Section 40(a)(iia) of Income Tax Act, 1961 deals with non compliance of provision of TDS where payment is made to a Resident. Any interest, commission or brokerage, Rent, Royalty, fees for professional services or, fees fir technical services payable to a resident, or amounts payable to a contractor or sub-contractor being resident for carrying out any work on which tax is deductible at source and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in section 139(1).

Where the tax has been deducted in any subsequent year,or has been deducted during the previous year but paid after the dude date specified in section 139(1), such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.

Also where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assess in default under the first proviso to section 201(1), the n it shall be deemed that the assessee has deducted and paid the tax on such tax on such sum on the date of furnishing of return of income by the resident payee

It is well established law laid down by the various courts that the deductor shall be treated as an asessee in default only if:

  • Deductor has failed to deduct TDS; and
  • Deductee has also failed to pay the tax directly.

Therefore, we can say, deductor cannot be treated as an assessee in default where deductor has failed to deduct TDS but deductee has paid the tax directly.

The point to be noted here is, these amendments are only for resident deductee and are not applicable where deductor is a Non-Resident.

Also, the amendment to section 201(1) i.e first proviso to Section 201(1) provides as under:

If the deductor fails to deduct the whole or any part of tax in accordance with the Chapter of TDS on the sum paid to the resident; or on the sum credited to the account of a resident, then such deductor shall not be deemed to be an assessee in default in respect of such TDS if:

a) the resident payee has furnished his return of income under section 139.

b) the resident payee has taken into account such sum for computing in return of income and

c) the resident payee has paid the tax due on income declared by him in such return prescribed form.

The deductor has to pay the interest from the date on which such tax was delectable to the date of furnishing of return of income by such resident.

The deductor has to furnish a certificate to this effect from a Chartered Accountant in the prescribed form

Author: Prateek Manocha, student of Institute of Chartered Accountant of India

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Tags : section 40(a)(ia) (204)

0 responses to “Non-Compliance of Provision of TDS where Payment is made to a RESIDENT”

  1. alisha says:

    It should be section 40(a)(ia) not section 40(a)(iia).Thanks

  2. Prateek Manocha says:

    Thank you Mr. Agarwal for completing my article.. I totally agree with you.. Thanks for your valuable information..

  3. k c agarwal says:

    mr PRATK,
    Kindly note that there is one more requirement to get relief under section 201(1). That is as follows

    The deductor has to pay the interest from the date on which such tax was dedutable to the date of furnishing of return of incmome by such resident.

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