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Penalty on Non deduction, late deduction and late deposit of TDS

Non deduction, late deduction and late deposit of TDS may lead you to face following consequences:

      1. Interest on late deduction /deposit of Tax at source.
      2. Dis-allowance of Expenses, on which tax has not been deducted /deposited u/s 40(a)(ia)            
      3.  Penalty and prosecution.(271C and 276B)

I. Interest on late deduction and delayed deposit of TDS

As per income-tax , interest is payable under the following two circumstances:

  1. Tax is not deducted , when it was deductible
  2. Tax once deducted, is not paid on or before due date

Rate of interest

W.e.f 01-07-2010

  • From the date when TDS was deductible till date of actual deduction,rate of interest is 1% p.m.
  • For delayed deposit, from date of deduction till actual date of payment, rate of interest is 1.5% p.m

 Prior to 01-07-2010

From FY 2006-07 onwards for delayed deposit, from date of deduction till actual date of payment, rate of interest is 1.0% p.m

Due date of payment of interest

Interest must be calculated and paid before filing of eTDS statement of the quarter:

Quarter 1 – Jul-15

Quarter 2 – Oct-15

Quarter 3 – Jan-15

Quarter 4 – May-15

Calculation of Interest

  1. Interest is to be calculated for every month or part of a month comprised in a period, 
  2. Any fraction of a month shall be deemed to be a full month 
  3. The amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees and 
  4. for this purpose any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.

One Day delay may charge you Interest @ 3 %

II. Dis allowance of Expenses due to non payment of Tax deducted at source or non deduction of Tax

 Section 40(ia):  Following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,

  1. any interest,or
  2. commission or
  3. brokerage or
  4. rent or royalty or
  5. fees for professional services or 
  6. fees for technical services payable to a resident, or 
  7. amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), 

on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid.

Expense allowed if tax deposit before the due date of deposit Income Tax return : if Tds is not deposited with due date but deposited on or before the due date specified in sub-section (1) of section 139 then expenses will not be disallowed.

Expenses will be allowed in actual year of tds deposit : Where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.

Rationalisation of the provision relating to dis allowance of expenditure under Section 40(a)(ia):

The amendment for Rationalisation of the provision relating to dis allowance of expenditure under Section 40(a)(ia) is in consequence of the amendment in Section 201. As per the amendment if the payer fails to deduct the whole or any part of the tax as per the provision of Chapter XVII-B on the amount paid 

to any resident payee, the payer shall not be deemed to an assessee in default in respect of such tax, if the following conditions are satisfied:

  • (a) The payee has furnished his return of income under Section 139;
  • (b) He has included such income in the return of  income;
  • (c) He has paid the tax due on the income declared in such return of income 
  • (d) The payer furnishes a certificate of chartered accountant in form 26A(download link given below)

The date of payment of taxes by such payee shall be deemed to be the date of filing of his return of  income.

 Accordingly, as per the  amendment in Section 40(a)(ia) where an assessee fails to deduct whole or part of tax at source on any sum but is not deemed to be an assessee in default under Section 201(1), then for the purpose of Section 40(a)(ia) the assessee shall be deemed to have deducted and paid the tax on such sum on the date of filing of the return of income by the resident payee and therefore, no dis allowance under Section 40(a)(ia) shall be made.

 III. Penalty for failure to deduct tax at source.

 Section 271C. If any person fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B 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.This penalty is imposable by Joint Commissioner.

Prosecution for failure to deduct /deposit tax at source

Section 276B. If any person fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B then, such person 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.This penalty is imposable by Joint Commissioner.

 

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  • Manjunatha H says:

    Dear Sir/Madam,

    Very useful information.

    Thanks & Reg
    Manjunatha H

    July 16, 2013 at 9:36 am
  • shanavastn says:

    My salary amount has been depositedas fd. This amount is after taxation. Is th fd again taxable. My annual tax is arou
    nd 1 lakh a year

    July 17, 2013 at 2:59 pm
    • TDSMAN says:

      Dear Sir,

      You need to consult this with your Tax professional as he can study you case in depth and give you the correct advise on this.

