Question & Answers:

Ques No. 1.) Is Income Tax paid is allowed as a deduction?

Ans.) Yes, Income Tax already paid is allowed as a deduction, as any tax, duty,
cess or fee paid under any law in force is allowed as a deduction when it is paid - but
this shall include GST, customs duty or any other taxes cesses paid, interest paid on
these taxes are also eligible for deduction.

as we know that as per the section 43B of the Income Tax Act, expenses are
deductible only when the actual payment being made. We can also say that deduction
is on payment and not on the accural basis.

But, the assessee will be given time to pay these amounts before he files his return of
income or the due date for filing his return of income. When filing the returns, the
assessee can show the proof of making such payment and claim the deduction in the
same year (in which the amount was accrued).

For example, Mr. A, an employer, has paid the provident fund (PF) that is due to be
paid by him to his employees in the month of August 2018. This amount of PF
pertains to the month of March 2018. In this case, he can claim this deduction for the
year ending March 2018 itself by showing a proof of this while filing his return in
September 2018. If Mr. A pays this amount in October 2018, this deduction will be
available for the year ending March 2019.

The following deductions are specified in this section:

1. Any tax, duty, cess or fee paid under any law in force is allowed as a
deduction when it is paid- this includes GST, customs duty or any other taxes
or cesses paid. Interest paid on these taxes are also eligible for deduction.
2. Contribution to any recognized employee’s benefit fund: contribution by the
employer to any employee’s benefit fund namely PF fund, superannuation
fund, gratuity fund before the due date for depositing those funds or before the
due date of filing income tax returns
3. Bonus or commission payable to employees- this amount should be the actual
bonus/ commission paid to employees and not dividends payable to them as
shareholders.
4. Interest on borrowings from Public Financial Institutions or State Financial
Corporation in accordance with the conditions governing such loan
5. Interest on loans and advances from Scheduled Bank in accordance with the
conditions governing such loan
6. Leave encashment provided by an employer to his employees
7. Payment to Indian Railways

When the interests mentioned in the clause 4 and 5 have been converted into a loan,
then such conversion does not amount to payment of interest which is deductible.
Therefore, for any person having income from business or profession maintaining his
accounts on mercantile basis, it is important to know the above provisions, otherwise,
he may not be entitled to these deductions.

Ques No. 2.) What will be the consequences if TDs is deducted but deposited after
timelimit of depositing TDs?

Ans.) First of all, The concept of TDS was introduced with an aim to collect tax from
the very source of income. As per this concept, a person (deductor)
who is liable to make payment of specified nature to any other person
(deductee) shall deduct tax at source and remit the same into the
account of the Central Government. The deductee from whose
income tax has been deducted at source would be entitled to get credit
of the amount so deducted on the basis of Form 26AS or TDS
certificate issued by the deductor.

The government uses TDS as a tool to collect tax in order to

minimise tax evasion by taxing the income (partially or wholly) at the
time it is generated rather than at a later date. TDS is applicable on
the various incomes such as salaries, interest received, commission
received etc.

As TDS is applicable on the various incomes received such as

salaries, interest received etc. which is deducted when income is
generated rather than at later date. The person who is making the
payment is responsible for deducting the tax and depositing the same
with government. TDS stands for 'Tax Deducted at Source'.

Therefore, In case one has not deposited TDS by the correct date, the following
penalties are applicable:

 Late filing fee (if you do not file by the deadline)

 Interest (if you do not deposit the TDS amount in time)
 Penalty (if TDS is not filed within one year of the due date)

Late filing fee

Under Section 234E, you will have to pay a fine of Rs 200 per day (two hundred)
until your return is filed. You have to pay this for every day of delay until the fine
amount is equal to the amount you are supposed to pay as TDS.

For example:
Say that your payable TDS amount is Rs 5000 on 13th May and you pay it on 17th
November (i.e. 189 days, counting 17th November). Then the calculation comes out
to Rs 200 x 189 days = Rs 37800, but since this is greater than Rs 5000, you will have
to pay only Rs 5000 as the late filing fee. Added to this, you also have to pay interest
which is covered in the next section.

Interest

Under Section 201(1A) for late deposit of TDS after deduction, you have to pay
interest. Interest is at the rate of 1.5% per month from the date at which TDS was
deducted to the actual date of deposit. Note, that this is to be calculated on a monthly
basis and not based on the number of days i.e. part of a month is considered as a full
month.
For example
Say that your payable TDS amount is Rs 5000 and the date of deduction is 13th
January. Say you pay TDS on 17th May. Then the interest you owe is Rs 5000 x 1.5%
p.m. x 5 months = Rs 375.
“Month” has not been defined in the Income Tax Act, 1961. However, in a number of
High Court cases, it has been mentioned that it should be considered as a period of 30
days and not as an English calendar month.
This amount is to be paid from the date at which TDS was deducted, not from the date
from which TDS was due.

Penalty

Equals the amount that was failed to be deducted/collected or remitted may be

imposed.

Prosecution (Sec 276B):

If a person fails to pay to the credit of the Central Government —

The Tax deducted at source by him as required by or under the provisions of Chapter
XVII-B, 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.

