Section 201 of the Income Tax Act, 1961 is an important provision that deals with the Tax Deducted at Source (TDS) on failure to deduct or pay tax. The section imposes a penalty on those who fail to deduct TDS or fail to deposit the deducted TDS with the government.
What is TDS?
TDS is a mechanism introduced by the government to collect taxes at the source of income. It is deducted by the payer at the time of making a payment to the payee, and then deposited with the government within a specified time period. The TDS is calculated as a percentage of the amount paid and varies depending on the nature of the payment.
For instance, if you receive a salary of Rs. 50,000 per month, your employer will deduct TDS from your salary before paying you the remaining amount. The TDS deducted by your employer will be deposited with the government, and you can claim credit for the same while filing your income tax return.
What is Section 201 of Income Tax Act?
Section 201 of the Income Tax Act deals with the consequences of failure to deduct or pay TDS. According to this provision, if a person who is required to deduct TDS fails to do so, or after deducting TDS fails to deposit the same with the government, he shall be deemed to be an assessee-in-default.
In other words, if the TDS deducted is not deposited with the government within the specified time, the person who has deducted TDS will be considered as an assessee-in-default. This means that the person will have to pay a penalty, which is equal to the amount of TDS that has not been deposited with the government.
Penalties under Section 201
If a person is deemed to be an assessee-in-default under Section 201, he will be liable to pay interest on the amount of TDS that has not been deposited with the government. The interest rate is currently 1.5% per month or part of the month, and is calculated from the date on which the TDS was supposed to be deposited with the government until the date of actual payment.
Apart from interest, a penalty may also be imposed on the defaulter. The penalty can be up to the amount of TDS that has not been deposited. However, the penalty cannot exceed the amount of TDS that should have been deducted.
Conclusion
TDS is an important mechanism for collecting taxes at the source of income. Failure to deduct or pay TDS can result in penalties and interest under Section 201 of the Income Tax Act. It is therefore important for taxpayers to ensure that they comply with the TDS provisions and deposit the TDS with the government within the specified time period.
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Frequently Asked Questions (FAQs)
Q. What is Section 201 of the Income Tax Act?
Section 201 of the Income Tax Act deals with the consequences of failure to deduct or pay TDS. If a person who is required to deduct TDS fails to do so, or after deducting TDS fails to deposit the same with the government, he shall be deemed to be an assessee-in-default.
Q. What is TDS?
TDS stands for Tax Deducted at Source. It is a mechanism introduced by the government to collect taxes at the source of income. TDS is deducted by the payer at the time of making a payment to the payee, and then deposited with the government within a specified time period.
Q. Who is responsible for deducting TDS?
The person who makes the payment is responsible for deducting TDS. For example, if an employer pays salary to an employee, the employer is responsible for deducting TDS from the salary payment.
Q. What is the penalty for failure to deduct or pay TDS?
If a person is deemed to be an assessee-in-default under Section 201, he will be liable to pay interest on the amount of TDS that has not been deposited with the government. The interest rate is currently 1.5% per month or part of the month, and is calculated from the date on which the TDS was supposed to be deposited with the government until the date of actual payment. Apart from interest, a penalty may also be imposed on the defaulter. The penalty can be up to the amount of TDS that has not been deposited. However, the penalty cannot exceed the amount of TDS that should have been deducted.
Q. Can the penalty under Section 201 be waived?
The penalty under Section 201 can be waived or reduced in certain circumstances. For example, if the defaulter can prove that the failure to deduct or pay TDS was due to a reasonable cause and not due to willful neglect, the penalty may be waived or reduced.
Q. Is there a time limit for depositing TDS with the government?
Yes, there is a time limit for depositing TDS with the government. The TDS must be deposited with the government within 7 days from the end of the month in which the deduction is made. If the TDS is not deposited within this time limit, the defaulter will be liable to pay interest and penalty under Section 201.
Q. Can the interest on late payment of TDS be waived?
The interest on late payment of TDS cannot be waived under normal circumstances. However, the assessing officer may waive or reduce the interest in certain cases, such as when the delay was due to reasonable cause and not due to willful neglect.
Q. What is the procedure for paying TDS?
The TDS can be paid online through the NSDL website or through authorized banks. The TDS can also be paid offline by filling up a Challan and depositing it at the authorized bank.
Q. Is there a penalty for late filing of TDS returns?
Yes, there is a penalty for late filing of TDS returns. The penalty can be up to Rs. 10,000 for each late return.
