Understanding Section 191 of the Income Tax Act: A Comprehensive Guide
The Indian Income Tax Act is a complex piece of legislation that is often difficult for taxpayers to navigate. One of the many provisions that can be confusing is Section 191, which deals with the liability of a person who is responsible for making payments to a taxpayer.
In this blog, we’ll take a closer look at Section 191 and break it down into easily digestible headings to help you understand what it means and how it applies to you.
What is Section 191 of the Income Tax Act?
Section 191 of the Income Tax Act deals with the liability of a person who is responsible for making payments to a taxpayer. It states that if a person responsible for making payments to a taxpayer fails to deduct tax at source or fails to pay the tax so deducted, they will be held liable for the tax that should have been deducted or paid.
Who is responsible for deducting tax at source?
Section 191 applies to a person who is responsible for deducting tax at source. This person could be an employer, a contractor, or any other person who is required to deduct tax at source under the Income Tax Act.
What happens if tax is not deducted at source?
If tax is not deducted at source, the person responsible for deducting tax will be held liable for the tax that should have been deducted. This means that they will have to pay the tax out of their own pocket, and they may also be subject to penalties and interest.
What happens if tax is deducted but not paid?
If tax is deducted but not paid, the person responsible for deducting tax will be held liable for the tax that should have been paid. Again, they will have to pay the tax out of their own pocket, and they may also be subject to penalties and interest.
How can you avoid liability under Section 191?
The best way to avoid liability under Section 191 is to ensure that tax is deducted at source and paid on time. This means that the person responsible for deducting tax must be diligent in their duties and keep up-to-date with the latest tax regulations.
Penalties for non-compliance
If a person responsible for deducting tax at source fails to deduct tax or pay the tax that was deducted, they may be subject to penalties under the Income Tax Act. The penalties can range from a minimum of Rs. 10,000 to a maximum of the amount of tax that was not deducted or paid.
Interest on delayed payment
In addition to penalties, the person responsible for deducting tax may also be required to pay interest on the amount of tax that was not paid. The interest rate is currently set at 1% per month or part of the month for the period of delay.
Responsibility of deductee
It’s important to note that the responsibility for paying tax ultimately lies with the deductee, i.e., the person receiving the payment. However, if tax is not deducted or paid by the person responsible for deducting tax, the deductee may be required to pay the tax directly to the government.
TDS certificate
The person responsible for deducting tax is required to issue a TDS (Tax Deducted at Source) certificate to the deductee. The TDS certificate contains details of the tax deducted and paid to the government. The deductee can use the TDS certificate to claim credit for the tax deducted while filing their income tax return.
Joint liability of multiple deductors
If there are multiple deductors for a particular payment, they are jointly liable for deducting tax at source and paying it to the government. However, if one of the deductors has already deducted and paid the tax, the other deductors are not required to deduct tax again.
Consequences of non-compliance
The consequences of non-compliance with Section 191 can be severe. In addition to penalties and interest, the person responsible for deducting tax may face legal action, including prosecution and imprisonment. Non-compliance can also result in damage to the reputation of the person or organization responsible for deducting tax.
Importance of compliance for businesses
For businesses, compliance with Section 191 is crucial to maintain a good reputation and avoid legal troubles. Non-compliance can result in significant financial and reputational damage, which can harm the long-term prospects of the business. Businesses should ensure that they have robust systems and processes in place to ensure compliance with the Income Tax Act.
Importance of compliance for individuals
Individuals who receive payments subject to TDS should also be aware of the provisions of Section 191. They should ensure that they receive the TDS certificate from the deductor and use it to claim credit for the tax deducted while filing their income tax return. Failure to do so can result in additional tax liability and penalties.
Conclusion
Section 191 of the Income Tax Act is an important provision that deals with the liability of a person responsible for making payments to a taxpayer. If you are responsible for deducting tax at source, it’s essential to understand your obligations and ensure that you comply with the provisions of the Income Tax Act. By doing so, you can avoid liability under Section 191 and ensure that your tax affairs are in order.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
What is Section 191 of the Income Tax Act?
Section 191 of the Income Tax Act holds the person responsible for deducting tax at source liable for any non-compliance.
Who is responsible for deducting tax at source?
The person responsible for deducting tax at source depends on the nature of the payment. Generally, it is the person making the payment.
What payments are subject to TDS?
TDS is applicable to a wide range of payments, including salaries, interest, rent, commissions, and professional fees, among others.
What happens if tax is not deducted or paid by the person responsible for deducting tax?
If tax is not deducted or paid by the person responsible for deducting tax, they may be subject to penalties and interest under the Income Tax Act.
Can the deductee be held liable for non-compliance?
While the ultimate responsibility for paying tax lies with the deductee, they are not held liable for non-compliance with Section 191 unless they are also the person responsible for deducting tax.
Can multiple deductors be held liable for non-compliance?
Yes, if there are multiple deductors for a particular payment, they are jointly liable for deducting tax at source and paying it to the government.
What is a TDS certificate?
A TDS certificate is issued by the person responsible for deducting tax and contains details of the tax deducted and paid to the government.
Can the TDS certificate be used to claim credit for the tax deducted?
Yes, the TDS certificate can be used by the deductee to claim credit for the tax deducted while filing their income tax return.
What are the consequences of non-compliance with Section 191?
Non-compliance with Section 191 can result in penalties, interest, legal action, prosecution, and imprisonment.
How can businesses and individuals ensure compliance with Section 191?
Businesses and individuals can ensure compliance with Section 191 by understanding their obligations, having robust systems and processes in place, and seeking professional advice when necessary.
