TDS not deducted
This query is : Resolved
29 August 2009
Please anybody help me to solve this problem.
Our company had a contract agreement(section 194C)for the AY 2006-07 which has an effect of TDS.But the company fail to deduct the TDS for that AY.Financial Statements for AY 2006-07 are audited. Now the contractor wants TDS certificate. Company is now wants to pay the TDS for the AY 2006-07 with interest. How can i account this transaction with no questions raised by Statutory Auditors
Our company had a contract agreement(section 194C)for the AY 2006-07 which has an effect of TDS.But the company fail to deduct the TDS for that AY.Financial Statements for AY 2006-07 are audited. Now the contractor wants TDS certificate. Company is now wants to pay the TDS for the AY 2006-07 with interest. How can i account this transaction with no questions raised by Statutory Auditors
29 August 2009
How can the contractor ask for a TDS certificate, when you have not deducted TDS?
27 July 2025
This is a tricky but manageable situation. Here's a structured solution to handle **non-deduction of TDS for AY 2006–07** (FY 2005–06), where:
* TDS under **Section 194C** was not deducted,
* The contractor is now asking for a **TDS certificate (Form 16A)**,
* Financials are **already audited**,
* Your company now wants to **pay the TDS with interest**,
* You want to **record this transaction cleanly**, without raising red flags with the auditors.
---
## ✅ Step-by-Step Resolution Plan:
### 🔹 Step 1: **Understand the Legal Exposure**
Since the TDS was **not deducted** in FY 2005–06 (AY 2006–07), your company is:
* Treated as **assessee-in-default** under **Section 201(1)**,
* Liable to pay:
* **TDS** amount,
* **Interest under Section 201(1A)**:
* **1% per month** from **date tax was deductible to date it is deducted**
* **1.5% per month** from **date tax is deducted to date it is deposited**
### 🔹 Step 2: **Check for Form 26A Option (Optional Relief)**
If the contractor is:
* **Resident**, and
* Has **declared the income in their return**, and
* Has **paid tax on it**, and
* Provides a **CA-certified Form 26A** via TRACES,
Then your company will **not be treated as assessee-in-default**, but still liable for **interest**.
However, since this relates to **AY 2006–07**, Form 26A on TRACES **may not be permitted now**, so practically, you likely have to **bear the TDS and interest**.
---
## ✅ Step 3: **How to Account the Transaction Now**
Since the **expenses and payment** happened **in FY 2005–06**, and the **books are audited**, you cannot retroactively adjust them.
So, you must record the **TDS + interest** in the **current year's books** as a separate charge.
---
### 🔹 **Recommended Accounting Entries (in current year):**
**a) For TDS deposited now (from company's pocket):**
```text
TDS Recoverable A/c Dr. ₹ [TDS Amount]
To Bank A/c ₹ [TDS Amount]
```
> This reflects that the company paid the TDS on behalf of the contractor. If you don't intend to recover, write it off later as an expense.
**b) For Interest under Sec. 201(1A):**
```text
Interest on TDS A/c Dr. ₹ [Interest Amount]
To Bank A/c ₹ [Interest Amount]
```
> This interest is a **penalty**, not deductible under the Income Tax Act, so should be booked under a **non-deductible expense head** like "Penalty/Fine – Non-Allowable".
---
### 🔹 Optional Adjustment:
If the company wants to treat this TDS amount as **irrecoverable** from contractor (e.g. contractor is unreachable or uncooperative), then:
```text
TDS Recoverable A/c Dr. ₹ [TDS]
To Contractor A/c ₹ [TDS]
Later, write it off:
Bad Debts / TDS Written Off A/c Dr.
To TDS Recoverable A/c
```
---
## ✅ Step 4: **Issue of Form 16A**
Once TDS is deposited and return filed for **the correct section and period**, you can **manually generate** Form 16A from TRACES for that AY.
⚠️ **Caution**: Since this relates to a very old FY, the TDS return system may **not accept** regular returns. You might need:
* To file a **corrected or delayed TDS return** using older TIN-FC/NSDL utilities (manually or via a TDS consultant).
* Or, use **manual certification**, with full documentation, if e-filing is not possible.
