Consequences of TDS defaults under Income Tax Act
1961
Introduction: TDS/TCS compliances
is one of the major compliance under Income Tax Act, 1961 and has a wide scope
of its applicability to the business organizations. Small businesses are not
much aware of the overall implications of non compliances of the TDS/ TCS
provisions and ends up in paying the higher penal charges due to not following
the deadlines. My article is focused on
the consequences of failure to comply with these provisions in time bound
manner. The following points I am putting forward for your consideration which
I feel to be significant.
- Late deduction and / or deposit of TDS.
- Late return filing.
- Furnishing incorrect information.
- Late download of TDS certificate from TRACES
website.
The detailed discussion follows:
CONSEQUENCES
OF FAILURE TO DEDUCT OR PAY: Section 201
Section
201(1) of Income Tax Act expressly states that any person liable to deduct TDS
on the income distributed, makes default in the deduction and/or payment of TDS,
shall be treated “assessee in default” and penalty U/s 221 of Income Tax Act
shall be payable by such assessee. The only rescue given to assessee is that
the TDS deductible in respect of a
resident, who has furnished his return of income under sub sections of
section 139 (not under any other section) and has taken into account such sum
for computing the income and the due taxes are paid on such income, shall not
be considered for the purpose of section 221 of the Act on furnishing a
certificate from an Accountant. Point
to be noted that here the deductee should be a Resident and this do not apply
to non-resident deductee. Practically,
this section ignores hardship on the part of the assessee to establish such
facts.
Further the section 201(1A) reads as follows:
“Without prejudice to the provisions of sub-section (1),
if any such person, principal officer or company as is referred to in that
sub-section does not deduct the whole or any part of the tax or after deducting
fails to pay the tax as required by or under this Act, he or it shall be liable
to pay simple interest,—
(i) at one per cent for every month or part of a month on the amount of such tax from the date on
which such tax was deductible to the date on which such tax is deducted; and
(ii) at one and one-half
per cent for every month or part of a month 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,
and such interest shall be paid before furnishing the statement in accordance with the
provisions of sub-section (3) of section 200:]”
Lets read
the above section in a tabular presentation:
Date of distribution of income (either paid or credited
whichever is earlier)
|
Actual date of deduction of TDS
|
Due date of payment of TDS
|
Date of actual payment of TDS
|
No. of months for which Interest is payable for late
deduction of TDS @1% pm
|
No. of months for which interest is payable for late
deposit of TDS @ 1.5%
|
15.01.2015
|
15.01.2015
|
07.02.2015
|
07.02.2015
|
0
|
0
|
15.01.2015
|
16.01.2015
|
07.02.2015
|
07.02.2015
|
1
|
0
|
15.01.2015
|
07.02.2015
|
07.03.2015
|
07.02.2015
|
2
|
0
|
15.01.2015
|
07.02.2015
|
07.03.2015
|
07.03.2015
|
2
|
0
|
15.01.2015
|
07.02.2015
|
07.03.2015
|
08.03.2015
|
2
|
2
|
15.01.2015
|
16.01.2015
|
07.02.2015
|
08.03.2015
|
1
|
3
|
15.01.2015
|
15.01.2015
|
07.02.2015
|
08.02.2015
|
0
|
2
|
15.01.2015
|
15.01.2015
|
07.02.2015
|
01.03.2015
|
0
|
3
|
The above
table explains how small delay in deduction and/ or payment costs huge.
LATE FEES FOR DEFAULT IN FURNISHING STATEMENTS OF TDS/TCS
: Section 234E
The Act reads as follows:
Without prejudice to
the provisions of the Act, where a person fails to deliver or cause to be
delivered a statement within the time prescribed in sub-section (3)
of section 200 or the proviso to sub-section (3) of section
206C, he shall be liable to pay, by way of fee, a sum of two hundred
rupees for every day during which the failure continues.
The amount of fee
referred to in sub-section (1) shall not exceed the amount of tax
deductible or collectible, as the case may be.
The amount of fee referred to in sub-section
(1) shall be paid before delivering or causing to be delivered a
statement in accordance with sub-section (3) of section 200 or the
proviso to sub-section (3) of section 206C.
