The non compliance with TDS provisions attracts different types of penalties if a person fails to deduct or pay TDS on the payment for which he was required to deducted TDS. TDS is required to be deducted in the specified cases as per the provisions of the Act. TDS is however collected as a means in order to keep a stable revenue source for the government throughout the year, while it helps in desisting people from avoiding taxes.

Implications for non compliance with TDS Provisions

Case 1: Failure to deduct TDS

Interest

If a person fails to deduct TDS from the payment he is making to a resident for which he is liable to deduct tax at source, he is liable to pay interest at the rate of 1% per month from the date on which it was deductible till the time it is deducted.

Penalty

As per Section 271C of the Income Tax Act, if any person fails to deduct the whole or any part of the tax that he was required to deduct as per the provisions of the Act, such person shall be liable to pay a penalty as imposed by the Joint Commissioner subject to the maximum of the sum equal to the amount of tax which such person failed to deduct.

Case 2: Failure to pay TDS

Interest

As per Section 201, if a person fails to pay the amount of TDS which he has deducted from the payment he is making to a resident, Interest chargeable at the rate of 1.5% per month or part of the month from the date on which it was deducted till the date of payment.

Penalty

As per section 221, if a person fails to pay the amount of the TDS that he has deducted at source from any payment, the Assessing Officer may direct to pay for a penalty for non failure to pay TDS amount subject to the maximum of total amount of tax in arrears.

It may be noted that a reasonable opportunity of being heard will be given to the person before levying of the penalty.

Case 3: Default in filing of returns

Interest

There is no interest penalty applicable in case of the default in filing of return.

Penalty

If a person fails to file the return of TDS as per the provisions of the Act, he is liable to pay Rs. 100/day of default but subject to the maximum of the total amount of TDS.

Apart from the above mentioned, there may be more consequences for non compliance with TDS provisions, which are:

Disallowance of Expenditure

If a person is making any deduction of TDS while paying any sum of amount to a resident, the deductor in such a is allowed to claim deduction for payments as expenditure, if the tax that is deducted during the P.Y. has been paid before the due date that is specified for filing of return of income u/s 139(1) of the Act.

In case the person fails to deduct the amount of TDS to be deducted or has deducted the TDS but fails to pay the same, the entire amount that was deductible is disallowed u/s 40(a)(ia) for the purpose of computing income under the head “PGBP”

Prosecution

As per section 276B of the Income Tax Act, if any assessee who has deducted the tax at source and fails to pay the same within the time limit to the government, he may be punishable with rigorous imprisonment for a term:

  • Which shall not be less than 3 months;
  • But, it may extend to 7 years; including the fine.

In case you are confused about TDS Return Filing as a deductor, feel free to consult the experts at LegalRaasta. You can get comprehensive assistance with our TDS Return Filing Software which supports TDS on Salary payments Form24Q, Rent, Interest, Commission and other Non-salary transactions (Form 26Q), NRI (Form 27Q) and TCS Form27EQ.