The Consequences of TDS/TCS Non-Compliance & Ways to Avoid Them

The Consequences of TDS/TCS Non-Compliance & Ways to Avoid Them

Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) are integral components of India’s tax system, designed to promote compliance and ease the burden of paying taxes in one go. However, failure to comply with TDS and TCS provisions can result in hefty penalties and interest charges.

1. Late Deposit of TDS/TCS

Implication:
Failing to deposit TDS or TCS within the stipulated time leads to significant interest charges under the Income Tax Act.

  • Interest:
    • TDS: 1.5% per month (or part thereof) from the date of deduction until payment.
    • TCS: 1% per month (increasing to 1.5% from April 1, 2025) from the date of collection until payment.

Remedy:
To avoid accruing interest, ensure timely payments by establishing a reminder system to trigger before the due dates.

2. Late Deduction or Collection of TDS/TCS

Implication:
Delays in deducting or collecting taxes lead to additional interest penalties.

  • Interest:
    • TDS: 1% per month (or part thereof) from the date tax was deductible to the date it was actually deducted.
    • TCS: 1% per month from the due date to the actual collection.

Remedy:
Deduct or collect taxes as per the rules laid out in the Income Tax Act. Typically, TDS is based on crediting or paying the amount, whichever occurs earlier. For TCS, it’s when the payment is received. Implementing a robust system ensures adherence to these timelines.

3. Late Filing of TDS/TCS Returns

Implication:
Filing TDS/TCS returns after the due date can lead to penalties under Section 234E.

  • Penalty: ₹200 per day of delay, subject to a maximum of the TDS/TCS amount.

Remedy:
File returns on or before the due dates without exception. Setting up reminders can help ensure timely compliance and prevent any lapses.

4. Short Deduction or Collection of TDS/TCS

Implication:
Incorrect or short deduction/collection can lead to interest penalties, similar to delayed deductions.

  • Interest:
    • TDS: 1.5% per month (or part thereof) from the date of the tax deduction to the actual payment.
    • TCS: 1% per month for short collections, increasing to 1.5% from April 1, 2025.

Remedy:
Ensure that the correct rate of TDS/TCS is applied. 

5. Penalty for Non-Deduction or Non-Collection of TDS/TCS (Section 271C)

Implication:
Failure to deduct or collect tax can attract penalties under Section 271C.

  • Penalty: Equal to the amount of TDS/TCS not deducted or collected.

Remedy:
Maintain a system that ensures taxes are deducted/collected on time for all eligible transactions. Periodic audits and timely corrective actions, such as paying the interest due, can help avoid penalties.

6. Penalty for Non-Filing of TDS/TCS Returns or Incorrect Information (Section 271H)

Implication:
Non-filing of returns or submitting incorrect details can lead to steep penalties under Section 271H.

  • Penalty: Ranges from ₹10,000 to ₹1,00,000 depending on the severity of non-compliance. This is in addition to the penalty under Section 234E for delayed filing.

Remedy:
Always file returns on time, and ensure that all details, such as PAN and tax amounts, are accurate. Conduct thorough reviews before submission to prevent mistakes, and correct errors promptly.

7. Disallowance of Expenses for Non-Deduction of TDS (Section 40(a)(ia))

Implication:
If TDS is not deducted or deposited on time, the corresponding expenses may be disallowed for tax purposes.

  • Disallowance:
    • Payments to Residents: 30% of the expense is disallowed.
    • Payments to Non-Residents: 100% of the expense is disallowed.

Remedy:
Ensure that TDS is deducted and deposited on time. If missed, deductions made before the end of the financial year may still allow the expense. Monitoring TDS liabilities regularly ensures full compliance.

Read More: Understanding Income Tax Exemption on Early Redemption of Sovereign Gold Bonds (SGBs)

Non-compliance with TDS/TCS provisions can result in significant financial losses, including penalties, interest, and the disallowance of expenses. By proactively managing deadlines, maintaining accurate tax calculations, and filing returns on time, businesses can avoid these pitfalls.

Staying compliant not only helps avoid costly penalties but also reduces the unnecessary stress and time spent on resolving tax-related issues.

