Penalties & Interest on Failure to Deduct or Pay TDS under section 201
Section 201 talks about the interest and penalties leviable in case of Non-Deduction or Non-Payment of TDS.
If any person who is liable to deduct TDS does not deduct the whole or any part of the tax or after deducting fails to pay the whole or any part of the tax, then, he shall be deemed to be an assessee in default in respect of the tax not so deducted or not so paid. Consequently he shall be liable to pay interest under section 220 and penalty under section 221 for being assessee in default.
- Penalty under section 221 can be upto the amount of TDS not deducted/not paid.
- Interest under section 220 @ 1% per month from the date the tax was deductible/payable till the date of passing of an order under section 201(1).
Section 201(1) applies only
- when assessee fails to deduct whole or part of TDS; or
- where assessee after deducting TDS fails to pay the whole or part of TDS.
This section does not apply if there is a delay in deduction or delay in payment of TDS.
Relaxation to Section 201(1)
The assessee who fails to deduct TDS shall not be treated as assessee in default if the resident from whom the TDS is to be deducted has furnished his return of income under section 139 after taking into account such income on which TDS ought to be deducted and has paid the tax due on the income.
The resident shall also be required to furnish a certificate to this effect from a Chartered Accountant in such form as may be prescribed.
Please Note: If payee (the person from whose Income TDS is deducted) is a non-resident, then deductor (the person who deducts TDS) shall be treated as an assessee in default even if non-resident payee has paid the tax directly.
Section 201(1A): Late Deduction of TDS or Late Payment of TDS
If any person does not deduct the whole or any part of the tax within the time prescribed or after deducting fails to pay the tax within the time prescribed, he shall be liable to simple interest:
- at 1% every month or part of a month on the amount of such tax from the date in which such tax was deductible to the date on which such tax is deducted and
- at 1.5% for every month or part of a month in the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.
and such interest shall be paid before furnishing the quarterly return of TDS.
In case the assessee fails to deduct TDS but the resident from whom TDS is to be deducted has shown the said income in his return u/s 139, paid tax on the income and furnished required certificate from the CA then the interest leviable u/s 201(1A)(1) shall be from the date on which such tax was deductible to the date of furnishing of return of income by such resident.
Suppose TDS was required to be deducted on 10.10.2012 and was to be paid on 7.11.2012; now
Case 1: Assessee deduct the TDS on 10.10.2012 but pays TDS on 31.12.2012. Now the interest u/s 201(1A) shall be charged from 10.10.2012 to 31.12.2012 @ 1.5% per month i.e. for 3 Months.
Case 2: Assessee failed to deduct TDS on 10.10.2013 and deducts TDS on 31.12.3012 and pays TDS on 17.1.2013, now
- interest u/s 201(1A) shall be charged for 3 months @ 1% per month for the period 10.10.2012 to 31.12.2012.
- interest u/s 201(1A) shall be charged @ 1.5% per month for one month from 31.12.2012 to 17.1.2013.
Case 3: Assessee neither deduct TDS nor pays TDS. In this case assessee shall be deemed to be as assessee in default u/s 201(1) for the amount of TDS not deducted, now
- the penalty for being assessee in default is upto an amount of TDS not deducted; and
- interest for assessee in default shall be levied @ 1% per month upto the date of order under section 201(1).
Recovery of Tax:
Where the tax has not been paid after it is deducted, the amount of the tax together with the amount of simple interest thereon shall be a charge upon all the assets of the deductor.