Budget 2022: Consequence for failure to deduct/collect or payment of tax

Last updated: 03 February 2022

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New rules introduced in Budget 2022 aim to clarify the consequences for individuals and businesses who fail to deduct tax at source or pay collected tax to the government. These changes address frequent litigation surrounding the computation of interest in such cases. From 1st April 2022, amendments to sections 201 and 206C of the Act will ensure interest is paid as per the Assessing Officer's order, providing clearer guidance and reducing misinterpretations.

Consequence for failure to deduct/collect or payment of tax - Computation of interest

1. Section 201 of the of the Act deals with the consequences of persons who fail to deduct tax or after deducting, fail to deposit the same to the credit of the Central Government. Sub-section (1A) of the said section provides that if any person who is liable to deduct tax at source does not deduct it or after so deducting fails to pay the same to the credit of the Central Government, then he shall be liable to pay simple interest at the rates specified therein. Similarly, sub-section (7) of section 206C of the Act provides that if any person who is liable to collect tax at source does not collect it or after so collecting fails to pay the same to the credit of the Central Government, then he shall be liable to pay interest at rates specified therein.

2. It has been observed that computation of interest under the said provisions in case where the default for deduction/collection of tax or payment of tax continues is subject matter of frequent litigation.

Tax Deduction and Payment Failures: Interest Rules Clarified

3. In order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to:

(i) amend sub-section (1A) of section 201 to provide that where any order is made by the Assessing Officer for the default under sub-section (1) of the said section, the interest shall be paid by the person in accordance with the order made by the Assessing Officer in this regard;

(ii) amend sub-section (7) of section 206C to provide that where any order is made by the Assessing Officer for the default under sub-section (6A) of the said section, the interest shall be paid by the person in accordance with the order made by the Assessing Officer in this regard.

4. These amendments will take effect from 1st April, 2022.

[Clauses 60 and 62 ]

FAQ :

If you fail to deduct tax at source or, after deducting it, fail to pay it to the Central Government, you will be liable to pay simple interest on the amount.

From 1st April 2022, amendments clarify that if an order is made by the Assessing Officer for a default in deducting tax at source, the interest will be paid according to that order.

From 1st April 2022, if an order is made by the Assessing Officer for a default in collecting tax at source or paying it, the interest will be paid as per the Assessing Officer's order.

These amendments will take effect from 1st April 2022.

The amendments aim to make the legislation clearer, free it from misinterpretation, and reduce frequent litigation concerning the computation of interest for tax deduction or payment failures.

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