NON / LATE DEDUCTION / LATE DEPOSIT OF TDS :INTEREST- PENALTY

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Non deduction, late deduction and Late deposit  of Tax deducted at sources(TDS) may lead you to face following consequences.
  • A: Interest on late deduction /deposit of Tax at source.
  • B :Dis-allowance of Exp , on which tax has not been deducted /deposited u/s 40(a)(ia)
  • C: Penalty and prosecution.(271C and 276B)
A.Interest on late deduction and delayed deposit of TDS

As per income-tax , interest is payable under the following two circumstances
  1. Tax is not deducted , when it was deductible
  2. Tax once deducted, is not paid on or before due date

To under stand the above concept ,we must have to read 
  1. When Tax is to be deducted ?
  2. When tax deducted at source(TDS) is to be deposited (TDS due date of deposit)?
When tax is to be deducted
  1. At the time of credit or payment, whichever is earlier
      • 193- Interest on securities
      • 194A- Interest Other than “Interest on securities”
      • 194C- Payment to contractors / sub contractors
      • 194D – Insurance commission
      • 194H – Commission or Brokerage
      • 194G- Commission on sale of lottery tickets
      • 194I- Rent
      • 194J- Professional or technical fees
  2. Before making payment or distribution
      • 194- Dividend
  3. At the time of payment
      • 192- Salaries
      • 194B- Winning from lotteries / crossword puzzles
      • 194BB Winnings from horse races
      • 194EE – Payment from National Saving Scheme
      • 194F Payment for repurchase of units by UTI / mutual funds
      • 194LA: Payment of compensation on acquisition of certain immovable property

What is the Due date of deposit of TDS ?


All the TDS deductions made during a month are to be paid on or before 7th of the next month. 

Example : All deductions made during April,2013 ,must be paid on or before May 7th, 2013.In case 7th of the month happens to be a Sunday or a bank holiday, then the payment can be made on the next business day.

However for deductions made during the month of March, payment must be made on or before 30th April.

Last date to deposit ,TDS deducted in March ,2013 is 30.04.2013


What is the rate of interest ?



W.e.f 01-07-2010

  • From the date when TDS was deductible till date of actual deduction,rate of interest is 1% p.m.
  • For delayed deposit, from date of deduction till actual date of payment, rate of interest is 1.5% p.m

Prior to 01-07-2010

From FY 2006-07 onwards for delayed deposit, from date of deduction till actual date of payment, rate of interest is 1.0% p.m


What is the due date of payment of interest ?


Interest must be calculated and paid before filing of eTDS statement of the quarter.
Quarter 1 Jul-15
Quarter 2 Oct-15
Quarter 3 Jan-15
Quarter 4 May-15
How is interest to be calculated ?
  1. Interest is to be calculated for every month or part of a month comprised in a period, 
  2. Any fraction of a month shall be deemed to be a full month 
  3. The amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees and 
  4. for this purpose any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.
Example of Interest Calculation
Date Of Payment
Date of Deduction
Due Date
Date of Deposit
Delayed Deposit
Delayed Deduction
Months
Rate
Months
Rate
05/04/2012
05/04/2012
07/05/2012
09/05/2012
2
1.50%
-
-
10/04/2012
10/04/2012
07/05/2012
09/05/2012
1
1.50%
-
-
02/07/2012
04/08/2012
07/09/2012
07/09/2012
-
-
2
1%
02/07/2012
04/08/2012
07/09/2012
15/09/2012
2
1.50%
2
1%

One Day delay may charge you Interest @ 3 %: Suppose tax is deducted on 05.04.2012 and due date is 07.05.2012 however deposited after delay of one day on 08.05.2012.

Delay period in above case is : From 05.04.2012 to 08.05.2012 is one month and 3 days .As per above provisions part of the month is to be taken as full month .so delay of 2 month means 1.5 % per month for 2 month =3 % interest . So delay of only one day of tds may cause you interest loss of three percent.

Please Note that TRACES (TDS CPC) is issuing notice on the basis of Month=Calender Month or part thereof .

Suppose we have deducted tax on 31.03.2015 and for march 2015 ,due date to deposit tds falls on 30.04.2015 ,but if we pays the Tax on 01.05.2015 then interest for three months will be charged by department i.e for March,2015,April-2015 and May-2015.

