Tax Deducted at Source – Consequences of failures
Tax Deducted at Source (TDS) is a concept employed for collection of tax. It was introduced with the aim to collect tax from the very source of income. Hence non-collection / short collection or delay in remittance of TDS can lead to penalties and penal interests from Income Tax department.
Consequences of failure to deduct tax at source or remit in time
Section 201(1A) of the Income Tax Act stipulates that interest shall be levied in case of failure to deduct or pay tax at source at the following rates.
|
Nature of default |
Rate of interest |
Period |
|
Short deduction |
1% for every month or part of a month on the amount of such tax. |
From the date tax was deductible to the date of deduction. |
|
Short/ non-payment after deduction |
1.50% for every month or part of a month on the amount of such tax. |
From the date tax was deducted to the date on which tax is remitted. |
Apart from the above, as per the provisions of section 40 (a) (ia) of the Income Tax Act,
- if any payment on which tax is to be deducted as per the Act has not been deducted or
- after deduction has not been paid to the Govt account on or before the due date,
then 30% of such sums shall not be allowed as a deductible expenditure in the assessment of the income of the deductor. Such sums shall be allowed only in the year in which the TDS is remitted. If there is any delay in deduction or remittance of tax deducted at source, or if there is any omission to deduct tax at source, the individual/ firm/ company will be in a difficult situation at the time of income tax assessment.
Penalty for furnishing wrong information in quarterly returns relating to Tax Deducted at Source
Income Tax Department may levy penalty ranging from Rs. 10,000 to Rs.1,00,000 for furnishing of incorrect / incomplete information in the quarterly returns.
Failure to submit PAN by the deductee
Whenever a payment including salary to employees is made after TDS, the deductor shall obtain the PAN of the Payee (deductee). This is for incorporating in the TDS certificate and quarterly returns. If PAN is not furnished by the payee (deductee), tax shall be deducted at higher rate of 20% or at the rate specified in the relevant provision of the Act.
The deductee will get the get credit of the Tax Deducted at Source in his Income Tax Assessment only if the TDS amount appears in his personal Tax Credit statement (26AS) available at www.tdscpc.gov.in website. Tax Deducted at Source made by the deductor will appear in the 26AS against the deductee only if the correct data are uploaded through the quarterly returns. This makes quoting correct PAN of the deductee a must. Any errors in the reporting or mistake in PAN in the file uploaded by the deductor will deny credit to the deductee. The deductor may also be required to pay penalty.
