To make its TDS scheme a success, the tax department built in certain provisions in income tax act. Some take away tax benefits when you do not deposit TDS timely. And others have harsh penalties built in when there are defaults. Let’s understand them in detail.
Expense on which TDS is not deducted or deducted but not deposited is partly disallowed in you income tax return
By way of TDS, government fills its coffers as people receive payments. As you may already know expenses of a business are deductible against its income. The tax department as a penalty, disallows expenses on which TDS has not been deducted or where TDS has been deducted but not deposited timely, see below-
Applicable starting financial year 2014-15 (assessment year 2015-16)
| Tax is deductible but is not deducted on payment to a resident | 30% of this expense is disallowed | Whenever TDS is deducted and deposited, the 30% disallowed expense can be claimed (in the year TDS is deposited). |
| Tax is deducted on payment to a resident but is not deposited | 30% of this expense is disallowed | The 30% disallowed expense is allowed in the income tax return of the year in which TDS is deposited. |
Penalty for assessee in default
A deductor who does not deduct or deducts but does not deposit is called an ‘assessee in default’. Such a person shall be liable for payment of tax, interest, penalty, prosecution, rigorous imprisonment up to 7 years.