Consequences of Non-Deduction of TDS

What are the cases when the penalty and interest are to be levied?

Deductor may be liable for interest and penalty in the cases:

• The person misses out on deducting TDS or deducts lower than the required rate
• The person deducts TDS but fails to remit the whole or part of the tax to the government
• The person delays filing TDS returns (no interest is levied in this case)

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Consequences of non-deduction or non-payment of TDS

The employer or the person liable to deduct TDS fails to deduct the TDS or fails to deposit it with the government, may be subject to interest and penalty imposed by the Income Tax authorities.

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Disallowance of expenditure:

Non-deductible payments: According to Section 40(a)(ia) of the Income Tax Act, any amount (except salary) paid outside India or to a non-resident, which is taxable in India in the hands of the receiver, shall not be deducted if it is paid without withholding tax or if tax is withheld but is not remitted to the Central Government till the deadline of filing of return.

However, if tax is withheld or remitted in the next year, as the case may be, the payment shall be deducted in that year.

Moreover, according to Section 40(a)(ia), any amount paid to a resident, which is subject to withholding tax, would attract 30% non-deductibility if it is paid without withholding tax or if tax is withheld but is not remitted to the Central Government till the deadline of filing of return.

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Levy of Interest:

Any individual who is liable to deduct TDS but fails to deduct it wholly or partly, or does not pay it to the government, will be subject to pay interest. The interest rate is:

1. One percent per month or part of a month on the TDS amount from when TDS was to be deducted.
2. One and a half percent per month or part of a month on the TDS amount from when TDS was deducted to when it was actually paid.

The assessee has to pay this interest before furnishing the TDS statement.

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Levy of Penalty:

If the assessee is liable to deduct or pay TDS and does not deduct (under sections 192 to 196D) or deposit as per Chapter Section 115-O(2), or the second proviso to Section 194B, the deductor may face a penalty U/S 271C of the Income Tax Act. The penalty amount can be equal to the TDS he failed to deduct or deposit.

If the assessee does not pay the tax demand raised by the assessing officer, the assessee may face another penalty under Section 221 of the Act. The penalty amount can vary depending on how long the payment is delayed; however, the penalty amount can not exceed the tax demand.

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Prosecution:

If a person deducts the tax at source and is liable to deposit to the government and fails to do so, he can be sentenced to imprisonment of a minimum of 3 months, and the sentence can be extended to a maximum of 7 years.

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How much is the Penalty for delaying the TDS return?

If the assessee fails to file the TDS return within the prescribed time frame, he will be liable to pay ₹ 200 per day as a penalty U/S 234E, but the penalty can not exceed the TDS amount to be paid.

Moreover, the assessee is liable to pay a penalty of ₹ 10,000 to ₹ 1 lakh U/S 271H if he states incorrect information or fails to file the return within the specified time duration. In addition, this penalty will be added to the penalty U/S 234E.

The penalty U/S 271H can be avoided in some conditions as follows:

• Deposit the tax deducted at the source to the central government.
• Pay late fees and interest if payable to the government.
• File the TDS return within one year from the due date.

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What is the deadline for paying TDS deduction for each quarter?

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Ways for employees to check TDS deduction and deposit by the employer

Employees can verify their TDS (Tax Deducted at Source) deduction and deposit by the employer through various methods. Here are some common ways to do so:

Form 26AS:

• Employees can check their Form 26AS, which is a consolidated statement that provides details of TDS deducted on behalf of the taxpayer.
• Form 26AS can be accessed online through the income tax e-filing portal or the internet banking facility of authorized banks.

Salary Slip:

• Employers usually mention the TDS deducted on the monthly salary slip.
• Employees should carefully review their salary slips to ensure that the correct amount of TDS has been deducted.

Employee Provident Fund (EPF) Statement:

• TDS on EPF withdrawals is applicable if the withdrawal is before five years of continuous service. Employees can check the TDS deduction details in their EPF statement.

Form 16:

• Employers are required to issue Form 16 to employees, which contains details of the salary earned and TDS deducted.
• Employees can use Form 16 to verify the TDS deducted and cross-check it with their Form 26AS.

Online Income Tax Portal:

• Employees can log in to the income tax e-filing portal to check their TDS details.
• The portal provides information on TDS deducted by various deductors, including the employer.

Communication with the Payroll or HR Department:

• Employees can reach out to their organization's payroll or HR department for clarification on TDS deductions.
• Employers are generally willing to provide details and assist employees in understanding their TDS deductions.

Bank Statements:

• Employees can review their bank statements to ensure that the TDS deducted by the employer has been deposited to the government.
• The transaction details may appear as TDS deposits in the bank statement.

Online TDS Certificate:

• Employers may provide online access to TDS certificates on their official portals. Employees can log in to access their TDS certificates and verify the details.

**Now you know the consequences of non-deduction or non-payment of TDS, you can book an eCA for professional advice before submitting a TDS return.**

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