TDS ON SALARY

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PLV SUBRAHMANYAM (Querist)
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09 November 2010 WHETHER EMPLOYEE IS LIABLE TO PAY INTEREST U/S.234A & 234B FOR NON-DEDUCTION OF TDS BY THE EMPLOYER? Pl. clarify with reference to the provisions of the I.T.Act, 1961

CA Ankit Shah

CA Ankit Shah (Expert)
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09 November 2010 just submitted file with name TDS on salary in income tax section. otherwise brief reproduce as below, in short no interest u/s. 234A/B/C

CHAPTER-8
PENALTIES AND PROSECUTION
The various provisions of TDS as discussed in the preceding
chapters are statutorily required to be strictly complied with. Any
default in compliance can attract, levy of interest, penalty and in
certain cases initiation of prosecution proceedings. In this chapter
a brief discussion of the possible defaults and the consequential
proceedings is being done.
8.1 Failure to deduct tax - Where the employer has failed to
deduct tax or when short deduction of tax has been done, following
statutory provisions are attracted:-
a) Charging of interest u/s 201(1A) - The deductor is
treated to be ‘assessee in default’ in respect of the short deduction/
non deduction of tax. Under Section 201(1A) he is liable to pay
simple interest @ 12% per annum on the amount of tax in arrear
from the date on which such tax was deductible to the date on
which such tax is actually paid, to the credit of Central Govt. Further
w.e.f. 1.6.2006 such interest shall be paid before furnishing the
quarterly statement of each quarter.
As per Finance Act 2007 w.e.f. 1.4.2008 interest is to be
charged at the rate of one percent for every month or a part of the
month. Charging of interest u/s201(1A) is mandatory and there is
no provision for its waiver.
Procedure for interest calculation : The calculation of
interest is to be done as per Rule 119A and is summarized below:
(i) The period for which such interest is to be calculated is to
be taken in months. Any fraction of a month is to be taken
as a full month.
(ii) The amount of tax in respect of which interest is to be calculated
is to be rounded off to nearest multiple of Rs. 100 ignoring any
fraction of Rs. 100.
b) Penalty u/s 221- The assessee in default is liable to imposition
of penalty where the assessing officer is satisfied that the defaulter
has failed to deduct tax as required without good and sufficient
reason. The quantum of penalty is not to exceed the amount of tax
in arrear.
c) Penalty u/s 271C- A penalty equivalent to the amount of tax
the deductor has failed to deduct, is leviable u/s 271C. Such penalty
is however only leviable by a Joint Commissioner of Income Tax.
8.2 Failure to deposit tax in govt. account after
deduction: Where the employee has deducted the tax at source
but failed to deposit wholly or partly, the tax so deducted in
government account, the following statutory provisions are attracted:-
a) Interest u/s 201(1A)- The deductor is treated as an
assessee in default and interest u/s 201(1A) @12% as
explained above is leviable. Further, the tax along with the
simple interest u/s 201(1A) becomes a charge upon all the
assets of the deductor.
b) Penalty u/s 221- Penalty to the extent of tax not deposited
is leviable by the A.O. as discussed earlier.
c) Prosecution proceedings u/s 276 B- Where the
deductor has failed to deposit tax deducted at source, in govt.
a/c without a reasonable cause then he is punishable with
rigorous imprisonment for a term which shall not be less than
3 months but which may extend to 7 years and with fine.

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