Income Tax Taxation

Section 201 of the Income Tax Act,1961 – Interest on Late Payment of TDS

As all are aware that the Income Tax Department is the governing body that regulates the income tax collection in India. If liability arises to pay a tax that you are liable to pay that tax to the government. Non Payment of taxes can lead you to a problem. However, in some cases, the Income Tax Department has put the responsibility of deducting and paying taxes of a person or entity or some other person. If the concerned person fails to do the same will have to face penalties specified by the Income Tax Department.

As such Section 201 of the Income Tax Act was inserted which explains about interest chargeable on such persons for Non-Payment or late payment of TDS? In this topic we will cover the following:

• What is Section 201?
• How to calculate interest in case of default?
• Illustrations
• What does assessed in default mean and what are the penal consequences?
• A brief overview of the summary and consequences under section 201 of the Income Tax Act,1961

What is Section 201 of the Income Tax Act, 1961?

TDS or Tax Deducted at Source is generally a tax on the source of income. It is basically an indirect method of tax collection that follows the methodology of pay as you earn and collect as it is earned. TDS provisions are applicable in the following cases:

• Salaries
• Interest payment
• Commission
• Rent
• Consultants
• Lawyers, Professionals or freelancers

As TDS is deducted from a particular source of income it has to be deposited with the government. In case after deducting the TDS, the Deductor fails to pay the TDS deducted or fails to deduct TDS will be liable to pay interest under section 201. Section 201 of the Income Tax Act,1961^[1] provides the consequences of failure to deduct or pay TDS.

Read our article:TDS Penalty in India

Section 201(1A): How to calculate interest in case of late payment of TDS:

Situation	Interest Rates	Period of Interest
Delay in deducting TDS	1% per month or part thereof	From the month in which TDS was deductible to the date of actual deduction
Delay in payment of TDS	1.5% per month or part thereof	From the month in which TDS was deducted from the date of actual payment

Note: Any part of the month will be considered a full month.

Illustrations:

Situation 1: TDS is not deducted on time	a) TDS should have been deducted on Aug 2017 b) TDS is actually deducted on Nov 2017 c) TDS Amount: Rs.10000 d) Interest: 10000 x 1%x 4 months (Aug to Nov) = Rs.400
Situation 2: TDS is not paid on time	e) TDS should have been deducted and paid on Aug 2017 f) TDS is actually paid on Nov 2017 g) TDS Amount: Rs.10000 h) Interest: 10000 x 1.5% x 4 months (Aug to Nov) = Rs.600

In the above-mentioned cases, TDS paid under Situation 1 can be avoided as you can pass the entry backdated. However, TDS is Situation 2 cannot be avoided

What does Assessee in default mean?

Section 201(1) explains assessee in default who will be penalized in case of default under section 221 of the Income Tax Act,1961. However, interest is payable under section 201(1A) In case the assessee is in default or not.

Here we will explain who is called as “Assesse in Default”

Assesse will be treated in default in either of the following situations:

• The person who is responsible for deducting tax as per the TDS provisions but has failed to deduct or after deducting has failed to pay the TDS to the government as required.
• The employer is responsible for paying taxes on non-monetary perquisites provided to the employee but fails to pay the whole or part amount of tax on such non-monetary perquisites.

In the case of the above-mentioned default section 201(2) and section 201(3) comes into the picture

Section 201(2) states that where the tax deducted has not been paid the number of TDS along with interest payable as above shall create a charge upon all the assets of the person or the company who is in default under section 201(2).

Section 201(3) states that no orders shall be issued deeming the assessed to be in default who fails to deduct or fails to deposit the TDS after the expiry of 7 years from the end of the financial year in which payment is made or credit is given.

Notes

In the case where the assessing officer is satisfied that there existed far and sufficient reason for the assessed to break the provision of this section penalty shall not be levied under section 221. Following persons shall not be treated as assessee in default if the conditions mentioned below are satisfied:

1. The payee resident has furnished his return under section 139
2. He has taken into account such income while computing his total income
3. He has paid tax due on the income declared by him in the return of income filed
4. The person who has failed to deduct or pay it on time has provided a CA certificate in form 26A stating that he has fulfilled the above condition.

What is the penalty in case of failure to furnish the statement etc.?

Under section 271H of the Income Tax Act,1961

Without prejudice to the provisions of the Act, a person shall be liable to a penalty

• If he fails to deliver or cause to be delivered a statement within the prescribed times per 200(3) or the proviso of subsection (3) of Section 206C or
• Furnishes incorrect information in the statement provided which is required to be delivered or caused to be delivered in case of subsection 3 of Section 200 or proviso to section 3 of Section 206C.
• The penalty in the above-mentioned cases shall be not less than ten thousand rupees which may extend up to one lakh rupees

A brief overview of the summary and consequences under section 201 of the Income Tax Act, 1961

After understanding the Section 201 of the Act following sections are attracted in case of non-deduction or non-payment of TDS on time:

• Interest under Section 201(1A)
• The penalty under section 221
• Default by the assessee under section 201(1), 201(2) and 201(3)
• Apart from the interest or penalty levied in the case where TDS has been deducted or nor deducted are subject to disallowance u/s 40(a)(i), 40(a)(a) and 40(a)(iii) while computing income from business and provision.
• The penalty under section 271H

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