Repercussion of delay in TDS payment

The deduction of tax at source or TDS has been very helpful in the collection of taxes in the country by targeting the source of income itself. The government uses TDS as a tool to collect tax in order to minimize tax evasion by taxing the income (partially or wholly) at the time it is generated rather than at a later date. The recipient of income receives the net amount (after deducted of tax at source). The recipient will add the gross amount to his income and the amount deducted at source is adjusted against his final tax liability. Basically take credit of the amount already deducted and paid on his behalf. TDS is applicable on the various incomes such as salaries, interest received, commission received etc.

DUE DATE FOR TDS PAYMENT

• TDS deducted on payments : 7th of the subsequent month
• TDS deducted in the month of March: 30th April

When it comes to TDS interest, we come across two types of scenarios:

• Non-deduction of TDS
• Non-payment of TDS

NATURE OF DEFAULT	INTEREST SUBJECT TO DEDUCTION	INTEREST PAYMENT PERIOD
Non-Deduction of TDS, either in whole or part	1% per month	From the date on which tax was deductible to the date of actual deduction
Non-payment of TDS (after deduction), either in whole or part	1.5% per month	From the date of deduction to the day of TDS payment

Default in TDS deposit: How punishable is this offence?

Section 276B of the Income Tax Act, 1961, provides for the prosecution provision in case of default in payment of TDS under Chapter XVII-B and Chapter XII-D

As per section 276B-

“ If a person fails to pay to the credit of the Central Government, the tax deducted at source by him as required by or under the provisions of Chapter XVII-B, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.”

In recent past one such case wherein, the Ballard Pier magistrate court has convicted and sentenced, a couple, two directors of a construction company, to three months’ imprisonment for a delay in depositing TDS.

FACTS:

• Premal and Neha Parekh of Brajesh Construction Pvt Ltd are two directors of a construction company delayed in depositing Rs 43.40 lakh as tax deducted at source.
• Special public prosecutor Amit Munde represented the income- tax authorities. Among the two witnesses examined by Munde was the I-T officer, Who told court that during assessment he found that they did not pay the deducted tax amount as prescribed under the Act, on or before the 7th of the following month. The tax was deducted for April 1, 2012 to March 31, 2013.  They paid the amount after a 12-month delay along with a penalty, including interest, amounting to almost Rs 6 lakh.

HELD:

• “Accused cannot be allowed to use the tax amount deducted for any other purpose . TDS is deducted on behalf of the government and should be deposited in the government account.  Deductors are not supposed to finance their business through. Government money,” the court said.
• The prosecution submitted that the subsequent payment did not mean that the offence was not committed.
• The court refuted the submission of the accused that the delay was due to a financial crunch.
• The directors of the construction company were sentenced to three months imprisonment  and also have to pay a fine of Rs. 5,000 each.

       It should be understood that not only deduction of tax is essential but timely payment is also imperative, otherwise we may face dire consequences.

   By

  Maitri Badani

 (Article Assistant)

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