Late filing of TDS return – Penalties, Prosecution & Interest Calculation

The various provisions of TDS are statutorily required to be strictly complied with. Any default in compliance can attract, levy of interest, penalty and in certain cases initiation of prosecution proceedings.

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.

Failure to deposit tax in govt. account after deduction

 Where the employee has deducted the tax at source but failed to deposit wholly or partly, the tax so deducted in government account, the following statutory provisions are attracted:-

Interest u/s 201(1A)- The deductor is treated as an assessee in default and interest u/s 201(1A) is leviable @1.5% for every month or part of the nonth on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid. Further, the tax along with the simple interest u/s 201(1A) becomes a charge upon all the assets of the deductor.

Penalty u/s 221- Penalty to the extent of tax not deposited is leviable by the A.O. as discussed earlier.

Prosecution proceedings u/s 276 B- Where the deductor has failed to deposit tax deducted at source, in govt. a/c without a reasonable cause then he is punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years and with fine.

Failure to apply for TAN or to quote TAN

Where a person who is responsible to deduct tax at source has failed, without reasonable cause:-

To apply for TAN within prescribed period or

After allotment, failed to quote such TAN in challans for payment of tax or TDS certificate or returns of TDS (as required u/s 206) – then a penalty u/s 272BB of a sum of Rs.10,000 may be imposed by the assessing officer. However a reasonable opportunity of hearing must be given to the employer/deductor.

Failure to furnish TDS certificate or returns/statement of tax deduction at source

 (penalty u/s. 272A(2)) Where the employer has failed to issue TDS certificate (form 16) within one month of the end of financial year (by 31st of May of the next F.Y. for F.Y. 2010-11 onwards) or has failed to furnish the quarterly statement of tax in form 24Q, within the time prescribed u/s 200(3) (rule 31A), then a penalty of Rs. 100 is leviable for each day during the period for which default continues. The quantum of penalty is not to exceed the tax deductible and it is to be levied only by a Joint Commissioner or Joint D.I.T. after giving the assessee an opportunity of being heard.

Prosecution u/s 277- Where a person, who is required to furnish statement u/s 200(3) (quarterly statements) makes a false statement in verification or, delivers an account or statement which is false and which the person knows or believes to be false or does not believe to be true, then he is punishable with rigorous imprisonment for a term which shall not be less than 3 months but which may extend to 7 years along with fine. Where theamount of tax, which would have been evaded if the statement or account had been accepted as true, is 1 lakh rupees or less, then rigorous imprisonment may be from 3 months to three years and with fine.

The Finance Act, 2008 has introduced amendment in section 201 (w.e.f. 1.6.2002) which clarifies, that in case any employer, or any principal officer of a company;

does not deduct, or

does not pay,

or after so deducting fails to pay the whole or any part of the tax, then such person shall be deemed to be an assessee in default. Further penalty to be charged u/s. 221 shall not be levied by the assessing officer unless he is satisfied that such failure to deduct and pay tax was without good and sufficient reasons.