How to Save Fee Leviable U/S. 234E for Late / Non Filing of TDS Returns

CA Sharad Jain

1. Introduction:

According to the provisions of Section 234E of the Income Tax Act (“Act”), a fee for late / non filing of the TDS Return is leviable at the rate of Rs. 200 per day for the period of failure (Not more than the amount of TDS).

According to the author, it is seen that in various cases, it is levied merely due to – (i) the filing of wrong information in the TDS return (due to some misconceptions) and / or ; (ii) due to filing of TDS return for the wrong quarter. The author believes (and has practically experienced many time) that in many cases (not in all cases) the above fee can be saved / minimized to a considerable extent by correct filing of the TDS returns.

2. Cases Where Late Fee Is Levied / Levied At Higher Amount Due To Wrong Filing Of Tds RETURN:

This article is related only to those situations / cases – (i) where TDS is deducted later on, after the expiry of the due date for filing of TDS return for the relevant quarter and ; (ii) where no TDS return (in related form 26Q / 24Q) has been timely filed for that quarter (for any other transaction also). It does not deals with other situations / cases.

2.1 Example Of Cases Not Covered By This Article:

For example, if non deduction of TDS on interest (in first quarter) is detected later and the TDS return (in Form 26Q) for the first quarter has already been filed in respect of other transactions say for contract payments (Section 194C), then such cases are not covered by this article because in those cases the timely filed TDS returns can be simply revised and details of the later TDS made relating to the interest may be easily filed therein (without any levy of late fee under Section 234E).

2.2 Example Of Cases Covered By This Article:

For example, many times it happens that transactions are entered into throughout the year but no TDS is made and no TDS return is filed. Later on, at the year end at the time of finalization of accounts or during the course of audit, the default is detected and then TDS for the transactions for the whole year is deducted and deposited and separate returns for all the relevant quarters (almost for the all the four quarters in many cases) are filed belatedly. In the TDS return, generally the date of deduction of TDS is mentioned similar to the date of transactions and the period of TDS return for any transaction is determined on the basis of date of transaction (e.g., date of payment / credit of interest, commission etc.). Thereafter, the late fee U/s. 234E is levied by the Income Tax Department in respect of all the four quarters at heavy amount.

3. Some General Misconceptions / Practices Leading To Incorrect Filing Of TDS Returns And Correct View:

3.1 Misconception As To Date Of Deduction Of TDS:

According to the author, it is a general misconception that the date of deduction of TDS and the date of transaction (i.e., the date of credit / payment to the payee), should always remain same in the TDS Return. Due to this misconception, in many cases even though the TDS is deducted later, the date of deduction is mentioned in the TDS return as same as that of the date of the transaction (instead of actual date of deduction).

For example, if the date of transaction is 1^st April, 2018 and the TDS is deducted as on 31^st March, 2019, the date of deduction is mentioned in the TDS return as 01^st April, 2018 and not 31^st March, 2019 (due to above misconception).

According to the author, in such cases, this misconception is one of the reason for levy of unnecessary late fee / more late fee under Section 234E. If the actual / most logical date of deduction of TDS will be mentioned in the TDS return (also in the books of account), this will be helpful in saving unnecessary late fee / higher late fee (explained in later paras).

3.1.1 Reason Behind The Misconception As To The Date Of Deduction:

Generally, the date of deduction and the date of transaction are shown as same in the TDS return (even when deduction is made on some later date), because of fear of levy of penalty U/s. 271C. According to Section 271C, a penalty equal to the amount of TDS is leviable if there is any delay in deduction of TDS. If in such cases, actual later date of deduction is mentioned in TDS return, the above penalty may be leviable.

3.1.2 Adverse Consequences Of Mentioning Wrong Date Of Deduction:

According to the author, though by mentioning the date of transaction and the date of deduction as same (even when they are not same), one can save penalty U/s. 271C but at the same time there may be other more serious and adverse consequences of the same.

First of them is initiation of prosecution U/s. 276B for late deposit of TDS (Imprisonment up to 7 years with fine) for which no appeal is there. Suppose date of transaction is 1^st April, 2018 and actually TDS is deducted and deposited on 31^st March, 2019. Here actually there is a delay in deduction of TDS (subject matter of penalty U/s. 271C) and no delay in deposit of TDS. But when the date of deduction is wrongly mentioned as 01^st April, 2018 itself then the TDS return will show delay in deposit of TDS (i.e., from 7^th May, 2018 to 31^st March, 2019) for which prosecution may be initiated.

