TDS deducted but not deposited by deductor

Tax Deducted at Source (TDS) is an indirect method of collecting Income Tax. Payer has to deduct tax at source and also deposit TDS online with the Income Tax Department within a specified due date and file TDS Return. If TDS is deducted but not deposited by deductor, deductor is liable to pay interest and penalties. Therefore, it is very important to file TDS return on time and make payment of TDS before due dates

Due Dates to deposit TDS

Month of Deduction Due date for TDS Payment through Challan

*For Govt Deductor For Other Deductor
April 7th May 7th May
May 7th June 7th June
June 7th July 7th July
July 7th August 7th August
August 7th September 7th September
September 7th October 7th October
October 7th November 7th November
November 7th December 7th December
December 7th January 7th January
January 7th February 7th February
February 7th March 7th March
March 7th April 30th April

*All sums deducted in accordance with the provisions of Chapter XVII-B by an office of the government without challan should deposit the same on the day of deduction. by an office of the Government without challan (Treasury Challan) should be deposited on the same day of deduction.

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Consequences of non deposit of TDS

In case TDS was deducted but was not deposited by the deductor by the correct date, deductor has to make payment of interest for late deposit of TDS

  • Late filing fee (for late filing the TDS return)
  • Interest (for late deposit of the TDS)
  • Penalty (if deductor does not file TDS return within one year of the due date)

Interest on delayed TDS deposit u/s 201(1A)

Interest is chargeable on short payment/late payment of TDS. There can be the following scenarios:-

Scenario Interest subject to TDS/TCS amount Period for which interest is to be paid
When TDS is not deducted
1% per month or part thereof From the date on which TDS is deductible to the date on which TDS is actually deducted
When TDS is deducted but payment is made lately 1.5% per month or part thereof From the date on which TDS is actually deducted to the date on which such TDS is actually paid

The deductor can make the interest payment on such late payment of TDS before filing TDS returns or demand raised by TRACES.

TDS deducted will not reflect in form 26AS

Form 26AS is an important document which shows the records of how much tax has been deposited by your deductor into the government account. When Individuals and organizations deposit the TDS and file TDS return with the government against your PAN, it automatically shows in your Form 26AS. Payee cannot take a tax credit of the TDS while filing income tax return. If payee takes the tax credit for this amount, they will receive a notice from the income tax department for the mismatch in the TDS claimed and taxes paid.

Therefore, It is better to preserve the proofs in relation to TDS such as payslips, bank account statements, any form of other communication done with the employer in this regard, etc. Also, it is suggested to review the Form 26AS regularly to confirm whether the TDS was deducted or if the deductor has deposited the TDS.

Remedies to deductee under the Income Tax Law

As discussed, deductee should preserve the proofs related to TDS deducted as well as regularly check 26AS on e-filing portal of Income Tax. If deductee is having valid proof about deductor not depositing the TDS, it is best to bring this to his notice before taking further steps. If deductor does not respond even after repeated requests, deductee can take action by filing a written complaint to your assessing officer.

Also, To avoid the delay from companies in depositing TDS and filing returns, the Central Board of Direct Taxes (CBDT) has become more strict and started imposing penalties on companies that are not complying with the rules. Apart from interest on late payment of TDS, penalty of INR 200 per day is applicable till the day on which deductor files the return. Provided that the amount of Penalty will not exceed the number of TDS payable.

Moreover, Assessing officer may direct a person who fails to file the return within the due date to pay a penalty minimum of INR 10,000 which may extend to INR 1,00,000. The penalty under this section is also applicable to the cases of incorrect filing of TDS return. Further, If a person fails to pay TDS to the credit of the Central Government, as required , he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.

FAQs

When can the TDS refund be claimed?

TDS refund can be claimed when
1. The amount of tax which is payable in a year is less than the amount already deducted as TDS.
OR
2. When the income of a person is below the minimum taxable limit and yet TDS has been deducted.

What should I do if deductor has mentioned wrong PAN instead of my correct PAN in TDS return?

Sometimes, the tax deducted from your account may be deposited to an incorrect PAN account by mistake. You can discuss this with deductor and make a request to revise the TDS payment.

Is TDS deductible from the payment made to the Government?

No, TDS is not deductible if person is making payment to the Government.

Guide: Potential Notices from incorrect TDS Return

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 Code Challan Serial No. TDS Amount Date of Deposit
1234567 12345 Rs.5000 04/05/2016

Now you added the following deductions:

Deductee Name Deductee PAN Amount Paid TDS Deducted Date of Deduction
Priyal Shah ABCPS1234A Rs.20000/- Rs.2000/- 20/04/2016
Dhiraj Patel BCAPP1234B Rs.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 Name Deductee PAN Amount Paid TDS Deducted Section Code Short Deduction
Bhargav Rao ABCPR1234B Rs.5000 Rs. 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/credit Amount of payment Date of TDS deduction Amount of TDS deducted
01/04/2016 Rs. 1,00,000 05/05/2016 Rs. 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 Payment Date of deduction Due date for Payment of TDS
04/04/2016 04/04/2016 07/05/2016
28/04/2016 11/05/2016 07/06/2016
12/03/2016 12/03/2016 30/04/2016
09/07/2016 15/07/2016 07/08/2016

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 in case of TDS Return?

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:

Quarter Last day of Quarter Due Date for TDS Return (FY 2016-17)
Q1 30th June 31st July
Q2 30th September 31st October
Q3 31st December 31st January
Q4 31st March 31st May

Let’s take an example to understand:

Financial Year Quarter Due Date Filed On Date Late Filing Fees
2016-17 Q1 31/07/2016 07/10/2016 Rs. 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

TDS Calculator
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FAQs

Can we carry forward excess TDS?

When tax has been deposited more than the required tax deducted at source for a particular Assessment Year, the excess amount of tax can be claimed in the following quarters of the relevant year. The balance amount if any, can be carried forward to the next year for the claim in the TDS statement.

What happens if TDS is not reflected in 26AS?

If the TDS is deducted but it does not reflect in your Form 26AS, you can not claim the tax credit. It usually means, TDS is deducted on your income, but the deductor has not deposited it with the government. Therefore the tax credit is not shown in your Form 26AS.

My employer did not deduct tax from my salary income. Whether in such case I am liable to pay tax on my salary income?

TDS is only a mode of an early collection of tax. The ultimate liability of paying taxes is on the person earning income and, hence, if the employer fails to deduct tax, then it is the liability of the employee to pay the tax on the same. Further, if the employer has deducted less tax, then it is the liability of the employee to pay the balance tax.