Section 201(1A)- Consequences of failure to deduct or pay TDS
Issue/Justification
As per the provisions of section 201(1A), interest is charged on monthly basis. Even for delay in payment or deduction of tax at source by one day, interest is charged for the whole month.
Under clause (ii) of section 201(1A), interest is payable at the rate of 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. Delay from the due date of payment to the date of actual payment is not considered. e.g. if the tax was deducted on 01/09/2014 the same has to be paid by 07/10/2014. If the tax was paid on 08/10/2014 i.e. only one day delay, interest for the two month will be charged i.e. from 01/09/2014 to 08/10/2014. It is suggested that the delay from the due date of payment to the date of actual payment should be considered for the purpose of calculating interest.
Further, since all the returns of TDS are now days processed electronically and interest is calculated by the computer, there is no procedural hurdle in charging interest on daily basis, in fact charging the same on daily basis will provide relief to the taxpayers. It may be noted that in all the indirect tax laws interest is charged on daily basis. Since the TDS is a routine business work, delay of one-two days in payment is not abnormal and punishing for such delay by charging interest for the whole month may not be appropriate.
Suggestion
It is suggested that interest under section 201(1A) should be charged on daily basis and not on monthly basis or if the interest is to be charged on monthly basis then delay should be rounded off to the nearest month and the present system of considering fraction of month as full month should be dispensed with. It is further suggested that interest under clause (ii) of section 201(1A) should be charged for the delay FROM THE DUE DATE OF PAYMENT TO THE ACTUAL DATE OF PAYMENT.
(SUGGESTIONS FOR RATIONALIZATION OF THE PROVISIONS OF DIRECT TAX LAWS)
