AMENDMENT IN SECTION 201 OF INCOME TAX ACT - CONSEQUENCE OF FAILURE TO DEDUCT OR PAY

[CS Swati Dodhi]

Consequence for failure to deduct or payment of tax – Computation of  Interest 

Section 201 speaks about the consequences of persons who fail to deduct tax or after deducting, fail to deposit the same to the credit of the Central Government.

Section 201 Sub-section (1A) says that if any person as liable to TDS Deduction does not deduct it or after so deducting fails to pay the same to the credit of the Central Government, then he/she shall be liable to pay simple interest at the rates specified therein. Similarly, sub-section (7) of section 206C of the Act provides that if any person who is liable to collect tax at source does not collect it or after so collecting fails to pay the same to the credit of the Central Government,  then he shall be liable to pay interest at rates specified therein. 

Computation of interest under the said provisions in case where the default for deduction/collection of tax or payment of tax continues is a clear matter of frequent litigation thus in order to make the legislation process clear and free from any misinterpretation, it is proposed to: 

(i) amend sub-section (1A) of section 201 to provide that where any order is made by  the Assessing Officer for the default under sub-section (1) of the said section, the interest shall be paid by the person in accordance with the order made by the  Assessing Officer in this regard; 

(ii) amend sub-section (7) of section 206C to provide that where any order is made by  the Assessing Officer for the default under sub-section (6A) of the said section, the interest shall be paid by the person in accordance with the order made by the  Assessing Officer in this regard. 

These amendments will take effect from 1st April, 2022.