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Key Tax Reforms from the 2024 Union Budget: Major Changes Effective October 1, 2024

Key Tax Reforms from the 2024 Union Budget: Major Changes Effective October 1, 2024

The Union Budget 2024, presented by Finance Minister Nirmala Sitharaman, introduced several major reforms in India’s tax system aimed at streamlining processes and addressing longstanding challenges. Many of these reforms will take effect on October 1, 2024, and will impact both individuals and businesses.

1. Direct Tax Vivad Se Vishwas Scheme (VSV) 2.0

Building on the success of the original VSV Scheme in 2020, the government is launching VSV 2.0, which will become effective from October 1, 2024. This new version allows taxpayers to settle disputes related to tax, interest, penalties, or fees that are pending as of July 22, 2024, across various appellate authorities, including the High Courts and Supreme Court.

Under the revised scheme, if the tax department has filed the appeal, taxpayers can resolve disputes at a significantly reduced settlement amount, with a 50% reduction. This provision is expected to provide quicker and more favorable outcomes for taxpayers while also helping to clear the backlog of tax cases.

2. Taxation on Share Buybacks

Companies have historically used the buyback method to avoid double taxation. Previously, while companies paid taxes on the buyback, shareholders were exempt from taxation on the proceeds. However, starting October 1, 2024, shareholders will be taxed on buyback proceeds according to their respective tax brackets, aligning buyback tax treatment with that of dividends.

In addition, companies will now be required to deduct TDS at a rate of 10% for resident shareholders and 20% for non-residents. Shareholders can no longer offset the purchase cost against buyback proceeds, although they may treat the purchase cost as a capital loss to be adjusted against other capital gains.

3. Revised TDS Rates

Effective October 1, 2024, several TDS rates will be lowered to reduce the tax burden on various transactions:

  • Section 194DA: TDS on life insurance policy payments reduced from 5% to 2%.
  • Section 194G: TDS on lottery ticket sales commission cut from 5% to 2%.
  • Section 194H: TDS on commission or brokerage payments reduced from 5% to 2%.
  • Section 194-IB: TDS on rent paid by certain individuals or HUFs lowered from 5% to 2%.
  • Section 194M: TDS on specific payments made by individuals or HUFs reduced from 5% to 2%.
  • Section 194-O: TDS on payments by e-commerce operators reduced from 1% to 0.1%.
  • Section 194F: TDS on mutual fund repurchases has been removed.

4. Penalties Under the Black Money Act (BMA)

The government has provided some relief under the Black Money Act (BMA). Penalties under Sections 42 and 43 will no longer apply if the undisclosed assets are valued at Rs. 20 lakh or less. This change encourages voluntary disclosure of smaller assets without the heavy penalty burden.

5. Increase in Securities Transaction Tax (STT)

In light of the growth in the derivatives market and rising trading volumes, Securities Transaction Tax (STT) rates will increase from October 1, 2024:

  • Futures: STT will increase from 0.0125% to 0.02%.
  • Options: STT will rise from 0.0625% to 0.1% of the premium.

Additionally, STT on share buyback proceeds will now be taxed according to the individual’s income tax bracket.

6. Changes to Aadhaar Card Provisions

Starting October 1, 2024, taxpayers will no longer be able to use the Aadhaar Enrolment ID in place of an Aadhaar number for PAN applications or income tax return filings. It is recommended that taxpayers link their Aadhaar with their PAN to ensure smooth filing.

7. Floating TDS Rate on Government Bonds

From October 1, 2024, a 10% TDS will apply to interest income from central and state government bonds, including Floating Rate Savings Bonds. However, no TDS will be deducted if the total interest income is less than Rs. 10,000 in a financial year.

8. Withdrawal of 20% TDS on Mutual Fund Repurchases

Investors will receive significant tax relief as the 20% TDS on mutual fund repurchases will be withdrawn. This change is expected to boost investment in mutual funds and result in substantial tax savings for investors.

Read More: Vivad Se Vishwas 2.0: Reduced Settlement for Declarations Filed by December 31

9. Clarification on TDS for Sale of Immovable Property

Section 194-IA now clarifies that the 1% TDS on payments for the sale of immovable property valued over Rs. 50 lakh will apply collectively in transactions involving multiple buyers or sellers. This clarification simplifies the tax liability for real estate transactions.

