Penalty for non deduction of TDS

If an individual is paying somebody an income which is taxable then he/she should deduct tax at source TDS as per the rate specified by the Tax Department of India. It is important that the employer deducts tax at source and if it is not done as specified then there are specific penalties for the person who fails to deduct tax at source that is TDS. When the employer fails to deduct tax at source TDS then the penalties for non deduction of TDS are as follows:

a)      Interest charge U/S 201(A):  Under this the person responsible for non deduction of TDS is treated as “assessee in default”. Under this section the responsible person is liable for paying simple interest at the rate of 1 per cent for the whole tenure when TDS was not deducted. This interest should be submitted before the submission of the quarterly statement in each quarter. There is no way or provision under which this interest amount can be waived. It is mandatory and that the responsible person has to deposit the same as penalty. Rule 119 A is used for Interest is calculation process. Following rules are used for calculation of interest to be paid by the person who failed to deduct TDS.

(i)                  Interest will be calculated for the full month irrespective of the fact that whether it has to be calculated for every month or for only part of the month.

(ii)                The taxable amount with reference to which interest is calculated will always be rounded off to nearest multiple of 100. Any further fractions will be ignored.

b)      Penalty under U/S 221: If the assessing officer is not satisfied with the reasons because of which the assessee failed to deduct the TDS then the assessee will be liable for the penalty. The penalty amount should not exceed the tax amount. Although the assessing officer makes sure that the assessee gets the required opportunity to present his clarification and justifications.

c)       Penalty under U/S 271C: A penalty amount which is equivalent to the tax the assessee failed to deduct can be levied under U/S 271C. It can only be levied by the Joint Commissioner of Income Tax department.

So if you are an employer then make sure you deduct the necessary TDS from the salary of the employees. In case you fail to do the same then you will be liable for all the penalties for non deduction of TDS mentioned above.

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