There are more than a couple of things when it comes to filing your returns and TDS deductions. If you make payments that require TDS to be deducted, and subsequently be paid back to the Central Government, here are ten things you should know if you are found not to comply with TDS provisions.

1. Will I be disallowed of any benefits if I forget to deduct TDS or fail to pay them?

If you make payments to a resident, you, the deductor is allowed to claim a deduction for the payments which will be considered as an expenditure incurred in the previous year of payment. This applies only if you had deducted tax in the previous year and paid the sum within the due date for filing returns as specified under section 139(1) of the income tax act. Now if you did not deduct TDS or did not pay it from certain payments to your residents, then under section 40(a) of the income tax act, 30% of the amount of your expenditure on which tax was deductible will be disallowed. This is done to compute your income under the title ‘Profits and gains of business or profession’. You will be eligible to deduct in the subsequent previous year the amount that was previously disallowed, as you have now paid the TDS to the credit of the Central Government. You may also be interested in learning on Internal Auditing and Management Consultancy in Kerala

2. What if I forgot to deduct tax at source?

This is an error which people usually make when they are unaware of tax laws which can be penalized under section 271C of the Income Tax Act. Here, the defaulters run the risk of paying up to the amount of tax that wasn’t collected at source wholly or partly under section 192 to 196D(Chapter XVII-B) or pay to the government under section 115-O(2) or the second proviso to section 194B

3. What are the interest rates for non-deduction of TDS?

 You may run the risk of paying interest on TDS if you did not or only partly deducted TDS on payments that you made or if you failed to pay the whole or part of the TDS deducted to the Central Government.

There are two cases under section 201(1A) where you become liable to pay simple interest on the unpaid TDS amount:

1. From the date on which the tax was deductible to the date on which the tax is deducted, you will have to pay an interest of one percent on the amount of outstanding tax for every month or part of a month.

2. For late payments from the date when the tax was deducted to the date on which the tax amount is actually paid, you’ll have to pay one and one half percent of the tax amount for every month or a part of a month.

All such interest must be paid before you furnish the TDS statement though.

4. Penalties for non-payment of demand raised

When you default on your payment of tax or if you are found to have defaulted by an Assessing Officer, you will get the opportunity of being heard on the reasons for the delay in payment.

Then according to section 221 of the income tax act, the officer can charge you penalties in addition to the arrears and the money payable as interest if you are found to have defaulted.

Also, note that the total amount payable as penalties will not exceed the total tax money to be paid in arrears.

5. When can someone raise a demand on nonpayment or non-deduction of TDS?

If you are liable to deduct TDS and either failed to deduct whole or part of the TDS or after deducting it failed to deposit to the credit of the Central Government, you shall be treated as an assessee in default in rest of such tax neither deducted nor deposited under section 201(1). This clause applies to employers under section 192(1A) of the income tax act.

Although this is the case, if you fall in the above category in the sum paid/credited to a resident, you shall not be deemed to be an assessee in 10 Consequences of Non-compliance with TDS 3 default if your resident satisfies a set of conditions:

1. The resident has furnished his income returns under section 139 of the Income Tax Act.

2. The residents have taken into account such a sum for computing their income in such return of income.

3. The resident has paid the tax that was due on his/her income declared by him/her in such return of income.

This, in addition to furnishing a certificate to this effect from an accountant as it is prescribed.

6. What are the cases where I may be prosecuted with respect to TDS?

There are a couple of scenarios where you can actually face imprisonment due to lack of payment of TDS if:

1. You failed to pay to the credit of the Central Government the TDS you deducted as required by or under the provisions of Chapter XVII-B of the income tax act.

2.You failed to pay the dues to the Central Government as per sub-section(2) of section 115-O or the second provision to section 194B.

Failure of any of the above cases is punishable and defaulters could face a minimum of three months to a maximum of 7 years of rigorous imprisonment with fine.

7. What if I fail to apply for TAN or not quote them correctly?

This could actually invite a serious penalty if you are required to quote your ‘tax deduction account number’ (TAN) in certificates, challans, statements or other documents.

The penalty will only be in force if you quote a number that’s false, which either you know to be false or believe it to be true. The Assessing Officer can direct you to pay a penalty of not less than Rs.10,000.

8. Fees to be paid due to late filing of TDS statement

Under section 234E of the income tax act, you (deductor) will have to pay a sum of Rs.200 for each day you default on your TDS filing and will continue until the day you finally file your TDS statement, which is subject to a maximum TDS amount.

9. Penalty for non-filing of TDS returns

Under section 272A (2)(k) of the income tax act, deductors are liable to pay a penalty of Rs.100 for each day leading from the date required to file TDS returns and the day they finally file their TDS returns.

10. Impact of late filing or non-filing of TDS statement

According to section 271H of the Income Tax Act, such delays in filing TDS statements could incur penalties within the range of ten thousand to one lakh rupees in certain cases.

This doesn’t mean you will be penalized just the day after you should have filed the TDS/TCS return. It’s important that you file your return within a year from the time prescribed for delivering or causing to be delivered such statement. Just make sure you have paid the tax deducted or collected along with the applicable fee and interest to the credit of the Central Government.

Conclusion

Now that you know the troubles you may find yourself in for not being prompt in your TDS payments, it is also important that you get periodic advice on the best practices when it comes to paying taxes and maintaining checks and balances on all your payments.Parpella has been helping out clients and businesses all over Kerala and Dubai with their accounting needs.

Even when we’ve discussed the general consequences of TDS and other tax liabilities, there’s still more to be known that is usually hard to find in the fine print of the laws associated with taxing.GST registration, company filing, bookkeeping are all such areas that require such monitoring to keep your businesses from falling into the wrong side of the table.For more detailed consultation on business accounting needs, Contact your Business and Company Registration Consultant in Kerala today.