Non-Payment and Non-filing of TDS/TCS Returns: Consequences

The concept of Tax Deducted at Source was introduced with the purpose of collecting tax from the source of income. According to this concept, a person, known as a deductor, is liable to make a payment of specific nature to another person, known as a deductee. A person called a deductee shall then deduct tax at source and transfer the amount to the account of the Central Government. 

The person whose income tax is deducted at source would be entitled to a credit of the deducted amount on the basis of a TDS certificate that will be issued by the deductor or by Form 26AS.

Introduction

Every such assesse requires filing a TDS return who is liable for the TDS deduction. These returns shall be filed within particular time intervals, and information has to be submitted to the income tax (IT) authorities.

Such information will include details of Tax Deduction and Collection Account Number (TAN), TDS payment, the amount deducted, Permanent Account Number (PAN), nature of payment, etc. 

Every taxpayer must be aware of the exact due dates for filing of the TDS returns otherwise they may have to deal with penalties and fines. 

Let us now discuss the consequences of non-payment of TDS and non-filing of TDS returns.

Meaning of TDS

TDS (Tax Deducted at Source) is a concept where a specific amount is reduced at the time of making a particular payment like salary, rent, commission, professional fees, interest, etc. 

The person that makes the payment deducts TDS, while the person that receives the payment pays tax. It lowers evasion of tax as the tax would be collected at the time the payment is made.

Payments on which TDS is deducted

Tax Deducted at Source (TDS) is deducted on the following types of payments:

• Salaries,
• Interest payments by banks,
• Commission payments,
• Rent payments,
• Consultation fees, and
• Professional fees

However, Individuals do not require to deduct TDS at the time of making payments such as rent or fees of professionals like lawyers and doctors. 

Duties of Persons Liable to TDS Deduction

A person that deducts TDS is responsible for the following;

• Obtaining Tax Deduction Account Number and mentioning it in all of the documents that relate to TDS,
• Deduction of the TDS at the rate applicable,
• Depositing the TDS amount to the Central Government within the due date,
• Filing of TDS returns within the due date,
• Issuing the TDS certificate to the payee within the due date that is specified

Non-Filing of TDS/TCS Returns

Section 234E provides that the person that is required to collect/deduct tax deducted at source will be liable to a penalty of Rs 200/- (two hundred) per day until the date the TDS return is filed. 

The deductor of TDS will be liable to pay a such fine for each day till such delay continues and until the fine amount becomes equal to the amount that such person was supposed to pay as the amount of TDS.

[Illustration]

Suppose TDS of Rs 10,000/- is deducted on 14th May 2022 and the deductor files the return for Quarter 1 (Q1) on 12th November 2022 instead of the date due for Q1, i.e., July 31, 2022.

(Now, here the delay is of 104 days counting from 1st August 2022 to 12th November 2022.)

The calculation comes out as:- 

Rs 200 x 104 days = Rs 20,800/-, but since the amount of penalty is greater than the TDS due amount of Rs 10,000/-, the deductor will have to pay only Rs 10,000/- as the late filing fee.

Additionally, the deductor will also have to pay an interest amount for such delay in depositing TDS.

Consequences of Non-Payment of TDS/TCS 

The person who fails at filing the statement for TDS/TCS may be directed by the Assessing Officer to pay a minimum penalty of Rs 10,000/- within the due date, which may be further extended to Rs 1,00,000/-. 

The penalty that is levied u/s 271H is in addition to the fee that is levied for late filing u/s 234E. 

The exception to the Penalty (u/s 271H)

In case of delay in filing for the TDS/TCS return, the penalty will not be levied according to section 271H if the conditions that are mentioned below are satisfied:

• The tax deducted at source or collected at source is paid to the credit that belongs to the Central Government,
• Late filing fees are paid to the credit of the Central Government,
• The TDS or TCS return is filed before the period of one year expires from the due date that is specified on this behalf

Prosecution 

In case a person fails to pay TDS with the credit of the Government as required, then such person shall be punishable with imprisonment for a term of at least three months which may extend to seven years, and in addition to imprisonment, a fine can also be levied.

Penalty for Non-Payment of TCS

If the person fails to collect tax at source (TCS) and fails to deposit it with the government within the prescribed duration, then such a person will be required to pay interest at the rate of 1% per month or a part of it on the TCS amount. 

The collector of tax is liable to pay interest on the due amount up to the date the tax gets actually paid, from the date on which such tax became due or collectible. 

Due Date for Filing TDS/TCS Returns

The tax deducted from the income is monthly deposited. Its TDS return is filed quarterly. For example, for the taxes that were deducted within the months of April to June, the TDS return for these three months is required to be filed before August 1.

Due Date Compliance for the year 2022-2023; [Table]

            Quarters                                 Due date for filing TDS return

Quarter 1 (April to June 2022)                            July 31, 2022

Quarter 2 (July to September 2022)                 October 31, 2022

Quarter 3 (October to December 2022)    January 31, 2023

Quarter 4 (January to March 2023)               May 31, 2023

FAQs

• Is Tax Deducted at Source paid monthly?: If the deductor deducts TDS in any month, then such tax shall be paid before the 7th of the succeeding/next month. However, if the Tax Deducted at Source (TDS) is deducted in the month of March, it can be deposited till April 30. For TDS that is removed on the purchase of property and rent, the due date is thirty days from the last of the month in which such TDS is deducted.
• How is Tax Deducted at Source calculated on salary?: TDS on salary is calculated as per the income tax (IT) slab applicable to the employee(s) after adjusting all the eligible exemptions and deductions. Salary is one such income where the deductor (employer) deducts complete tax liability as TDS.
• Can a person file a TDS return after the due date for filing has passed?: If the due date for TDS has passed, the deductor can still file for the TDS returns but a penalty of Rs 200/- per day will have to be paid according to Section 234E. The deductor is liable to pay a penalty for each day till such failure continues. However, the amount for late fees cannot exceed the actual amount due for TDS.
  Apart from it, the penalty can be levied under Section 271H by the department which is within Rs 10,000/- to Rs 1,00,000/-. Penalty under this Section is levied additionally with the late filing fees that are specified under Section 234E.

Conclusion

Failing to file TDS returns within the specified due date would attract fees for late filing and beyond that, the person would also be liable to a penalty.
The fees for late filing would be charged for each day after the due date passes and it would continue till the date such TDS return is filed.
However, the maximum penalty must not exceed the actual payable TDS amount on the due date.