---
## 🔚 Summary
| Item | Action |
| ------------------------------ | ---------------------------------------------------------------------- |
| TDS not deducted in AY 2006–07 | Deposit now with interest under Sec 201(1A) |
| Want to issue Form 16A | File TDS return for that period (if possible), then issue |
| Accounting treatment | Book in current year as expense or receivable |
| Auditor concern | Document clearly that correction is voluntary & to comply with tax law |
---
Let me know if you want:
* A **sample journal entry voucher**,
* A **sample board note or audit note** justifying the adjustment,
* Help calculating interest under Section 201(1A).
You’ve handled this responsibly — just ensure documentation is tight for audit trail.
* TDS under **Section 194C** was not deducted,
* The contractor is now asking for a **TDS certificate (Form 16A)**,
* Financials are **already audited**,
* Your company now wants to **pay the TDS with interest**,
* You want to **record this transaction cleanly**, without raising red flags with the auditors.
---
## ✅ Step-by-Step Resolution Plan:
### 🔹 Step 1: **Understand the Legal Exposure**
Since the TDS was **not deducted** in FY 2005–06 (AY 2006–07), your company is:
* Treated as **assessee-in-default** under **Section 201(1)**,
* Liable to pay:
* **TDS** amount,
* **Interest under Section 201(1A)**:
* **1% per month** from **date tax was deductible to date it is deducted**
* **1.5% per month** from **date tax is deducted to date it is deposited**
### 🔹 Step 2: **Check for Form 26A Option (Optional Relief)**
If the contractor is:
* **Resident**, and
* Has **declared the income in their return**, and
* Has **paid tax on it**, and
* Provides a **CA-certified Form 26A** via TRACES,
Then your company will **not be treated as assessee-in-default**, but still liable for **interest**.
However, since this relates to **AY 2006–07**, Form 26A on TRACES **may not be permitted now**, so practically, you likely have to **bear the TDS and interest**.
---
## ✅ Step 3: **How to Account the Transaction Now**
Since the **expenses and payment** happened **in FY 2005–06**, and the **books are audited**, you cannot retroactively adjust them.
So, you must record the **TDS + interest** in the **current year's books** as a separate charge.
---
### 🔹 **Recommended Accounting Entries (in current year):**
**a) For TDS deposited now (from company's pocket):**
```text
TDS Recoverable A/c Dr. ₹ [TDS Amount]
To Bank A/c ₹ [TDS Amount]
```
> This reflects that the company paid the TDS on behalf of the contractor. If you don't intend to recover, write it off later as an expense.
**b) For Interest under Sec. 201(1A):**
```text
Interest on TDS A/c Dr. ₹ [Interest Amount]
To Bank A/c ₹ [Interest Amount]
```
> This interest is a **penalty**, not deductible under the Income Tax Act, so should be booked under a **non-deductible expense head** like "Penalty/Fine – Non-Allowable".
---
### 🔹 Optional Adjustment:
If the company wants to treat this TDS amount as **irrecoverable** from contractor (e.g. contractor is unreachable or uncooperative), then:
```text
TDS Recoverable A/c Dr. ₹ [TDS]
To Contractor A/c ₹ [TDS]
Later, write it off:
Bad Debts / TDS Written Off A/c Dr.
To TDS Recoverable A/c
```
---
## ✅ Step 4: **Issue of Form 16A**
Once TDS is deposited and return filed for **the correct section and period**, you can **manually generate** Form 16A from TRACES for that AY.
⚠️ **Caution**: Since this relates to a very old FY, the TDS return system may **not accept** regular returns. You might need:
* To file a **corrected or delayed TDS return** using older TIN-FC/NSDL utilities (manually or via a TDS consultant).
* Or, use **manual certification**, with full documentation, if e-filing is not possible.
---
## 🔚 Summary
| Item | Action |
| ------------------------------ | ---------------------------------------------------------------------- |
| TDS not deducted in AY 2006–07 | Deposit now with interest under Sec 201(1A) |
| Want to issue Form 16A | File TDS return for that period (if possible), then issue |
| Accounting treatment | Book in current year as expense or receivable |
| Auditor concern | Document clearly that correction is voluntary & to comply with tax law |
---
Let me know if you want:
* A **sample journal entry voucher**,
* A **sample board note or audit note** justifying the adjustment,
* Help calculating interest under Section 201(1A).
You’ve handled this responsibly — just ensure documentation is tight for audit trail.
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