Non-deduction, Non-payment, and late-payment of TDS


Businesses are inherently risk-taking but you must know that not all risks are worth it. 

And one such risk is being careless with your TDS segment. Non-deduction, Non-payment, and late-payment of TDS attracts fines and penalties and can negatively affect the image and productivity of your business. 


So, today, we’ll see what you need to do regarding TDS and the consequences - if you fail to comply with the standards. 



  1. What are the requirements regarding TDS deduction?

TDS must be deducted on these payments - salaries, interests, professional fees, rents, brokerage and commission, dividends, and more.


  1. What to do with the deducted TDS? 

You (the one who deducts TDS) must deposit the deducted TDS with the government before 7th of the subsequent month. However, March is an exception - so, you need to deposit it with 30th April for the month of March. 


  1. What happens in case of delay or non-deduction of TDS? 

In such a case, you’ll have to pay an interest of 1% per month or a part of the amount of tax - applicable from the original date it had to be deducted to the date it is finally deducted. 



  1. What happens if you deduct the TDS but do not pay it to the government? 

In these cases, you’ll have to pay an interest of 1.5% per month or part of the amount of tax- applicable from the original date it when it was deducted to the date on which it is actually paid.

Also as per section 221, if you’re required to pay TDS and have failed to do so, you shall be liable to pay a penalty that goes up to 100% of the TDS amount (that wasn’t paid). 


Not only this, there’s a rigorous punishment that involves 7 years of imprisonment - imposed on regular defaulters. 


  1. What happens to companies that remain non-compliant with TDS provisions? 

For such companies, the TDS amount and interest is charged on the assets of the company or on the main employee who is in charge to deduct and pay TDS. 


  1. What are the requirements to file TDS returns and what happens in the case of non-compliance?

The person responsible for deducting and paying TDS is required to file TDS returns quarterly in the exact prescribed manner. If there’s a delay in the same, a late fee of 200 INR is levied for every day of delay. The maximum amount is calculated taking the TDS amount in consideration. 

  1. What happens in case of failure to furnish statements etc.?

As per section 271H, any person will be liable to pay a penalty 

  • If he fails to deliver statements within the prescribed time frame.

  • Furnishes incorrect information in the statements that are required to be delivered. 

The penalty in such a case shall be a sum not be less than ten thousand rupees but which may extend to one lakh rupees.




*Note that the expenses on which TDS had to be deducted and paid, and was either not deducted or not paid - any such expense will be disallowed in the computation of total income and taxes


  1. What are the consequences (sections) that a deductor will face if he/she fails to deduct TDS or deducts it but fails to deposit it to the government?


  • As per section 40(a)(i) of the Income-tax Act -

Any sum (other than salary) that is to be paid outside India/to non-residents and is chargeable to tax in India (in hands of the recipient), is not allowed to be deducted in case it is paid without TDS deduction or if TDS is deducted but is not deposited with the government till the date of return filing. Note that if TDS is deducted/deposited in the subsequent year, the expenditure shall then be allowed as a deduction in that year.


  • Similar to that, according to section 40(a)(ia), any sum that is to be paid to a resident and is subject to TDS deduction- would attract a disallowance of 30%, if it is paid without deducting TDS or if it is deducted but not deposited with the government till the date of return filing. Note that if TDS is deducted/deposited in the subsequent year, the expenditure shall then be allowed as a deduction in that year.


 

  • Penalty as per section 271C for TDS non-deduction or non-payment

As per section 271C, a penalty of the amount equal to TDS not deducted/paid can be imposed. 

A penalty can also be charged as per section 221 if the deductor fails to deduct/pay tax to the government.


  • Prosecution under Section 276B 

If a person fails to pay TDS to the government within the time limit as prescribed  - he/she shall be subjected to rigorous punishment of imprisonment for a term starting from 3 months and can last up to 7 years, along with fine. 



Conclusion - You cannot afford to be careless with TDS deductions and payments -now you know what happens if you go wrong!

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