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As all are aware that the Income Tax Department is the governing body which 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 in 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:
TDS or Tax Deducted at Source is generally a tax on the source of income. It is basically an indirect method of tax collection which follows the methodology of pay as you earn and collect as it is earned. TDS provisions are applicable in the following cases:
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 provides the consequences of failure to deduct or pay 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 a full month.
|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
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
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
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:
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 the which payment is made or credit given.
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:
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
After understanding the Section 201 of the Act following sections are attracted in case of non-deduction or non-payment of TDS on time:
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