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Disallowance of Interest on TDS

Mohammed Dalal (Chartered Accountant) (163 Points)

12 August 2010

Hi all Can any one tell me the section under which the Interest paid on TDS is disallowed Thanks

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11 Replies

Govind Rathore (CA Final) (543 Points)
Replied 12 August 2010

its under section 40 (a) (ia)

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Mohammed Dalal (Chartered Accountant) (163 Points)
Replied 12 August 2010

Thanks for the reply, But section 40(a)(ia) disallows the expense on which TDS had to be deducted if the same was not deposited before the due date of filling of the return

Piyush Jain (CA) (283 Points)
Replied 12 August 2010

Interest paid for delay deposit of TDS is allowable expnse.

Only those expense which are penal in nature are disalowed.

Regards

Piyush

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Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 12 August 2010

Dear Mohemmed,

Interest on late payment of TDS is disallowed under section 37(1) of the income tax act.

Although Sec 37(1) provided for the allowability of general expenses incurred for business, it also mentions certains exceptions for which no allowance for expenses under income tax act.

regards,

Manoj

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(Guest)

Hai..............
Good morning............
Welcome to this forum.....
the non-payment of TDS by an assessee entails disallowance of the expenditure.In a case , where the receipient already paid tax and filed its return, the TDS liability is abated u/s.191 Whether the disallowance u/s.40(ia)is still applicable because during the relevant previous year there existed liability to make TDS.That once the payee paid the tax and there is no need for making TDS as per the sec.191,it must satisfy the requirement of sec.40(ia).In other words , there is no separte liabiity to make TDS u/s.40(ia).This provision needs elaboration and the opinion of my learned brethern and any judgments sofar may please be posted at the earliest.
thank you
c.sai prasad.

addition on 24,11.2008

Sec.40a(ia) doesnot disallow the corresponding expenditure but provides that if the TDS is paid in the subsequent years,exp.would be allowed in that subsequent year.Therefore,it implies that where the payee didnot pay tax and the liability to make TDS remians on the payer,it must be paid though in a subsequent year in order to get deduction.Otherwise,making TDS where payee already paid directly would amount to paying tax twice and it is not intended.It looks unconvincing that even if payee had already paid tax, the payer in order to get deduction must make another payment of TDS in favour of the payee.This needs to be kept in view in evaluating the issue.
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