty-bound to pay it to the department. Not doing so is a criminal offence that can attract a jail term of three months to seven years, depending on the scale of the crime,” said another I-T official.

In another survey on a TV company specialising in reality shows, the I-T sleuths have detected a case of underpayment of TDS. Instead of deducting TDS at the rate of 10 % (now raised to 20%) under Section 194(J) of the I-T Act that deals with tax on professional and technical fees, this company has deducted TDS at the rate of 2% under Section 194(C) of the I-T Act, which mostly deals with contract fees.

In another case, a company specialising in post-production activities, such as editing and special effects, deducted tax at the rate of 10% under Section 194(J) dealing with technical fees. The payments were made to skilled professionals hired on a regular basis. The I-T department believes 30% tax should have been deducted from these payments instead of 10%.

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April 2024