The provisions of this section shall apply to
a statement referred to in sub-section (3) of section 200 or the proviso
to sub-section (3) of section 206C which is to be delivered or caused
to be delivered for tax deducted at source , as the case may be, on or
after the 1st day of July, 2012.
The IT Department
has made it mandatory on the deductors to pay late filing fees in form of a
penalty of two hundred rupees per day beginning from the next day of the
due date of filing the return. Such penalty should be paid before filing of the
return. The only rescue is that the penalty U/s 234E can not exceed the total
amount of TDS for the relevant quarter. Let’s understand the total impact of
this section in a tabular form
Amount of total
TDS for the Quarter
|
Due date of filing of
TDS/ TCS return
|
Actual date of filing
|
Delay in days
|
Penalty based on
calculation of day
|
Max penalty payable
restricted to total TDS for the quarter.
|
10000
|
15.07.2014
|
25.07.2014
|
10
|
2000
|
2000
|
10000
|
15.07.2014
|
03.09.2014
|
50
|
10000
|
10000
|
10000
|
15.07.2014
|
31.12.2014
|
169
|
33800
|
10000
|
|
Recently, Bombay High court dismissed the writ
petition filed against levy of late fees U/s 234E of Income Tax Act 1961 for
late filing of TDS return. In WRIT PETITION NO.771 OF 2014 Mr Rashmikant
Kundalia and Another v/s Union of India and others High Court rejected the
petitioner argument that a “fee” is known in the commercial and legal world to
be a recompense of some service or some special service performed, and it
cannot be collected for any dis-service or default
AS HELD BY HIGH COURT :
“as per the existing provisions, a person responsible for
deduction of tax (the deductor) is required to furnish periodical quarterly
statements containing the details of deduction of tax made during the quarter,
by the prescribed due date. Undoubtedly, delay in furnishing of TDS
return/statements has a cascading effect. Under the Income Tax Act, there is an
obligation on the Income Tax Department to process the income tax returns
within the specified period from the date of filing. The Department cannot
accurately process the return on whose behalf tax has been deducted (the
deductee) until information of such deductions is furnished by the deductor
within the prescribed time. The timely processing of returns is the bedrock of
an efficient tax administration system. If the income tax returns, especially
having refund claims, are not processed in a timely manner, then (i) a delay
occurs in the granting of credit of TDS to the person on whose behalf tax is
deducted (the deductee) and consequently leads to delay in issuing refunds to
the deductee, or raising of infructuous demands against the deductee; (ii) the
confidence of a general taxpayer on the tax administration is eroded; (iii) the
late payment of refund affects the Government financially as the Government has
to pay interest for delay in granting the refunds; and (iv) the delay in
receipt of refunds results into a cash flow crunch, especially for business
entities.”
It is in this light, and to compensate for the additional
work burden forced upon the Department, that a fee was sought to be levied
under section 234E of the Act. Looking at this from this perspective, we are
clearly of the view that section 234E of the Act is not punitive in nature but a
fee which is a fixed charge for the extra service which the Department has to
provide due to the late filing of the TDS statements.
In other words, the late filing of the TDS
return/statements is regularized upon payment of the fee as set out in section 234E.
This is nothing but a privilege and a special service to the deductor allowing
him to file the TDS return/statements beyond the time prescribed by the Act
and/or the Rules. We therefore cannot agree with the argument of the
Petitioners that the fee that is sought to be collected under section 234E of
the Act is really nothing but a collection in the guise of a tax.
It must be noted that a right of appeal is not a matter
of right but is a creature of the statute, and if the Legislature deems it fit
not to provide a remedy of appeal, so be it. Even in such a scenario it is not
as if the aggrieved party is left remediless. Such aggrieved person can always
approach this Court in its extra ordinary equitable jurisdiction under Article
226 / 227 of the Constitution of India”
PENALTY FOR FAILURE TO FURNISH STATEMENTS, ETC. : Section
271H
The act reads as
follows
(1) Without prejudice to the provisions of the Act, a
person shall be liable to pay penalty, if, he
(a) fails to deliver or cause to be delivered a
statement within the time prescribed in sub-section (3) of section
200 or the proviso to sub-section (3) of section 206C; or
(b) furnishes incorrect information in the statement which
is required to be delivered or caused to be delivered under sub-section (3)
of section 200 or the proviso to sub-section (3) of section
206C.
