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What is Tax Deducted at Source?

This tax was imposed by the government with a view to collecting tax from the source of income. The concept states that the person paying or who is the deductor shall make the payment to the central government. The deductee whose income has been deducted at source is allowed to get a remittance of the same by furnishing a certificate given by the employer to the government.

Is Section 115-O Abolished?

The finance act 2020 has abolished section 115-O and moved to the earlier system where the dividends are taxable in the hands of the investors. The provisions of Section 115-O are not applicable to dividends distributed after 1st April 2020.

What is Section 194B?

Section 194B states that the tax deducted at source should be paid at the rate of 30% plus a cess of 4% the total of which comes to 31.2%. If the prizes are given in kind, either the distributor has to pay the tax or the winning prize will be taxed in the hands of the winner and the tax deducted should be deposited with the government.

What is Section 276B of the Income-tax Act 1961?

Failure to pay to the credit of the Central Government, tax deducted by a person as required under the provisions of Chapter XVII-B shall make him liable to punishment with an imprisonment term which shall not be less than three months but may extend to seven years with fine.

Can the above Penalties be avoided?

Yes, they can be avoided, if the tax authorities are satisfied with the reason for failure to pay the tax due. However, if the tax authorities do not find a reasonable cause for such a default, you may still avoid imprisonment by paying a fee to the authorities. Such a waiver of prosecution is termed Compounding of Offences.

What is the procedure for Compounding Offences?

The assessee should satisfy the below-mentioned criteria to receive compounding of an offence:

  • Submit a written request for compounding.
  • Undisputed Taxes, