I want to confirm whether the penal interest paid on late deposit of TDS amount with bank and tax deducted late when required by the deductor ,is ALLOWABLE EXPENDITURE and same to be debited to P& L A/c when incurred ? For this purpose which section of Income Tax Act shall I refer to ?
Further as per the provision of sec. 201 (1A )(i)(ii)of Income Tax Act,1961, I want get myself confirm the rate of penal interest is (i)when the tax WAS required to be deducted on specific date was not deducted and when deducted after that specific date, then penal interest @ 1% on the TDS amt. ?
(ii) when the tax deducted amt.was required to be deposited with bank on specific date and was not deposited on that specific date, then when deposited the same after specific date/due date . the penal interest @ 1.5% on the TDS amt. (the above rates are revised rates w.e.f.01.07.2010)
SECTION 201 l CONSEQUENCE OF FAILURE TO DEDUCT OR PAY
1199. Non-initiation of penalty and prosecution proceedings in certain cases of defaulters under Chapter XVII-B
It has come to the notice of the Board that some of the employers, including foreign companies operating in India, have been defaulting in deducting tax at source as required under section 192, on the salaries and allowances paid abroad, or perquisites provided abroad, to their employees for services rendered in India. In some cases, tax might have been deducted at source, but not remitted to Government. All payments and perquisites to employees for services rendered in India are taxable in India irrespective of the place where the payment occurs. The employers are, therefore, liable to deduct tax at source even on payment of salary, allowances and perquisites paid or provided abroad to their employees who have rendered service in India. They are also required to remit such deducted tax to Government. Failure to comply with these requirements would render the employer an assessee in default, and would attract interest under section 201(1A). Penalties under sections 221 (assessee in default) and 271C (failure to deduct tax) are then leviable and prosecution proceedings under section 276B can also be initiated in such cases. 2. To encourage immediate voluntary compliance, the Board has decided that proceedings under sections 221 and 271C for levy of penalties and proceedings under section 276B for prosecution need not be initiated in cases where an employer voluntarily comes forward and pays the whole of the tax due under section 192, along with interest liability under section 201(1A) on or before July 31, 1994. 3. Employers (Indian and foreign), who committed default in the past are advised to make use of this opportunity to pay up arrears of TDS (tax deductible at source) together with interest on or before 31-7-1994 and avoid penalty and prosecution proceedings. 4. Wide publicity may be given regarding this opportunity. 5. From 1-8-1994, penalty provisions under sections 221 and 271C and prosecution provisions under section 276B will be strictly implemented according to law. Circular : No. 685, dated 17-6-1994. CLARIFICATION 1 Reference is invited to Board’s Circular No. 685, dated 20-6-1994 (File No. 275/69/94-ITB) providing for non-initiation of proceedings under section 221/276B/271C of the Income-tax Act, 1961 in respect of employers defaulting in deducting tax at source on the salaries and allowances paid abroad or perquisites provided abroad to their employees for services rendered in India. Doubts have been raised in some quarters as to whether, due to the disclosure of the excess salary payments by the employers, any consequential action will be taken in the hands of the employees. 2. The Board has considered the matter. The spirit behind issue of Circular No. 685, dated 20-6-1994 was to encourage immediate voluntary compliance on the part of the employers defaulting in tax deduction. In order that this intention is fully achieved. Accordingly the Board has decided that the assessments of the employees, in respect of whom payments of short-deduction and interest thereon are made by the employers in pursuance of Circular No. 685, dated 20-6-1994, will not be reopened or otherwise disturbed merely on account of the excess salary payments now disclosed by the employers. Circular : No. 686, dated 12-8-1994. CLARIFICATION 2 It has come to the notice of the Board that some employers are not correctly evaluating the perquisites, allowances or other profits in lieu of or in addition to any salary of wages (referred to as “salaries” hereinafter) paid to their employees for the purpose of deducting tax at source under section 192 of the Income-tax Act, 1961. Such defaulters are liable to penalty proceedings under sections 221 and 271C of the Act, and also liable to prosecution under Chapter XXII of the Act. 2. However, before taking stringent measures, the Board has decided to grant an opportunity to such defaulters. Even now if they pay the proper tax on “salaries” as envisaged under section 192 along with interest liability under section 201(1A) of the Act no penalty proceedings under section 221 or prosecution under Chapter XXII of the Act shall be initiated provided such payment is made on or before February 28, 1995. 3. This circular shall also cover such cases which were earlier covered by Circular No. 685, dated 17th June, 1994, where the facility was extended in respect of salaries and allowances paid abroad or perquisites provided abroad to the employee for services rendered in India. The time limit of 31st July, 1994, was fixed by Circular No. 685 (which was later extended to 31st August, 1994) is now extended to 28th February, 1995. 4. The contents of this circular may be brought to the notice of all the assessees especially those responsible for deducting tax under section 192, so that they can avail of this opportunity. It may be emphasised that the Department will initiate coercive steps to recover the due tax, which was not deducted at source and/or not paid to the Government before 28th February, 1995. 5. The circular will apply in respect of the assessment years beginning from 1989-90 till the assessment year 1994-95. Circular : No. 696, dated 16-12-1994.