Section 201 - Consequences of failure to deduct or pay TDS - Income Tax - Ready Reckoner - Income Tax

Section 201 : Consequences of failure to deduct or pay TDS Section 201(1) : Deemed assessee-in-default (Failure to deduct or failure to pay TDS) If any person who is liable to deduct TDS does not deduct the whole or any part of the tax or after deducting fails to pay the whole or any part of the tax, then, he shall be deemed to be an Assessee in Default in respect of the tax not so deducted or not to paid. Consequently he shall be liable to pay interest under section 220 and penalty under section 221 for being Assessee in Default. Section 201(1) Non-applicability of deeming provision. Any person, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139 ; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from a chartered accountant in such form as may be prescribed. No penalty under section 221 No penalty shall be charged u/s 221 from such person, unless the AO is satisfied that such person has without good and sufficient reasons failed to deduct and pay the tax. Interest Liability Section 201(1A): Late Deduction of TDS or Late Payment of TDS If any person, does not deduct the whole or any part of the tax within the time prescribed or after deducting fails to pay the tax within the time prescribed, he shall be liable to pay simple interest (i) at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted and (ii) at 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the quarterly return of TDS. Guidelines for waiver of Interest charged u/s 201(1A) of the Income Tax Act, 1961. [ Circular No. 11/2017 , dated 24.03.2017 ] However as per Amendment made by Finance Act, 2022 In Order to make the intention of the legislation clear and to make it free from any misinterpretation, the Finance Act, 2022 has amended section 201(1A) w.e.f. 01-04-2022 to provide that where any order is made by the A.O. for the default u/s 201(1), the interest shall be paid by the person in accordance with the order made by A.O. in this regard. Provided that in case any person, fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident but is not deemed to be an assessee in default under the first proviso of section 201(1), then the interest under clause ( i ) shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident. Where the assessee failed to deduct tax u/s 194C , but it was found that the contractor had paid the advance tax and self-assessment tax over and above the tax payable, thereby not causing any loss to the revenue. Hence if the revenue is permitted to to levy interest u/s 201(1A) even if the tax is paid on due date, the revenue would derive undue benefit by getting interest on the amount of tax which had already been paid on the due date. Such position cannot be permitted. [ CIT v Rishikesh Apartments Co-op. Housing Society Ltd. (2002) 253 ITR 310 (Guj) ]. Time Limit for deeming a person to be an assessee-in-default for failure to deduct tax at source [ Section 201(3) ] Amended vide Finance (No. 2) Act, 2024 w.e.f. 01-04-2025 No order shall be made under section 201(1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from any person, at any time after the expiry of six years from the end of the financial year in which payment is made or credit is given or two years from the end of the financial year in which the correction statement is delivered under the first proviso to section 200(3), whichever is later Upto 31.03.2025 - No order shall be made under section 201(1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of seven years from the end of the financial year in which payment is made or credit is given or two years from the end of the financial year in which the correction statement is delivered under the proviso to section 200(3), whichever is later The exclusion from the time limit, as specified in explanation 1 of section 153 , would also apply to the above time limit for passing an order deeming a person to be an assessee-in-default. Non-specification of time limit where tax has been deducted but not paid However, no time limits have been prescribed for passing an order under section 201(1) where: the deductor has deducted but not deposited the tax deducted at source, as this would be a case of defalcation of government dues, the employer has failed to pay the tax wholly or partly, under section 192(1A) , as the employee would not have paid tax on such perquisites, the deductee is a non-resident as it may not be administratively possible to recover the tax from the non-resident.