Guide: Potential Notices from incorrect TDS Return

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By Hiral Vakil on March 9, 2019

What is an unclaimed challan?

Unclaimed challan is the situation where you have entered a valid challan but it is not consumed or partially consumed. This can easily go unnoticed and result into considerable amount of Unclaimed challans.

For eg. you added the following challan:

Challan BSR CodeChallan Serial No.TDS AmountDate of Deposit
123456712345Rs.500004/05/2016

Now you added the following deductions:

Deductee NameDeductee PANAmount PaidTDS DeductedDate of Deduction
Priyal ShahABCPS1234ARs.20000/-Rs.2000/-20/04/2016
Dhiraj PatelBCAPP1234BRs.20000/-Rs.2000/-25/04/2016

As you can see that total TDS amount in the challan is Rs. 5000 however you have claimed only Rs. 4000 out of the same. This results into unclaimed challan of Rs. 1000/-

This situation can very well be curtailed if a proper warning mechanism is at place which identifies potential unclaimed challans.

What is a short deduction?

Short deduction is the situation where you have deducted TDS at a rate, lower than the prescribed rate by the Income Tax Act. This is one of the most common reason for receiving a notice. Here is an example of short deduction

Deductee NameDeductee PANAmount PaidTDS DeductedSection CodeShort Deduction
Bhargav RaoABCPR1234BRs.5000Rs. 4000 (8%)194J (Fees for Professional / technical services) Prescribed rate is 10%Rs. 1000

What is late deduction?

Late deduction will arise when the date of TDS deduction is later than the date of payment/credit.

For eg:

Date of payment/creditAmount of paymentDate of TDS deductionAmount of TDS deducted
01/04/2016Rs. 1,00,00005/05/2016Rs. 10,000

As you can see, that although the payment was made on 01/04/2016, the deductor forgot to deduct the TDS on the same date and made the full payment. Then in the next month, he realises his mistake, deducted the TDS and deposited the same to the government.

Interest penalty @ 1% (per month or part thereof) will be applicable on the TDS deducted for late deduction.

So for the above situation, interest liability will be as follows

Rs. 10,000 x 1% x 2 months* = Rs. 200

* As per income tax act, rate of 1% is applicable for a month or a part thereof. Hence even if your delay exceeds by 1 day, you will have to pay interest for the whole month.

What is late deposit of TDS?

When you deposit TDS to the Government, later than the prescribed due date, it is called late deposit

Following are the due dates for TDS deposit:

Sr. No. Particulars Due Date for TDS Payments
1. For every month (Except March) 7th of the next month
2. For month of March (In case of govt. Deductor) 7th of the next month
For month of March (In case of other deductor) 30th April of the next year

Note: please keep in mind that the due date is from the month in which deduction is made and not the payment.

For better understanding, let’s take a few examples

Date of PaymentDate of deductionDue date for Payment of TDS
04/04/201604/04/201607/05/2016
28/04/201611/05/201607/06/2016
12/03/201612/03/201630/04/2016
09/07/201615/07/201607/08/2016

Interest penalty @ 1.5% (per month or part thereof) will be applicable on the TDS deducted for late deposit.

So for eg. if TDS amount is Rs. 10,000, Date of deduction is 04/05/2016 (Due date for deposit will be 07/06/2016) and TDS is deposited on 10/06/2016 then interest liability will be as follows

Rs. 10,000 x 1.5% x 2 months* = Rs. 300

* As per income tax act, rate of 1.5% is applicable for a month or a part thereof. Hence even if your delay exceeds by just 1 day, you will have to pay interest for the whole month.

What is late filing fee?

When a deductor fails to file TDS return within due date, he is liable to pay late filing fee of Rs. 200 for every day until return is filed. However, the amount of late filing fee can not exceed the amount of TDS deducted.

Following are the due dates for TDS return filing:

QuarterLast day of QuarterDue Date for TDS Return (FY 2016-17)
Q130th June31st July
Q230th September31st October
Q331st December31st January
Q431st March31st May

Let’s take an example to understand:

Financial YearQuarterDue DateFiled On DateLate Filing Fees
2016-17Q131/07/201607/10/2016Rs. 7000

As you can see that the return is filed after the due date, and therefore a deductor attracts a levy of late filing fee.

Late Filing Fees = Rs. 200 x 68 days = Rs. 13,600 OR Rs. 7,000 whichever is less. i.e, Rs. 7,000