Read more about LATE PAYMENT SHORT DEDUCTION INTEREST CALCULATION LATE FILING ETDS RETURN FAQ issued by TRACES


Rectifying Interest Default
  • You may download default/Justification report notices after logging into your TAN account at tdscpc.gov.in
  • Default Notice is a plain excel sheet without any password protection
  • If there is any default on account of non-payment or short payment of interest, you need to pay up the same
  • After paying , you have to file correction statement by including the interest payment challan.
Dis allowance of Expenses due to non payment of Tax deducted at source or non deduction of Tax

Section 40(ia):  Following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",
  1. any interest,or
  2. commission or
  3. brokerage or
  4. rent or royalty or
  5. fees for professional services or 
  6. fees for technical services payable to a resident, or 
  7. amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), 
on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid.

Expense allowed if tax deposit before the due date of deposit Income Tax return :if Tds is not deposited with due date but deposited on or before the due date specified in sub-section (1) of section 139 then expenses will not be disallowed.

Expenses will be allowed in actual year of tds deposit : Where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.

Rationalisation of the provision relating to dis allowance of expenditure under Section 40(a)(ia)

The amendment for Rationalisation of the provision relating to dis allowance of expenditure under Section 
40(a)(ia) is in consequence of the amendment in Section 201. As per the amendment if the payer fails to deduct the whole or any part of the tax as per the provision of Chapter XVII-B on the amount paid 
to any resident payee, the payer shall not be deemed to an assessee in default in respect of such tax, if the 
following conditions are satisfied:
  • (a) The payee has furnished his return of income under Section 139;
  • (b) He has included such income in the return of  income;
  • (c) He has paid the tax due on the income declared in such return of income 
  • (d) The payer furnishes a certificate of chartered accountant in form 26A(download link given below)
The date of payment of taxes by such payee shall be deemed to be the date of filing of his return of  income.

Accordingly, as per the  amendment in Section 40(a)(ia) where an assessee fails to deduct whole or part of tax at source on any sum but is not deemed to be an assessee in default under Section 201(1), then for the purpose of Section 40(a)(ia) the assessee shall be deemed to have deducted and paid the tax on such sum on the date of filing of the return of income by the resident payee and therefore, no dis allowance under Section 40(a)(ia) shall be made.

Interest in above case:
If assessee avail the benefit of change in section 40(a)(ia) then interest @1 % shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such payee.

Example: Suppose a Ram paid Rs 10,00,000 as professional fees on 01.05.2012 to Sham but not deducted tax u/s 194J @ 10 %  .Sham furnished his return on 30.08.2013. So to claim benefit of amendment in above section Ram has to 
  1. A certificate from CA on form 26A
  2. Deposit interest from 01.05.2012 to 30.08.2013 @ 1 % for 16 months .
Penalty on Non deduction of TDS

Penalty for failure to deduct tax at source.
Section 271C. If any person fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid.This penalty is imposable by Joint Commissioner.
Prosecution for failure to deduct /deposit tax at source
Section 276B. If any person fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B then, such person he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.This penalty is imposable by Joint Commissioner

