Non deduction, late deduction and late deposit of TDS may lead you to face following consequences:
- Interest on late deduction /deposit of Tax at source.
- Dis-allowance of Expenses, on which tax has not been deducted /deposited u/s 40(a)(ia)
- 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:
- Tax is not deducted , when it was deductible
- Tax once deducted, is not paid on or before due date
Rate of interest
- 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
- Interest is to be calculated for every month or part of a month comprised in a period,
- Any fraction of a month shall be deemed to be a full month
- 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
- 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”,
- any interest,or
- commission or
- brokerage or
- rent or royalty or
- fees for professional services or
- fees for technical services payable to a resident, or
- 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.