Secondly, Levy of fee U/s. 234E (for which no reasonable cause etc. plea are available). As against this, if the correct date of deduction is mentioned then the prosecution and late fee / higher late fee U/s. 234E may not be attracted. It is also mentionable here that even if the correct later date of deduction is mentioned then also in appropriate cases the penalty U/s. 271C may not be leviable (as the same is appealable and is not to be levied where reasonable cause U/s. 271B is there).

3.2 Misconception As To The Quarter Of TDS Return For Particular Transaction:

According to the author, it is also a general misconception that the quarter for the TDS return for any transaction is to be determined on the basis of the date of transaction. Due to this misconception, in cases where the TDS is deducted in later periods, the TDS return is filed for the earlier quarters (based on the date of transaction). In such cases, the TDS return filed naturally becomes delayed and becomes subject to late fee / higher late fee.

However, according to the author, as per the provisions of section 200(3) read with rule 31A, the TDS return is to be filed for the quarter based on the date of deduction of TDS and not based on the date of transaction. If the same is done, the late fee under Section 234E may be completely saved / minimized.

3.2.1 Relevant Provisions Of Section 200(3) And Rule 31A:

The relevant part of the same are mentioned as under:

“Duty of person deducting tax.

200.(3) Any person deducting any sum on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this Chapter or, as the case may be, any person being an employer referred to in sub-section (1A) of section 192 shall, after paying the tax deducted to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed:”

‘[Statement of deduction of tax under sub-section (3) of section 200.

31A. (1) Every person responsible for deduction of tax under Chapter XVII-B, shall, in accordance with the provisions of sub-section (3) of section 200, deliver, or cause to be delivered, the following quarterly statements to the Director General of Income-tax (Systems) or the person authorised by the Director General of Income-tax (Systems), namely:—

(a) Statement of deduction of tax under section 192 in Form No. 24Q;

(b) Statement of deduction of tax under sections 193 to 196D in—

(i) Form No. 27Q in respect of the deductee who is a non-resident not being a company or a foreign company or resident but not ordinarily resident; and

(ii) Form No. 26Q in respect of all other deductees.”

3.2.2 Implication Of Section 200(3) And Rule 31A:

According to the author, simultaneous reading of section 200(3) and Rule 31A implies that quarterly statements are to be filed for “deduction of tax” i.e., for tax deducted in the concerned quarter. It means in every quarterly statement the details are to be given regarding the TDS which has been deducted in that quarter. For example, if TDS for transactions made from April, 2018 to March, 2019 has been deducted in the month of March, 2019 then the entire transactions from April, 2018 to March, 2019 may have to be reported in the single return for quarter 4^th. There may not be any need for filing of belated TDS returns for the First, second and third quarter for transactions pertaining to those quarters.

The present prevailing practice (under misconception) is to file TDS returns based on the transactions (i.e., payment / credit) entered in to a particular quarter. According to that in the above example, four different TDS returns are required to be filed for all the four quarters of the year. However according to the author, the language of Section 200(3) and Rule 31A do not contain the words such as “Quarterly Statement Of Transactions On Which TDS Has Been Deducted”. Therefore, the present prevailing practice may not be correct and in accordance with the law.

4. Practical Example: Suppose payment to contractor is made throughout the year i.e., from the month of April, 2018 to March, 2019. No TDS is made and no TDS return is filed throughout the year. In the year end at the time of finalization of accounts the default came to the knowledge and TDS is deducted and deposited on 31^st March, 2019. In such situation, the position of various factors can be analysed as under:

4.1As Per Prevailing Practices:

4.2 As Per View Expressed In This Article:

Now, according to the author, in such case, the TDS return is to be filed only for the quarter 4 mentioning (i) actual date of transaction (i.e., even the transactions of April, 2018 will be mentioned in the return for the quarter of January 2019 to March, 2019) and (ii) the actual date of deduction of TDS, say 31^st March, 2019. In this case, there may not be any delay in filing of the TDS return (if filed so) and as such no late fee under Section 234E will be leviable.