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. SECURITIES (MNP) (TDS)2007-08 ` 01.07.12 01.09.2008 01.10.2012 06.07.2009 07.08.2012 1 PERCENT EXCISE ITEMS LIST 1 sep 1% excise 10 year nsc 10(10C) 1000 court cases judgements supplied to ITO 1000 rupee note 11-2008 11-2010 130 items 14.08.2008 15 august 150 Rs coin 15g 15h 18-12-2009 192(1A) 192A 194 I 194A 194c from 01.10.2009 194H 194j 194LC 1981-2007 2% cst 2% excise 2004 2008 2008-09 FY 2010 206AA 234A 234B 234C 234c interest calculator 234E 23AC 23ACA 23B 24C 24q annexure II 25 paisa coin 271(1)(c) 271B 271H 272B 27A 280 280 challan 281 282 283 29 AUGUST 29.04.2010. 29/08/2008 29/2008 service tax 2g meaning use 3 idiots 30 MARCH 31st March 32-2010 33 of 2009 35(2AA) 35(2AB) 3CD 3g meaning use 40(b) 43B 44 AB EXEMPTED INCOME 44AA 44AB AGRICULTURE 44AB new limit 44AB NON RESIDENT 44ad 46/2012 45/2012 49C 5 day week 5 years post office deposit 5/2011 50 paisa coin 54b 54EC 54ee 54f 54gb 5th paycommission punjab 6 % excise 6 crore advance limit 6/2005 69/2010 6th cpc 6TH PAY COMMISSION 70% of pan etds 7th Central Pay Commission 8 tips to save tax 80C 80ccc 80CCD 80cce 80CCF 80CCG 80d 80DDB 80EE 80G 80GG 80GGA 80GGB 80ggc 80tta 80U 85% of pan etds 86/2008 DATED 13-08-2008 87A rebate 89(1) 89(1) relief calculator 9.5 % rate for private epf 92E 95% of pan etds 98 dated 04/01/08 aadhaar aakash tablet aam admi aar Aayakar Sampark Kendra abatement abolished ACCOUNT PAYEE DRAFT Accounting ACCOUNTING CODE accounting code for services ACCOUNTING FOR GOVT GRANTS accounting standards ACES ADD IN Add-Ins additional relief in budget 2010 adjustment of advance FBT with advance Tax advance rullings advance salary ADVANCE TAX CALCULATOR advance tax challan ADVANCE TAX CUT OFF AMOUNT ADVANCE TAX DATES AFFIDAVIT AG Projects Technologies Ltd RT age 80 addition pension aibea wage revision aibea wage revision latest news aiboa aiboc aiboc wage revision AIG AIR airline ticket booking tds airlines all is well allowances allownces alphabet of inspiration alteration on check allowed alternate minimum tax AMENDED 3CD amendment in companies bill 2011 amendment in gratuity act 2010 amendment in registration service tax AMENDMENT IN SERVICE TAX ON RENT amendment to finance Bill 2010 AMNESTY SCHEME 2007 amt Anna Hazare anna hazzare bill vs govt lokpal bill appeal apply for new pan card against old pan card aqb arbitration arrears of salary arrears of sixth pay ARRERS TAX AS-12 ASBA assessee in default ASSESSMENT REOPENING ASSESSMENT YEAR 2008-09 REFUND atm atm 100 per day atm cash without card atm tips atm wrong debit audit cases itr filing audit limit enhanced Audit Questionaire AUDIT REPORT AUS VS IND.INDIA VS SL Automated teller machine AUTOMATION OF CENTRAL EXCISE AND SERVICE TAX ay 2010-11 bad debts Bank Bank account bank audit bank audit 2012 bank charges BANK SALARY bank strike 06/07/09 and 07/07/09 banking law amendment banknotes banks npa provisioning BARE ACT bare rules BASE RATE BY BANKS bcct BIMAL JAIN biometric pan card black and white form not acceptable black money BLOCK PERIOD blogging bobay refund BONUS bonus share book discount BOOK ON EFILING BOOK REVIEW books of accounts BOOMING INDIAN ECONOMY both House rent allowance both hra and house loan Brass Scrap BRIBE CASE BROKER BSE bsnl broadband bsnl broadband usage bsnl land line sms alert BSR CODES BUDGET 2009 budget 2010 budget 2010-11 budget 2011 BUDGET 2012 budget 2013 BUDGET 2014 BUDGET 2014 CONTEST budget expectations BUDGET HIGHLIGHTS budget live on computer budget live telecast budget notification budget on tv budget speech BUDGET SPEECH DOWNLOAD Budget-2014 Budget-2015 BUDGET-2016 BUDGET08 Business BUSINESS AND PROFESSION MEANING BUSINESS COVERED UNDER 44ab BUY HOUSE C FORM CA CAN ONLY AUDIT MVAT CA CLUB INDIA CA GIRISH AHUJA CA NITIN GUPTA CA PARDEEP JAIN CA ROHIT GUPTA ca services CA sudhir Halakhandi CA Swapnil Munot CA Vikas Khandelwal calculate arrear CALCULATE NEW PAY calculate your emi calculation of tax on salary arrears CALCULATOR CALCULATOR REVISED capital asset capital formation huf Capital gain capital gain account scheme 1988 CAPITAL GAIN INDEX capital gain on repayment of loan capital gain on tenancy rights capital goods capital revenue CAPITAL SUBSIDY