Consequences of failure to deduct TDS or failure to deposit TDS timely

Published On - November 26, 2015

admin Income Tax, TDS

If income tax laws require you to deduct tax, it must be

  • timely deducted
  • timely deposited

TDS must be deducted at the time of making payment. Either at the time of preparing a cheque or at the time of making credit of payment.

Due Dates of Depositing TDS

Based on the type of income on which TDS is deducted, different dates of depositing TDS has been laid down in the income tax act. Usually –

  • TDS deducted during April to February must be deposited within 7 days from the end of the month in which the deduction is made.
  • TDS deducted during the month of March should be deposited on or before 30th
  • TDS deducted by buyer on immovable property sale should be deposited within 7 days from the end of the month in which deduction is made.

Delay in Depositing TDS or Failure to Deduct TDS

If TDS has not been deducted when it was applicable, interest is levied on the amount of TDS

  • Interest @1% for every month or part of month from the date on which it was deductible to the date on which it was actually deducted.

If TDS was deducted but not deposited timely, interest is levied on the amount of TDS

  • Interest @1.5% for every month or part of month from the date on which it was deducted to the date on which such tax was remitted to the government for payment.

There may be a situation where although no TDS has been deducted by the payer, but the receiver has accounted for the income in his return and paid the tax due on such income. In such a case, interest will be applicable to the payer @1% on TDS amount from the date TDS was deductible to the date on which the receiver submitted his tax return. (This is only applicable where the receiver is resident in India).

When to Pay Interest on Delay

Any interest applicable must be deposited before filing quarterly TDS return.

Penalties

  • Penalty equal to TDS deductible shall be payable when –

TDS has not been deducted as per provisions of the income tax act
TDS has not been deposited on dividend distributed (as per Section 115(O) (2))
TDS has not been deposited in case of winning which are both in kind and cash ( as per Section 194B (2)

  • Penalty in these cases shall be imposed by the Joint Commissioner.

This penalty has been laid down under section 271C of the income tax act.
In the case of above defaults the payer may be punishable with rigorous imprisonment for a term from three months up to seven years and with fine. (as per section 276B of the income tax act).

Other Penal Provisions

Besides the above penalties non-deduction of TDS can also result in some disallowances under the income tax act.