Statutory provisions attracted on failure to deduct tax

Where the employer has failed to deduct tax or when short deduction of tax has been done, following statutory provisions are attracted:-

Charging of interest u/s 201(1A) – The deductor is treated to be assessee in default in respect of the short deduction/non deduction of tax. Under Section 201(1A) he is liable to pay simple interest @ 1% for every month or part of a month on the amount of tax in arrear from the date on which such tax was deductible to the date on which such tax is actually deducted. Further such interest shall be paid before furnishing the quarterly statement of each quarter.  Charging of interest u/s 201(1A) is mandatory and there is no provision for its waiver.

Procedure for interest calculation

 The calculation of interest is to be done as per Rule 119A and is summarized below:

Where the 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 full month and interest shall be so calculated.

The amount of tax in respect of which interest is to be calculated is to be rounded off to nearest multiple of Rs. 100 ignoring any fraction of Rs. 100.

Penalty u/s 221 – The assessee in default is liable to imposition of penalty where the assessing officer is satisfied that the defaulter has failed to deduct tax as required without good and sufficient reason. The quantum of penalty is not to exceed the amount of tax in arrear. Besides, a reasonable opportunity of being heard is to be given to the assessee.

Penalty u/s 271C – A penalty equivalent to the amount of tax the deductor has failed to deduct, is leviable u/s 271C. Such penalty is however only leviable by a Joint Commissioner of Income Tax.

 

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