Penalty for Late Filing of TDS Return

1. Penalty (Sec 234E)
Deductor will be liable to pay the way of fee Rs.200 per day till the failure to pay
TDS continues. However, the penalty should not exceed the amount of TDS for which
statement was required to be filed.

2. Penalty (Sec 271H)

Assessing officer may direct a person who fails to file the statement of TDS within
due date to pay penalty minimum of Rs.10,000 which may be extended to
Rs.1,00,000.

3. The penalty under this section is in addition to the penalty u/s 234E.

4. This section will also cover the cases of incorrect filing of TDS return.

No penalty under section 271H will be levied in case of delay in filing the
TDS/TCS return if the following conditions are satisfied:

 The tax deducted/collected at source is paid to the credit of the Government.

 Late filing fees and interest (if any) is paid to the credit of the Government.
 The TDS/TCS return is filed before the expiry of a period of one year from the
due date specified in this behalf.

Quest No. 3) Explain non- compliance of provisions of TDs where payment is made
to a resident/non-resident. ?

Ans.) Section 40(a)(ia) of Income Tax Act, 1961 deals with non compliance of
provision of

TDS where payment is made to a Resident:

30% cent of any sum payable to a resident on account of interest, commission or

brokerage, Rent, Royalty, fees for professional services or, fees fir technical services
payable to a resident, or amounts payable to a contractor or sub-contractor being
resident for carrying out any work on which tax is deductible at source and such tax
has not been deducted or, after deduction, has not been paid on or before the due date
specified in section 139(1) . Then 30% cent of any sum payable shall be
disallowed.

Where the tax has been deducted in any subsequent year,or has been deducted during
the previous year but paid after the dude date specified in section 139(1), thirty per
cent of such sum shall be allowed as a deduction in computing the income of the
previous year in which such tax has been paid
Also where an assessee fails to deduct the whole or any part of the tax in accordance
with the provisions of Chapter XVII-B on any such sum but is not deemed to be an
assessee in default under the first proviso to sub-section (1) of section 201, then, for
the purpose of this sub-clause, it shall be deemed that the assessee has deducted and
paid the tax on such sum on the date of furnishing of return of income by the resident
payee referred to in the said provison

It is well established law laid down by the various courts that the deductor shall be
treated as an asessee in default only if:

 Deductor has failed to deduct TDS; and

 Deductee has also failed to pay the tax directly.

Therefore, we can say, deductor cannot be treated as an assessee in default where

deductor has failed to deduct TDS but deductee has paid the tax directly.

The point to be noted here is:

i. These amendments are only for resident deductee and are not applicable where
deductor is a Non-Resident.

ii. When the deductor fails to deduct TDS . This amendment is not applicable when
the deductor deduct TDS but fails to deposit it to the credit of central government.

Also, the amendment to section 201(1) i.e first proviso to Section 201(1) provides
as under:

Any person, including the principal officer of a company, 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 an accountant in such form as
may be prescribed

Provided further that no penalty shall be charged under section 221 from such
person, unless the Assessing Officer is satisfied that such person, without good and
sufficient reasons, has failed to deduct and pay such tax.

TDS on payments made to non-residents:

Scope of Section 206AA
Section 206AA was introduced from FY 2010-11. Section 206AA requires every
taxpayer who receives taxable income to furnish their PAN to the payer of such
income. This applies to both the resident as well as non-resident recipients. The
payments in case of residents would include salary, rent, professional receipts,
contractual receipts and so on. In the case of non-resident, these would include all
receipts that are taxable in India.

Rate of TDS

A recipient who fails to furnish PAN to the person making a payment would suffer
TDS at the higher of the rates mentioned below:

 At the rate specified in the relevant provision of the Act;

 At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance
Act 2019 for FY 2019-20);
 At the rate of 20%

Applicability in case of lower deduction under Section 197

A recipient of taxable payment can seek an application for lower deduction or nil
deduction of tax (TDS) under Section 197. In such cases, where the assessing officer
has issued a certificate under Section 197, TDS shall be done at the rates mentioned
therein. The certificate is generally issued for a specified period. Section 206AA
states that a certificate under section 197 is not valid unless the recipient furnishes
their PAN at the time of making an application to the assessing officer.

Scope of Section 206AA

Section 206AA would not apply to the below payments made to non-residents:

a) In respect of payment of interest on long-term bonds to a non-resident under

section 194LC.

b) The Finance Act 2016 relaxed the applicability of Section 206AA in case of
payments made to non-resident in the nature of interest, royalties, fees for technical
services and payments on the transfer of any capital asset. Section 206AA would not
apply to such non-resident recipient if the following details and documents are
furnished to the payer (Rule 37BC inserted vide Notification No. 53/2016):

 Name, email ID, contact number;

 Address in the country or specified territory outside India of which the deductee is
a resident;
 Certificate of his being resident in any country or specified territory outside India
from the government of that country or specified territory if the law of that
country or specified territory provides for the issuance of such certificate;
 Tax Identification Number of the deductee in the country or specified territory of
his residence. In case no such number is available, then a unique number on the
basis of which the deductee is identified by the government of that country or
specified territory of which he claims to be a resident.