Section 201 of Income Tax Act, 1961 provides for consequences of failure to deduct or pay TDS. Under sub section 1A of Section 201, interest on late payment of TDS is given. The full section 201 is provided in this article. Let us start with Section 201(1A).
The Section 201(1A) provides the interest rates for the following two situations:
|Situation||Interest Rates||Period of Interest|
|Delay in deductoin of TDS||1% per month or part* thereof||From the month in which TDS was deductible to the date of deduction|
|Dealy on payment of TDS||1.5% per month or part* thereof||From the month in which TDS was deducted to the date of payment of tax|
Note: Any part of month will be converted into full month. Lets say if it is 2 months and 5 days, so it will be taken as 3 months.
Example of situation 1: ABC Ltd. got professional work done a party and credited the party for Rs. 2,00,00/- in its book in Aug 2015. ABC Ltd. paid the party in Nov 2015 and deducted TDS @ 10% i.e Rs. 20,000/- in Nov only.
But section 194J required that, ABC Ltd. had to deduct the TDS on payment and credit basis whichever is earlier. Which means ABC Ltd. had to deduct the TDS in the month of Aug, 2015 itself and paid the TDS by 7th Sept 2016 i.e the due date of TDS.
Since ABC Ltd. has deducted and paid the TDS late, they will have to pay interest under section 201 (1A).
TDS under situation 1: TDS is not deducted on time
The interest will be calculated from the month in which it ought to be deducted (Aug 2015) to the month in which it is really deducted.
So total months are four months (Aug to Nov).
Interest will be 20,000 X 1% X 4 = Rs. 800/-
TDS under situation 2: TDS is not paid on time
The interest will be calculated from the month in which it ought to be deducted (Aug 2015) to the month in which TDS is really paid.
So total months are four months (Aug to Nov).
Interest will be 20,000 X 1.5% X 4 = Rs. 1200/-
However you can avoid TDS paid under situation 1, since it you can pass deduction entry in the back date (in August in above example), if your accounting software and auditor allows. TDS under situation 2 can not be avoided.
Now come to section 201(1).
Section 201(1) states that who is asseesee in default and if he is assesse in default then penalty may be levied on him. Interest u/s 201(1A) is paid whether he is assessee in default or not.
According to section 201(1) any person or the principal officer in the case of the company, who is responsible to deduct tax at source shall deemed to be an assessee in default in the following situation.
|To deduct tax in respect of all payment covered under TDS provisions.||Fails to deduct or after deducting fails to pay the whole or any part of the tax as per law.|
|Employer to pay tax on the non monetary perquisites provided to the employee.||Employer fails to pay, whole or any part of the tax on such non monetary benefit.|
Where an assessee is deemed to be in default, the assessing officer may levy penalty u/s 221 to the extent of tax and interest in arrears.
However in the case where the assessing officer is satisfied that their exist good and sufficient reason for the assessee to breach the provision of this section, penalty shall not be levied u/s221.
No Assessee in Default
Any person including the principal officer of the company ,who fails to deduct tax in accordance with the provision of the law on the sum paid or credited in favor of a resident shall not be deemed to be an assessee in default in respect of such such tax if the following conditions are satisfied
a) The payee resident has furnished his return of income u/s 139
b) He has taken into account such sum for computing his total income
c) He has paid tax due on the income declared by him in such return of income and
d) The person who failed to deduct tax at source furnish the certificate of the CA that the payee has fulfilled the above said condition the certificate of CA will be in form 26A
In such case if he not assessee in default, interest u/s 201(1A) shall be payable from the date on which such tax was deductable to the date of furnishing of return of income by such resident. +
Where the tax deducted has not been paid, the amount of tax together with interest payable as above shall be a charge upon all the assets of the person or the company who is in default sec 201(2)
No order shall be made deeming the assessee to be in default who fails to deduct whole or part of the tax after the expiry 7 year from the end of the financial year in which payment is made or credit given.
Summary of consequences of non deduction/payment of TDS
- Interest is paid under section 201(1A)
- Penalty may levied under section 221.
- Apart from levy of interest or penalty, the expenditure on which tax has not been deducted or remitted shall be subject to dis allowance u/s 40a(i), 40(a)(ia) & 40 (a)(iii) while computing profits or gains of business or profession.
Please comment for any query on interest on late payment of service tax.