Last updated: September 24th, 2019 2:59 AM

TDS Default - Revised Penalty & Prosecution Norms

The Central Board of Direct Taxes (CBDT), India has reworked specific norms that dictate the prosecution of tax defaulters. According to a circular released on September 9, the Ministry of Finance (MoF) informed new time limits had been set under for TDS defaulters to encourage TDS return filing.

Defaulters whose non-payment of TDS does not exceed Rs.25 lakh and the delay in the deposit is not later than 60 days will not be eligible for prosecution by default. Recourse will continue to be taken to extract TDS from defaulters who have multiple tax evasion offences. A member team of senior officers will review such cases and decide the best course of action. Prior to the implementation by the CBDT, tax defaulters would face charges in a court of law.

The MoF has instructed the revenue secretary to draft new measures, that ensures honest taxpayers will not face excessive actions for committing minor offences. The breakdown of the implementation are as follows:

Offence	Punishment Under Old Laws	New Prosecution Laws
TDS Deposit Not Paid	Rigorous Imprisonment for three months to six years and a fine. (Section 276B)	No prosecution if default amount less than Rs.25 lakh and delay period is under 60 days.
Under Reporting of Income to Evade Income Tax	Rigorous punishment for three months to seven years and a fine. (Section 276C)	If the amount of income tax evaded is Rs.25 lakh or less, the collegium will examine the case before initiating prosecution.
Not Filing IT Returns	Rigorous punishment for three months to seven years and a fine. (Section 276C)	If the amount of income tax evaded is Rs.25 lakh or less, the collegium will examine the case before initiating prosecution.

Click here to know about the Procedure for filing Income Tax Return

There have been instances of citizens receiving severe punishment for a delay in depositing TDS for small amounts. Magistrate courts will no longer hand out harsh sentences for defaulters who fail to file their income tax returns or TDS in time or under-report their income. Professionals and small businesses will benefit significantly from the move as it allows them more breathing room to pay taxes with no risk of prosecution if they have failed to file their income tax returns.

Implementation of the Rule

The circular has been implemented already and applies to all pending cases. Prosecution charges against individuals that have not been processed have been dropped with immediate effect. Any individual or business facing charges can file an application to the respective magistrate court to get the charges dropped. There is a 12-month timeline to submit an application to a court of law. However, individuals facing prosecution will have to go through the new resolution process to avoid being charged for tax evasion.

Monitoring Committee

The MoF has appointed a two-member group at the ranks of Cheif Commissioner Income Tax (CCIT) or Director of General Income Tax (DGIT) to evaluate the prosecution.

Exceptions to Late Filing of TDS

The MoF has informed that there will be no penalties for late filing of TDS if any one or more of the following conditions are met.

• The TDS is payable to the credit of the Indian government.
• If the payable interest or fees (if applicable) is to be paid to the credit of the Indian government.
• The filing of TDS is completed before the expiry period (one year from specified due date).

New Punishments for Late Filing of TDS or Non-Filing of Income Tax Returns

The following punishment applicable for an individual or enterprise if they have committed any of the following offences:

• Non-Deduction of TDS in part or whole (maximum amount of Rs.25 lakh): An interest rate of 1% is applicable on the default amount.
• Non-Payment of TDS in part or whole (maximum amount of Rs.25 lakh): An interest rate of 1.5% is applicable on the default amount.
• Delay in filing TDS (maximum amount of Rs.25 lakh): Late fees of Rs.200 per day is applicable.
• Delay in filing TDS will attract a fine of up to Rs.10,000 on taxpayers depending on how late the income tax returns are filed.
• The amount of the due taxes shall be added with a low rate of interest.
• None of the above offences will attract immediate prosecution if the defaulted amount is Rs.25 lakhs or less. However, repeating the offences will force the Tax Department to take legal action against offenders. The punishment of repeat offenders may extend up to 7 years of rigorous imprisonment and a fine.

Circumstances for Under-Reporting Income Tax Returns

Here are the situations that can lead to under-reporting of Income Tax returns.

• Misrepresentation or suppression of financial activity
• No proof of claim of expenditure
• False entries in Income Tax returns
• Failure to record receipts denoting total income
• Failure to report international transactions

Under normal circumstances, the total income is determined by the Income Tax department and is reassessed to identify the amount of under-reported income. The amount of under-reported income is then taxed to identify the amount of unpaid taxes. If the amount of payable taxes is less than Rs.25 lakhs, immediate prosecution will not be applicable.

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