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Timely TDS compliance is crucial for businesses as it is a mechanism for tax collection. TDS is deducted by the payer at the time of making payment or credit to the payee. It is applied to various types of payments, such as salary, commission, professional fees, interest, rent, etc.
The TDS collected is then deposited with the government. This helps in the funding of public spending and the preparation of the budget, as it takes into account the TDS and advance tax estimates. If the TDS is not collected on time, it hampers the growth of the country, as the government does not have the required funds. Moreover, there are very stringent provisions for TDS in India. The payer has to deposit the TDS with the government every month. In case of delay, there is interest levied on the amount due. The interest rate is 1%/1.5% per month, as the case may be. In addition to this, prosecution can be launched against the company and its directors for the delay in the payment of TDS.
What is TDS?
TDS is a tax deducted at source on payments made by an individual, company or other body to a taxpayer. TDS is deducted from sources such as salary, commission, professional charges, rent, interest or any other payment specified under the Income Tax Act of India. The amount of tax deducted at the source depends on the rate of TDS applicable to the particular payment. The TDS rate varies depending on the type of payment. The TDS collected is deposited with the Government of India. This helps the government fund public spending and budget preparation as it takes into account the TDS and advance tax estimates.
Why Is Compliance Important?
Timely compliance of TDS is extremely important because any non- compliance attracts a penalty and prosecution. Further, the payer has to furnish to the government a statement of all the payments for which the TDS has been deducted. This statement is known as the TDS return and must be filed on a regular basis. In case there is delay on the filing of the said TDS return, then penalty shall be levied for the same as well.
The assessee is also required to provide the details and proof of tax deduction when filing the income tax return. It is therefore important to maintain proper books of accounts of all the TDS collected and deposited as it helps to verify the information provided in income tax returns. Additionally, regular auditing of TDS returns is important to ensure that all payments have been accounted for. The audited TDS returns also provide the government with a better understanding of the taxpayer’s financial status.
What Are The Penalties For Non-Compliance?
Following shall be the penalties for the non-compliance –
- A penalty of up to 100% of the TDS amount due.
- Interest in case of non-deduction of TDS
- Interest shall be levied @1% for every month or part of the month from the date on which TDS was deductible till the date on which TDS was actually deducted.
- Interest in case of non-payment / late payment of TDS – Interest shall be levied @1.5% for every month or part of the month from the date on which TDS was deducted till the date on which TDS was actually credited to the Government
- A late filing fee of Rs 200 per day is levied until the TDS return is filed.
Note – As per provison to Section 201 of the Act, if the person liable to deduct TDS fails to deduct the whole or part of the TDS on payment being done to a resident, then, in such cases, the person liable to deduct TDS cannot be deemed as an assessee-in-default for non-deduction, if all the undermentioned conditions are satisfied –
- The recipient is a resident in India;
- The recipient has furnished his income tax return under section 139;
- The recipient has paid applicable taxes due on the income declared in an income tax return filed by him;
- The resident payee furnishes a certificate from an accountant in form No. 26A to this effect.
If all the above conditions are satisfied, then the person liable to deduct TDS would not be treated as assessee-in-default for non-deduction or less deduction of TDS and the taxpayer would be liable to pay interest @1% from the date on which TDS was deductible till the date the resident recipient has furnished his income tax return. Taxpayers should also note that as per provisions of section 201(1A) of the Act, it is mandatory to pay interest for delay in payment of TDS or for non-payment / non-deduction of TDS before filing a TDS return.
Can Prosecution Be Launched For The Delayed Deposit Of The TDS?
If a person deducts tax at source etc. but fails to pay the same to the credit of the Central Government as prescribed, then the said person can be sentenced to rigorous imprisonment for a term not less than 3 months and extendable upon 7 years with a fine as well. However, the guidelines have been issued by CBDT, wherein it has been prescribed that non-habitual defaulters can get their TDS default offences compounded by the income tax department.
How To Ensure Timely TDS Compliance?
There are several ways in which businesses can ensure timely compliance with TDS regulations. They must ensure that all TDS returns are filed on time and that the TDS is deposited to the government in the required manner. Businesses are also required to maintain proper books of accounts for all the TDS collected, as well as for all payments and deposits related to the TDS. Additionally, businesses should consider availing the services of a professional tax consultant/advisor to ensure timely compliance with the various TDS regulations. The tax consultant/advisor can help the business with the filing of TDS returns and depositing the tax due with the government on time.
Nowadays, the income tax department is diligently monitoring the TDS information. Basis the analysis of the said information available with the income tax department, multiple notices are being issued to the taxpayers. Even, in the case where there is a decline in the TDS deposition (in comparison to the TDS deposition for the last year), then also the income tax department is seeking information to understand the reason for the decline.
Further, when the information is available with the income tax department showing that the taxpayer is a defaulter (i.e., there is a short deduction of the TDS, delay in filing of the TDS return, delay in the deposition of the TDS, delay in issuing the Form 16, Form 16A, etc), then also the income tax department is issuing notice to the taxpayers. In multiple instances, when there is a significant delay in the deposition of the TDS and the taxpayers do not get the offences compounded, then the income tax department has launched prosecution. Basis the same, it can be concluded that the income tax department is very serious about TDS compliances and wants to ensure that taxpayer has complied with provisions of the Act as prescribed.
Timely TDS compliance is extremely important for businesses as non-compliance attracts heavy penalties. It is therefore important for businesses to ensure that all TDS returns are filed and taxes are deposited in the required manner. In order to ensure timely compliance, businesses must maintain proper books of accounts, avail the services of a professional tax consultant and file the TDS return before the due date. This will help in avoiding hefty penalties and ensure that the business is compliant with all TDS regulations.