2 Consequence for failure to deduct/collect or payment of tax

Consequence for failure to deduct/collect or payment of tax – Computation of interest

Section 201 of the of the Act deals with the consequences of persons who fail to deduct tax or after deducting, fail to deposit the same to the credit of the Central Government. Sub-section (1A) of the said section provides that if any person who is liable to deduct tax at source does not deduct it or after so deducting fails to pay the same to the credit of the Central Government, then he shall be liable to pay simple interest at the rates specified therein. Similarly, sub-section (7) of section 206C of the Act provides that if any person who is liable to collect tax at source does not collect it or after so collecting fails to pay the same to the credit of the Central Government, then he shall be liable to pay interest at rates specified therein.

2. It has been observed that computation of interest under the said provisions in case where the default for deduction/collection of tax or payment of tax continues is subject matter of frequent litigation.

Consequence for failure to deduct-collect or payment of tax

3. In order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to:

(i) amend sub-section (1A) of section 201 to provide that where any order is made by the Assessing Officer for the default under sub-section (1) of the said section, the interest shall be paid by the person in accordance with the order made by the Assessing Officer in this regard;

(ii) amend sub-section (7) of section 206C to provide that where any order is made by the Assessing Officer for the default under sub-section (6A) of the said section, the interest shall be paid by the person in accordance with the order made by the Assessing Officer in this regard.

4. These amendments will take effect from 1st April, 2022.

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Note on Clauses 60 and 62 of Finance Bill 2022

Clause 60 of the Bill seeks to amend section 201 of the Income-tax Act 1961 relating to consequences of failure to deduct or pay.

Sub-section (1A) of the said section provides that if any person who is liable to deduct tax at source does not deduct it or after so deducting fails to pay the same to the credit of the Government, then, he shall be liable to pay simple interest at the rates specified therein.

It is proposed to insert a new proviso to the said sub-section to provide that where an order is made by the Assessing Officer for the default referred to in sub-section (1), the interest shall be paid by the person in accordance with such order.

This amendment will take effect from the 1st day of April, 2022.

Clause 62 of the Bill seeks to amend section 206C of the Income-tax Act 1961 relating to profits and gains from the business of trading in alcoholic liquor, forest produce, scrap etc.

Sub-section (7) of the said section deals with the consequences of persons who fail to collect tax or after collecting, fail to deposit the same to the credit of the Central Government. If any person who is liable to collect tax at source does not collect it or after so collecting fails to pay the same to the credit of the Government, then he shall be liable to pay interest at rates specified therein.

It is proposed to insert a new proviso to the said sub-section to provide that where an order is made by the Assessing Officer for the default referred to in sub-section (6A), the interest shall be paid by the person in accordance with such order.

These amendments will take effect from the 1st day of April, 2022.

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Extract of Clauses 60 and 62 of Finance Bill 2022

60. Amendment of section 201.

In section 201 of the Income-tax Act, in sub-section (1A), section 201. after the proviso, the following proviso shall be inserted, namely:––

“Provided further that where an order is made by the Assessing Officer for the default under sub-section (1), the interest shall be paid by the person in accordance with such order.”.

62. Amendment of section 206C.

In section 206C of the Income-tax Act, in sub-section (7), section 206C. after the proviso, the following proviso shall be inserted, namely:––

“Provided further that where an order is made by the Assessing Officer for the default under sub-section (6A), the interest shall be paid by the person in accordance with such order.”.

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