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 etds filing 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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30 thoughts on “Penalty on Non deduction, late deduction and late deposit of TDS

  1. shanavastn

    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

    Reply
    1. TDSMAN Post author

      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.

      Reply
  2. praveen

    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?

    Reply
    1. TDSMAN Post author

      Dear Sir,

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

      Reply
  3. praveen

    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.

    Reply
    1. TDSMAN Post author

      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.

      Reply
  4. SIMA

    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…

    Reply
  5. jyothi k

    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,,

    Reply
    1. Ashwini

      I HAVE ONE QUARRY THAT ON MARCH I HAVE NOT DEDUCTED TDS BECAUSE AT THAT TIME I WAS NOT AWARE ABOUT THAT, BUT DURING JULY. MY AUDITOR HAS FIND THE QUARRY THAT I HAVE TO DEDUCT TDS ON THE BILL OF MARCH¦ NOW SITUATION IS SUCH THAT WHAT SHOULD I DO FOR NOT PAYING AMOUNT.. PLZ REPLY ME¦.

      Thanks

      Reply
  6. SAJAN

    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

    Reply
  7. namrta

    Dear Sir,

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

    kindly reply its urgent

    Reply
  8. MOHIT JAIN

    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 ?

    Reply
  9. AJIT

    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.

    Reply
  10. HIMANSHU GUPTA

    Sir,
    If TDS is not deducted and not deposited and auditors disallowed that amount in there audit report and we have deposited the Income tax on that amount which is disallowed by auditors then also penalty or prosecution is levied on it
    please reply with relevant case law or section
    thanks
    from himanshu gupta

    gupta.himanshu63@gmail.com

    Reply
  11. RAHUL

    i am a contractor pvt. ltd. company and contractee a limited company didn’t deposited the tds deducted on payments made in financial year 2010-2011and 2011-2012 till date . i want strict punishment for the company and its directors. Please suggest what to do. amount o tds is approximately 5lacs.

    Reply
  12. kumuud singh

    I have submitted a bill to one company for my construction work done at thier factory amounting to rs 10.50 approx. The bill was submitted on the month of August 2012. Till today they have not made the payment but they have depoisted tds without making any payment to me. So what action or complain should I make to income tax department.

    Reply
  13. Atanu

    I think we need to have a revamp of the primitive tax laws being followed in this country.
    Tax payable should be the responsibility of not the person making the payment but the person receiving the payment. So why tax has to be deducted based on assumptions/ estimations by the person making the payment.

    Reply
  14. Gopika

    Sir/madam
    In case of provision for audit fee, if TDS is not deducted/paid within 30 september, what are the consequences?

    Reply
  15. Sanjay Kumar

    Dear Sir/Madam
    I have just one query , we have not deduct tds against NBFC interest amount from last Year . Our Auditors has shown Liability in Audit Report to not paid TDS on interest against NBFC .
    Please told me what is procedure to pay TDS in this time and penalty also.

    Thanks

    Reply
  16. mahesh

    Hi, my one month TDS for the month of March last AY 15-16 deposited in next AY -16-17. So even I wasn’t show my one month salary and not able to claimed my last FY TDS. If I can claim this in this FY I am become falling under tax payer. Please suggest how to claim my one month TDS in current FY.

    Reply

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