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31st October: Deadline for Filing Company Income Tax Returns

31st October: Deadline for Filing Company Income Tax Returns

Key Income Tax Return Filing Deadlines for FY 2023-24 (AY 2024-25)

With the ongoing e-filing season, it’s essential for every taxpayer to be mindful of income tax return (ITR) filing deadlines to avoid penalties under the Income Tax Act of 1961. This post outlines the critical due dates for filing ITR for the financial year 2023-24 (assessment year 2024-25), ensuring compliance with the tax regulations.

Chartered Accountants(CAs), Company Secretaries (CSs), and tax professionals can also take note of important deadlines for filing advance tax, as well as revised and updated ITRs. The Central Board of Direct Taxes (CBDT) has enabled ITR filing for AY 2024-25 from April 1, 2024.

What is Income Tax?

Income tax is a direct tax levied on the income of an assessee. It is calculated on income generated from various sources, including salaries, property, businesses, capital gains, and other sources. If an individual’s or entity’s income exceeds the taxable limit, after considering deductions under Chapter VI-A, they are required to file an income tax return.

ITR Filing Due Dates for FY 2023-24 (AY 2024-25)

Category of TaxpayerDue Date (Original Return)
Companies (regardless of tax audit applicability)31/10/2024
Non-company entities subject to tax audit31/10/2024
Partners in firms requiring tax audit31/10/2024
Taxpayers requiring an audit under Section 92E30/11/2024
Non-audit cases31/07/2024
Revised or Belated Returns31/12/2024
Updated Return (ITR-U)31/03/2024

Key Deadlines for ITR Filing Based on Taxpayer Category

Different types of taxpayers—individuals, HUFs, firms, LLPs, companies, trusts, and AOPs/BOIs—have different ITR due dates. These dates depend on whether a tax audit is required under section 139(1).

1. Non-Audit Cases (AY 2024-25)

For taxpayers whose books of accounts are not subject to an audit, the deadline to file ITR is 31st July 2024.

2. Audit Cases (AY 2024-25)

For taxpayers whose accounts require an audit, the ITR filing deadline is 31st October 2024.

3. Tax Audit Report Filing (3CA-3CD/3CB-3CD)

For taxpayers whose accounts are subject to an audit, the tax audit report must be submitted one month prior to the ITR filing deadline, by 30th September 2024.

4. Revised and Belated ITR Filing Deadlines

If you need to file a revised or belated ITR for AY 2024-25, the deadline is 31st December 2024. A penalty of INR 5,000 applies for late filing, but if your total income does not exceed INR 5 lakh, the penalty will be capped at INR 1,000.

5. Updated Return Filing (ITR-U)

You can file an updated return (ITR-U) by 31st March 2026, allowing you to correct any errors in previously filed returns.

File Tax Returns for A.Y. 2024-25 by 31st December to Avoid INR 5,000 Penalty

The Income Tax Department has informed taxpayers that filing tax returns for A.Y. 2024-25 after the due date will result in a penalty of INR 5,000. However, for individuals with a total income not exceeding Rs 5 lakh, the maximum penalty will be capped at INR 1,000.