4.3 Technical / Software Problem and Solution: Many times the return preparation software shows error in generating the e file to be uploaded. However, if the error is ignored and the preparation of e file is kept continued, the generated e file (even though with error message) can be actually submitted. The author is practically submitting successfully, the TDS returns from last many years on the basis of above concept.

4.4 Situation When Non Deduction Of TDS Is Determined After The Year End:

In cases, where the non deduction of TDS is determined after 31^st March, 2019 say during the course of audit etc. e.g., in September, 2019 then in such case the actual date of deduction will be after the end of the financial year. In such case the most logical actual date of deduction will be 31^st March, 2019. If any later date is attempted to be mentioned e.g., of September, 2019 the same will not be practicable as the Financial Year itself will be changed. The same may not be supported by the return preparation softwares as well as by the departmental / NSDL website. Further, due to the change of the year, the deductees may also not get credit for TDS in the correct assessment year. Further, the above treatment (i.e., year end date) is also logical as it is a well established practice that all the errors and omissions pertaining to the transactions during the year are corrected as at the end of the year. In such cases the position may be as under:

(Note: In such case, delay in deposit of TDS will appear on the face of the TDS return. However, in probable prosecution proceedings the deductor may take plea that actually there is no delay in deposit. Since it was not possible to submit TDS return by mentioning correct date of deduction, therefore, the year end date i.e., 31^st March, 2019 has been mentioned as date of deduction in TDS return. Screen shots of error messages shown by the return preparation softwares for later date may also be preserved as evidence.)

4.5 Other Practical Situations:

There may be many other practical situations in which late fee can be saved / minimized by filing correct information in TDS return in the manner as mentioned above.

5. Relevant Income Tax Sections And Rules:

Fee for default in furnishing statements.

234E. (1) Without prejudice to the provisions of the Act, where a person fails to deliver or cause to be delivered a statement within the time prescribed in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C, he shall be liable to pay, by way of fee, a sum of two hundred rupees for every day during which the failure continues.

(2) The amount of fee referred to in sub-section (1) shall not exceed the amount of tax deductible or collectible, as the case may be.

(3) The amount of fee referred to in sub-section (1) shall be paid before delivering or causing to be delivered a statement in accordance with sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C.

(4) The provisions of this section shall apply to a statement referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012.

Penalty for failure to deduct tax at source.

271C. (1) If any person fails to—

(a) deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or

(b) pay the whole or any part of the tax as required by or under—

(i) sub-section (2) of section 115-O; or

(ii) the second proviso to section 194B,

then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid.

(2) Any penalty imposable under sub-section (1) shall be imposed by the Joint Commissioner.

Failure to pay tax to the credit of Central Government under Chapter XII-D or XVII-B.

276B. If a person fails to pay to the credit of the Central Government,—

(a) the tax deducted at source by him as required by or under the provisions of Chapter XVII-B; or

(b) the tax payable by him, as required by or under—

(i) sub-section (2) of section 115-O; or

(ii) the second proviso to section 194B,

he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.

Duty of person deducting tax.

200. (1) Any person deducting any sum in accordance with the foregoing provisions of this Chapter shall pay within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.

(2) Any person being an employer, referred to in sub-section (1A) of section 192 shall pay, within the prescribed time, the tax to the credit of the Central Government or as the Board directs.

(2A) In case of an office of the Government, where the sum deducted in accordance with the foregoing provisions of this Chapter or tax referred to in sub-section (1A) of section 192 has been paid to the credit of the Central Government without the production of a challan, the Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer or any other person, by whatever name called, who is responsible for crediting such sum or tax to the credit of the Central Government, shall deliver or cause to be delivered to the prescribed income-tax authority, or to the person authorised by such authority, a statement in such form, verified in such manner, setting forth such particulars and within such time as may be prescribed.

(3) Any person deducting any sum on or after the 1st day of April, 2005 in accordance with the foregoing provisions of this Chapter or, as the case may be, any person being an employer referred to in sub-section (1A) of section 192 shall, after paying the tax deducted to the credit of the Central Government within the prescribed time, prepare such statements for such period as may be prescribed and deliver or cause to be delivered to the prescribed income-tax authority or the person authorised by such authority such statement in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed:

Provided that the person may also deliver to the prescribed authority a correction statement for rectification of any mistake or to add, delete or update the information furnished in the statement delivered under this sub-section in such form and verified in such manner as may be specified by the authority.

Disclaimer: The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author do not owns any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article.