Non-compliance of provisions of TDS where payment is made to
resident :
Under section 40(a)(ia) of the Act, in case of payments made to resident, the deductor is allowed to claim deduction for payments as expenditure in the PY of payment, if tax is deducted during the PY and the same is paid on or before the due date specified for filling of return of income under section 139(1) of the Act.
Any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or 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 on or before the due date specified for filling return of income under section 139(1) of the Act, then 30% of any sum payable to a resident shall not be allowed as deduction in current PY.
Proviso to sec. 40(a)(ia) :
1) 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 section 139(1), 30% of such sum shall be allowed as deduction in computing the income of the previous year in which such tax has been paid.
2) Where an assesse fails to deduct the whole or any part of the tax in accordance with the provisions of chapter XVII-B on any such sum but is not deemed to be an assesse in default under the first proviso of this sub-clause, it shall be deemed that assesse has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.
Section 201 provides that the payer (including the principal officer of the company) who fails to deduct the whole or any part of the tax on the amount credited or payment made to a resident payee shall not be deemed to be an assesse-in-default in respect of such tax if such resident payee –
- Has furnished his return of income under section 139 ;
- Has taken into account such sum for computing income in such return of income ; and
III. Has paid the tax due on the income declared by him in such return of income, and the payer furnishes a certificate to this effect from an accountant in such form as may be prescribed.
The date of deduction and payment of taxes by the payer shall be deemed to be the date on which return of income has been furnished by the resident payee.
Consequently, in cases where such person responsible for deducting tax is not deemed to be an assesse-in-default on account of payment of taxes by the resident payee, it shall be deemed that the payer has deducted and paid the tax on such on the date of furnishing return of income by the resident payee.
Since the date of furnishing the return of income by the resident payee is taken to be the date on which the payer has deducted tax at source and paid the same, 30% of such expenditure/payment in respect of which the payer has failed to deduct tax at source shall be disallowed under se ction 40(a)(ia) in the year in which the said expenditure is incurred. However, 30% of such expenditure will be allowed as deduction in the subsequent year in which the return of income is furnished by the resident payee, since tax is deemed to have been deducted and paid by the payer in that year.
