Interest Liability for TDS Assessee-in-Default

A TAN holder who fails to deduct whole or any part of the tax at source is treated as an assessee-in-default. But, as per provision in section 201 the TAN holder who fails to deduct the whole or any part of the tax on the payment made to a payee shall not be considered  to be an assessee-in-default in respect of tax not deducted by him, if the following conditions are satisfied:

  • Payee has furnished his return of income under section 139
  • Payee has taken into account the above income in its return of income
  • Payee has paid the taxes due on the income declared in such return of income
  • Payee furnishes a certificate to this effect from an accountant in Form No. 26A

In other words, in case of non deduction of tax at source or short deduction of tax,  if all the discussed conditions are satisfied, then the payer will not be treated as an assessee-in-default. However, in such a case, even if the payer is not treated as an assessee-in-default, he will be liable to pay interest under section 201(1A). In this case, interest shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee. Interest in such a case will be levied at 1% for every month or part of the month.

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Non-Deduction of TDS owing to bonafide belief by Deductor – Judgement/Order

Ms Karnataka Power Transmission Corpn. Ltd. Vs ITO (OSD) (TDS) (ITAT Bangalore)

FACTS –

Karnataka Power Transmission Corporation Ltd. paid cash equivalent of unutilized leave at the time of retirement of their employees, however, they didn’t deducted TDS on the same. As per section 10(10AA), in case of payment towards unutilized leave period, entire payment is exempted in case of Central or State Government employee and payment up to INR 3 Lakhs is exempt in any other case.

Proceeding was initiated against KPTCL u/s 201 and 201(1A) with an allegation that KPTCL was bound to deduct TDS on salaries paid to their employees by including the payment received by an employee in respect of any leave period not availed by the employee. Department contended that KPTCL is not State Government, but is a statutory corporation and therefore are required to deduct TDS above INR 3 Lakhs.

KPTCL submitted that its employees were employees of the State Government and therefore entire payment towards unutilized leave period was exempted.

HELD –

On the basis of KPTCL formation, KPTCL action in past several years and the manner of exercise of control and affording protection to employee of KPTCL by the State Government, KPTCL bonafidely believed its employees to be State Government employees and likewise assumed that the entire payment towards unutilized leave encashment to be exempt. Such bonafide belief for non-deduction of TDS is admissible in law.

Section 192 uses the word ‘estimate’ and therefore the statutory intention is that it should be an approximation. The liability of the employees for payment of taxes is primary liability and the liability of KPTCL is only vicarious liability and recovery of taxes through TDS is only a mode of collection of taxes. The revenue always has the option and the right to collect taxes from employees concerned.

Click here to Download Judgement/Order

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What is the difference in TDS on Rent u/s 194-I and 194-IB?

What is the difference between section 194-I and 194-IB? 

Section 194-I is applicable to the tenant who is an individual or HUF (Hindu Undivided Family) and is liable to deduct tax (having a TAN) during the financial year while paying rent.

Section 194-IB is applicable to the tenant who is an individual or HUF (Hindu Undivided Family) and is not liable to deduct tax (not having TAN) during the financial year while paying rent.

As of FY:2018-19 TDS rate in case of 194-I is 10% and in case of 194-IB is 5%.

The minimum exemption limit for 194-I is Rs. 1,80,000 in a year and for 194-IB is Rs. 50,000 in a month.  

Is it compulsory for tenant to obtain TAN to report TDS on rent of property under section 194-IB? 

Tenant is not needed to obtain TAN. The tenant needs to deduct tax from rent and deposit online through Form 26QC. Here the PAN details of both landlord and tenant is to be reported along with the relevant details. 

What is the due date of payment of TDS deducted on payment of rent under section 194-IB? 

The due date of payment of TDS on rent is up to 30 days from the end of the month in which the deduction is done.

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How to calculate the Interest for failure to deduct tax at source?

As per the provisions in section 201, if a person liable to deduct tax at source does not deduct it, then, such person, shall be liable to pay simple interest of 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax was deducted.

How to calculate the Interest for delay in payment of TDS?

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