What consequences when deductor fails to deduct TDS
TDS11/07/2021 Source: TDS
A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit TDS amount to the Government’s account:-
1. Disallowance of expenditure in hand of deductor if fails to deduct TDS
In case of any sum payable to resident:- if a deductor fail to deduct TDS then as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance of such sum if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Government till the due date of filing of return.
However, where in respect of any such sum, tax is deducted or deposited in subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year.
In case of any sum payable to non-resident:- if a deductor fail to deduct TDS then as per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Government till the due date of filing of return.
However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year.
Note:-According to Section 58(1A) (as amended with effect from the assessment year 2018-19), the provisions of section 40(a)(ia) and 40(a)(iia) shall also apply in computing the income chargeable under the head “Income from other sources”.
2.Levy of interest in hand of deductor if fails to deduct TDS
if a deductor fail to deduct TDS then as per section 201 of the Income-tax Act, where such persion fails to deduct tax at source within time or after the deducting the same fails to deposit it to the Government’s account then he shall be deemed to be an assessee-in-default and liable to pay simple interest as follows:-
(i) Interest at one per cent for every month or part of a month on the amount of such TDS from the date on which such TDS was deductible to the date on which such TDS is deducted; and
(ii) Interest at one and one-half per cent for every month or part of a month on the amount of such TDS from the date on which such TDS was deducted to the date on which such tax is actually paid.
3.Levy of Penalty in hand of deductor if fails to deduct TDS
if a deductor fail to deduct TDS then he will be liable for penalty of an amount equal to TDS not deducted or paid could be imposed under section 271C.
4.Other important points
A deductor who fails to deduct the whole or any part of the TDS on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee-in-default in respect of such tax if such resident-
(i) Deductor has furnished his return of income under section 139.
(ii) Deductor has taken into account such sum for computing income in such return of income.
(iii) Deductor has paid the tax due on the income declared by him in such return of income.
(iv) Deductor furnishes a certificate to this effect in Form No.26A from a chartered accountant.