      July 22, 2013 at 5:52 am
  • Dilip says:

    Very useful and nice information in a simple way. Please keep updating like this. Thank u very much….

    August 12, 2013 at 8:18 am
  • surajdeep says:

    Dear Sir/Madam,

    Very useful information.

    Thanks & Reg

    surajdeep

    August 26, 2013 at 5:02 am
  • praveen says:

    Deductor has deducted TDS every month from June 2012 to March 2013 and is presently deducting 10 % every month.
    Till date i have not received Form 16 for 2012 – 13 and it is also not reflecting in the 26 AS.

    How to file returns without Form 16?
    How to get form 16 from the employer?

    September 21, 2013 at 10:29 am
    • TDSMAN says:

      Dear Sir,

      You have to contact your deductor to ensure whether he has done the correct filing of the TDS return.

      October 3, 2013 at 1:26 pm
  • praveen says:

    are there any legal ways to get Form 16 if existing employer is not giving Form 16 of previous year. Deductions are happening every month till date.

    September 21, 2013 at 10:32 am
    • TDSMAN says:

      Dear Sir,

      There should be some legal ways. You can also write a complain letter to the department and mark carbon copy to your employer.

      October 3, 2013 at 1:25 pm
  • TDSMAN says:

    Dear Sir,

    Please refer to the following post for the solution of your query >> http://blog.tdsman.com/2013/08/interest-on-late-deposit-of-tds-3-for-delay-of-one-day/

    September 27, 2013 at 12:59 pm
  • SIMA says:

    nice information given by u…..
    I HAVE ONE QUARRY THAT ON APRIL I HAVE NOT DEDUCTED TDS BECAUSE AT THAT TIME I WAS NOT AWARE ABOUT THAT, BUT DURING SEP. MY AUDITOR HAS FIND THE QUARRY THAT I HAVE TO DEDUCT TDS ON THE BILL OF APRIL… NOW SITUATION IS SUCH THAT WHAT SHOULD I DO FOR NOT PAYING AMOUNT U/S 234E.. PLZ REPLY ME…

    November 18, 2013 at 3:31 pm
    • TDSMAN says:

      Dear Sir,

      As per the system, you have to pay. Contact your auditor for advise.

      December 27, 2013 at 2:15 pm
  • jyothi k says:

    what is additional late payment interest against the processing of latest correction I filed that last one year back interest late payment.I recieved notice for correction please let me know what can I do,,

    December 17, 2013 at 5:26 pm
  • SAJAN says:

    i am working in afinancial institution. We have deducted tds from payment of commission from our branch(on 07/08/13 Rs 1500). Usually we are sending the credit note to HO and tax is remitted from HO. But we are not able to send credit note till date to HO so that tds was not remitted What will be the penalty Please reply

    December 18, 2013 at 2:39 pm
  • Nagarajappa K S says:

    Which section we have to select the TDS late filing fee U/s234E

    December 20, 2013 at 6:02 pm
  • namrta says:

    Dear Sir,

    for paymnet of interest on late payment of tds , what will be the type of payment and section.

    kindly reply its urgent

    January 18, 2014 at 1:59 pm
  • MOHIT JAIN says:

    for the A.Y. 2013-14 …My tds didn’t reflect at the time of filling of return in the Form 26AS , it was of tranasction date april-june 2012 but reflected in form 26AS now on booking date 20 dec 2013 . I got refund ofthe year already but this tds was included in that amount .
    what should I do now ?

    January 19, 2014 at 5:06 pm
  • AJIT says:

    I have deducted less tds in certain parties, in the month of July, Oct 2013. How can I pay the balance tds amt to Govt with interest(Calculation reqd) or is their any penalty.

    February 14, 2014 at 6:07 pm

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