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The Blueprint for Effective TDS Deduction and Payment

- Key Points of TDS Deduction & Payment -

Step 1 - Timely Payment of TDS Deducted

TDS deducted on payments made to parties must be deposited by the 7th of the following month. For instance, if TDS is deducted in November, it must be paid by December 7th. Use Challan 281 to make the payment and ensure that the correct section or nature of payment is selected.

Step 2 - Consequences of Non-Compliance

Failure to comply with TDS provisions is a serious offence under Section 271(C) of the Income Tax Act, with penalties ranging from ₹10,000 to ₹1,00,000. In cases of willful default, under Section 276B, the penalty includes 3 years of rigorous imprisonment, extendable to 7 years.

Step 3 - Interest on Delayed Payment of TDS

TDS must be deposited by the 7th of the next month. Delayed payments attract a penalty under Section 271(C) and Section 276B, in addition to interest at the rate of 1.5% per month on the amount of TDS due. There is no provision for waiving this interest.

Step 4 - Filing of TDS Return

Once TDS is paid, the taxpayer must file a quarterly TDS return, mapping the deducted TDS against the payee's PAN. The return must be filed by the 30th of the month following the quarter. For example, the first quarter ends on June 30, so the return must be filed by July 30.

Step 5 - Interest for Non-Deduction of TDS

If TDS is not deducted or deducted in lesser amounts than required, the deductor is liable to pay interest at 1% per month on the amount that should have been deducted, until TDS is properly deducted and paid.

Step 6: Disallowance of Expenses for Non-Deduction of TDS

If TDS is not deducted on eligible expenses, these expenses will be disallowed under Section 40(a) when computing taxable income. For instance, if a business has ₹10 lakh income and ₹10 lakh expenses, the tax payable will be zero, but if TDS is not deducted, the expenses will be disallowed, and the business will face tax on ₹10 lakh, resulting in ₹3 lakh (30% of ₹10 lakh) in taxes.