Saturday, April 6, 2013

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


on Saturday, April 6, 2013

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 fo 2 month =3 % interest . So delay of only one day of tds may cause you interest loss of three percent.


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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  1. THANKS SIMPLE TAX INDIA

    ReplyDelete
  2. here in 1st and 2nd example the rate of int. should be 1.5% and not 1% because there is delay in deposit and hence the applicable rate of interest would be 1.5%

    ReplyDelete
    Replies
    1. in Eg. 1 month should b 1,,is t not?

      Delete
    2. 2 Months are correct. In case of late payment of tds ,month are counted from date of deduction of tax to date of deposit of tax .
      In exp. 1 date of deduction is 05.04.12 and date of deposit is 9.05.12 so two month is correct

      Delete
  3. Sir, I hv a question !!

    My wife had a joint Saving Bank a/c with her mother-in law in bank on "Either or Survivor" basis where my wife was a 2nd jt holder & mother-in-law as 1st holder. Her mother-in-law passed away in September 2012.
    Now what would be the status of amount she left in her a/c from Income Tax point of view.

    Arun Kalra
    E-mail Id: kalra2008@gmail.com
    Mobile No. 9958111456

    ReplyDelete
  4. How do we escalate the issue of banks
    a. Not deducting TDS amount at all
    b. Deducting TDS amount in delayed manner?

    Whom do we escalate the issue to?

    Regards

    ReplyDelete
  5. Hi Sir, I had an FD in 2008 for 1 year duration. once it matured I extended it for 1 year and after that matured, I again extended it for 5 year. But because of my ignorance I submitted form 15g to get tds rebate. Now I realized that I was never eligible for the rebate and I shouldn't have submitted that form. Can you suggest how can I correct this mistake? thanks in advance.

    ReplyDelete
    Replies
    1. If tds has not been deducted ,then you can deposit tax through challan directly . Further declare full interest income on maturity of fdr in 2014

      Delete
  6. An employee in my department had income above 5 lakhs during the FY 2012-13 But my employer deducted tax at 10% only. Now it has been found out. It may be clarified that whether the employee has to pay interest for the balance tax to be remitted by him. If so at what rate

    ReplyDelete
    Replies
    1. Interest is payable only if advance tax liability is more than 10000/-

      Delete
  7. Rs. 200/day penalty should b paid while depositing TDS or after filing e-tds/after receiving notice from dept.is it really happening from dept end.

    ReplyDelete
    Replies
    1. As per rules before filing of tds return ,but in 101% cases persons are waiting for department notices ,and as per our knowledge no one has received such notice

      Delete
  8. My employer has deducted & remitted the tax on my retirement in January/2013 on 04/02/2013 but the credit of tax is not being reflected
    in the tax credit statement 26AS till date.what should be done? Who is
    accountable ?

    ReplyDelete
    Replies
    1. Get Form 16 from employer and ask him to send credit in form 26As ,meanwhile file income tax return on the basis of form 16 or wait till 31.03.2014 if no balance tax payable by you

      Delete
  9. I HAVE DEDUTED TDS ON CONTRACTOR PAYMENT IN 05.04.2013 Rs.4000/- BUT I CAN NOT DEPOSITED TDS TILL TOADY(03.08.2013). I WANT TO KNOW HOW MUCH PENALTY INTEREST WILL BE APPLICABLE....

    ...................................PLZ REAPLY.............

    ReplyDelete
    Replies
    1. if you deposit tds by 04.08.2013 then four months interest is applicable i.e 4000 X 1.5 % X 4=240 RS

      If you pay after 04.08.13 up to 04.09.13 then five month interest applicable

      4000X1.5%X5=300

      Delete
  10. Sir, I had a question

    Tax deducted on 31/12/2012 and deposited on 10/01/2013 the delay is only for one month but department is calculating Intt. for 2 month @ 1.5% p.m. is it correct.

    ReplyDelete
    Replies
    1. No it is not correct , you should contest .Many person have reported this error and we think it will be corrected by department sooner or later

      Delete
  11. Dear Rajan,

    Thanks for the detailed Explanation. But now a days as you must have noticed, they are not doing it this way. Suppose the date of payment is 31-may-2013. Now due date is 07-Jun-2013 but date of payment is 08-June-2013, department will charge interest for 2 months i.e., May 2013 and June 2013.
    I have received one such notice. Any advise. Tried to call you but seems you have changed the number.

    CA Kanwaljit Singh Dhunna
    Sirhind
    98767-39911

    ReplyDelete
    Replies
    1. yes , we know that they are issuing interest notices like this ,but don.t worry ,no need to deposit interest of two months ,there is no interest on interest applicable , don't deposit interest at all.we have not deposit balance for 2007-08,08-09 yet ,no body pursuing at all

      Delete
  12. My client had to deposit TDS on rent for period april 2013 onwards for this year.
    He hasnt.
    So now while he wishes to pay that amount along with interest. My question is this:
    1.do we need to file TDS return for Q1 and Q2 along with interest (we will have to bear late filing fees!)?
    2. Or can we file return for Q3 directly showing all those amounts as deducted late? In this case, do we still need to file NIL return for Q1/Q2 ?

    ReplyDelete
    Replies
    1. you can /should file return in q3 and show all the tax deducted in q3 (which I assume a fact also) .Further for late deduction of tax ,Interest is 1 % and for late deposit of tds interest rate is 1.5 % .

      Further no need to file nil tds return for q1 or q2

      Delete
  13. One of my clients initially deducted and paid 2% instead of 10%. Later on, he deposited 8% also. Now he received notice regarding defaults with regard to short deduction of 2% as well as 8%. What should be the way forward?

    ReplyDelete
    Replies
    1. You should file revised return and should reduce amount paid by 80 % in first case and 20 % by in second case and show tax rate on reduced amount @ 10 % .In second case deposit also deposit interest if not already deposited

      Delete
  14. Can you suggest, in which column we have to show interest on late payment in tds revise return. Is in show normal interest or interest as per annexure column

    ReplyDelete
  15. sir can you suggest me that my april 2014 tds is 884 but iam not paying that amount on may 7 2014 & now iam paying that amt on june 5 2014 tell me how much interest i pay on that TDS amt.

    ReplyDelete