Interest, Penalty & Prosecution for Failure to Deposit Tax Deducted

4.5 Interest, Penalty & Prosecution for Failure to Deposit Tax Deducted:

4.5.1 If a person fails to deduct the whole or any part of the tax at source, or, after deducting, fails to pay the whole or any part of the tax to the credit of the Central Government within the prescribed time, he shall be liable to action in accordance with the provisions of section 201 and shall be deemed to be an assessee-in-default in respect of such tax and liable for penal action u/s 221 of the Act. Further Section 201(1A) provides that such person shall be liable to pay simple interest

(i) at the rate of 1% for every month or part of the 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 the rate of one and one-half percent 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.

Such interest, if chargeable, is mandatory in nature and has to be paid before furnishing of quarterly statement of TDS for respective quarter.

4.5.2 Section 271C inter alia lays down that if any person fails to deduct whole or any part of tax at source or fails to pay the whole or part of tax under the second proviso to section 194B, he shall be liable to pay, by way of penalty, a sum equal to the amount of tax not deducted or paid by him.

4.5.3 Further, section 276B lays down that if a person fails to pay to the credit of the Central Government within the prescribed time, as above, the tax deducted at source by him or tax payable by him under the second proviso to Section 194B, he shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years, along with fine.