(2) The penalty referred
to in sub-section (1) shall be a sum which shall not be less than ten
thousand rupees but which may extend to one lakh rupees.
(3) Notwithstanding
anything contained in the foregoing provisions of this section, no penalty
shall be levied for the failure referred to in clause (a) of sub-section (1),
if the person proves that after paying tax deducted or collected along with the
fee and interest, if any, to the credit of the Central Government, he had
delivered or cause to be delivered the statement referred to in sub-section (3)
of section 200 or the proviso to sub-section (3) of section 206C
before the expiry of a period of one year from the time prescribed for
delivering or causing to be delivered such statement.
(4) The provisions
of this section shall apply to a statement referred to in sub-section (3)
ofsection 200 or the proviso to sub-section (3) of section
206C which is to be delivered or caused to be delivered for tax deducted
at source or tax collected at source, as the case may be, on or after
the 1st day of July, 2012.
Illustration:
Suppose the
quarterly statement of tax deducted at source i.e. TDS return for the first
quarter of the year 2014-15 is filed by Mr. Suresh on 20-07-2014 The
particulars of the tax deducted at source as mentioned in TDS return are
incorrect. Will he be liable to pay penalty under section 271H for delay in
filing the TDS return and for furnishing the inaccurate particulars in the
return?
Penalty under section 271H can be
levied for following defaults:
(1) Delay in filing the TDS/TCS
quarterly statement i.e. TDS/TCS quarterly return.
(2) Furnishing incorrect TDS/TCS
quarterly statement i.e. TDS/TCS quarterly return.
In the
present case Mr. Sharma has filed an incorrect TDS return and hence he shall be
held liable to pay penalty under section 271H. Minimum penalty of Rs. 10,000
and maximum penalty of up to Rs. 1, 00,000 may be levied. Mr. Sharma will have
no remedy under Section 271H (3) to claim relief from penalty for furnishing of
inaccurate particulars in the return. However, the taxpayer can seek relief in
the following way:
1) He can apply to Principal Commissioner of
Income-tax or Commissioner of income-tax under section 273A (4) to grant relief
from penalty.
2) He
can seek relief under section 273B by proving that there was a reasonable cause
for failure.
TDS Certificate: Penalty for
non-compliance: Section 272A
“Please be advised
that under the provisions of section 203 of the Income Tax Act, 1961 read with
rule 31A, Certificate of tax deducted at source is to be furnished within fifteen
(15) days from the due date for furnishing the statement of tax deducted at
source. Failure to comply with the provisions of the Act will attract penalty
under the provisions of section 272A of the Act, a sum of one hundred rupees
for every day during which the failure continues.”
It is
mandatory to issue certificate for deduction of tax by the deductor to the
deductee within 15 days of due date of furnishing of TDS return. Non Compliance
of this results in penalty of Rs. 100 per day per certificate till the date of
default. Language of the section suggest the calculation of 15 days period from
the date of “due date” of furnishing of return and thus multiplies to the penal
burden on deductor who has furished a late return. Since the system is now
online it is very easy for department to issue notices and to trace and force
the compliance. TDS department has already started sending notice on emails.
Further
note that, Clause 51 of the Finance Bill 2015 seeks to amend section 200A of the Income-tax
Act relating to processing of statements of tax deducted at source w.e.f. 1st
June, 2015.
It is proposed to amend
sub-section (1) of the said section to provide that statement of tax deduction
at source or correction statement made under section 200 shall be processed and
sum deductible under Chapter XVII shall be computed after taking into account
the fee, if any, payable in accordance with the provisions of section 234E. The sum payable or
refundable shall be determined after adjusting the aforesaid computed sum
against any amount paid under section 200 or section 201 or section 234E and
any amount paid otherwise by way of tax or interest or fee.
Disclaimer: This article is not intended to be
exhaustive or a substitute or legal advice.
Mukesh Katara
B.Com, MBA in Finance,
Email:- mukeshkatara@gmail.com
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