SEPTEMBER 2024 INCOME TAX & TDS DUE DATES

DateDescription
7/9/2024“Due date for deposit of tax deducted/collected for the month of August 2024. However, all sums deducted/collected by a government office shall be paid to the credit of the Central Government on the same day where tax is paid without production of an income tax challan.”
7/9/2024“Declaration under sub-section (1A) of section 206C of the Income-tax Act, 1961 to be made by a buyer for obtaining goods without collection of tax for declarations received in the month of August 2024.”
14/9/2024“Due date for issue of TDS certificate for tax deducted under section 194-IA, 194-IB, 194M and 194S (by specified person) in the month of July 2024.”
15/9/2024“Due date for furnishing Form 24G by an office of the government where TDS/TCS for the month of August 2024 has been paid without the production of a challan.”
15/9/2024“Due date for furnishing statement in Form No. 3BB by a stock exchange in respect of transactions in which client codes have been modified after registering in the system for the month of August 2024.”
15/9/2024“Due date for furnishing statement in Form No. 3BC by a recognised association in respect of transactions in which client codes have been modified after registering in the system for the month of August 2024.”
15/9/2024“Due date for furnishing of challan-cum-statement in respect of tax deducted under section 194-IA, 194-IB, 194M and 194S (by specified person) in the month of August 2024.”
30/9/2024“Application for the exercise of option under clause (2) of the Explanation to sub-section (1) of section 11 of the Income-tax Act, 1961 (if the assessee is required to submit return of income on November 30, 2024).”
30/9/2024“Statement to be furnished to the Assessing Officer/Prescribed Authority under clause (a) of the Explanation 3 to the third proviso to clause (23C) of section 10 or under clause (a) of sub-section (2) of section 11 of the Income-tax Act, 1961 (if the assessee is required to submit return of income on November 30, 2024).”
30/9/2024“Due date for filing of audit report under section 44AB for the Assessment Year 2024-25 in the case of a corporate assessee or non-corporate assessee (who is required to submit his/its return of income on October 31, 2024).”
30/9/2024“Audit Report under clause (ii) of section 115VW of the Income-tax Act, 1961 (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Audit report under clause (b) of the tenth proviso to clause (23C) of section 10 and sub-clause (ii) of clause (b) of sub-section (1) of section 12A of the Income-tax Act, 1961, in the case of a fund or trust or institution or any university or other educational institution or any hospital or other medical institution (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Audit report under clause (b) of the tenth proviso to clause (23C) of section 10 and sub-clause (ii) of clause (b) of sub-section (1) of section 12A of the Income-tax Act, 1961, in the case of a fund or trust or institution or any university or other educational institution or any hospital or other medical institution which is required to be furnished under clause (b) of the tenth proviso to clause (23C) of section 10 or a trust or institution which is required to be furnished under sub-clause (ii) of clause (b) of section 12A (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Audit report under sections 80-I(7)/ 80-IA(7)/ 80-IB/ 80-IC/ 80-IAC/ 80-IE (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Report under section 80JJAA of the Income-tax Act, 1961 (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Report under section 115JB of the Income-tax Act, 1961 for computing the book profits of the company (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Report under section 115JC of the Income-tax Act, 1961 for computing Adjusted Total Income and Alternate Minimum Tax of the person other than a company (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Due date for filing audit report under section 33AB(2), 33ABA(2), 35D(4)/35E(6) of Income-tax Act, 1961 (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Statement regarding preliminary expenses incurred to be furnished under proviso to clause (a) of sub-section (2) of section 35D of the Income-tax Act, 1961 by the assessee (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Audit report under sub-section (2) of section 44DA of the Income-tax Act, 1961 (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Report of an accountant to be furnished by an assessee under sub-section (3) of section 50B of the Income-tax Act, 1961 relating to computation of capital gains in the case of slump sale (if due date of submission of return of income is October 31, 2024).”
30/9/2024“Report under section 10AA of the Income-tax Act, 1961 (if due date of submission of return of income is October 31, 2024).”

Income Tax Return Filing Deadline for AY 2024-25

(For Assessees Required to Submit a Report Under Section 92E)

  • The deadline for filing Income Tax Returns for assessees required to furnish a report under Section 92E is 30th November 2024.
  • The due date for furnishing a Report from an Accountant by persons entering into an international transaction or specified domestic transaction under section 92E of the Act for the Previous Year 2023-24, is at least one month before the due date of filing of return u/s 139(1)

Consequences of Missing the ITR Deadline

Failing to file your ITR by the deadline can result in several penalties and consequences:

  • Increased scrutiny: Filing late may attract attention from the Income Tax Department, increasing the chances of your return being reviewed.
  • Interest on unpaid tax: Late filing results in interest charges on unpaid tax from the original deadline until payment.
  • Loss of carry-forward benefits: Missing the deadline may prevent you from carrying forward certain tax deductions and losses to future years.

Advance Tax Filing Deadlines for FY 2024-25

If your tax liability exceeds INR 10,000 in a financial year, you’re required to pay advance tax according to the following schedule:

Due DateComplianceTax Paid
15th June 2024First Instalment15%
15th September 2024Second Instalment45%
15th December 2024Third Instalment75%
15th March 2025Fourth Instalment100%

For taxpayers under sections 44AD and 44ADA (Presumptive Income), advance tax must be paid by 15th March 2025. Payments made by 31st March will still be treated as advance tax.

Read More:Understanding Form No. 10F: A Guide for Non-Residents (NRIs) Under the Income Tax Act

Staying compliant with the ITR deadlines helps avoid penalties, ensures smoother processing of returns, and allows you to claim applicable benefits. Whether you’re a salaried individual, business owner, or involved in international transactions, mark these key dates to meet your tax obligations on time.

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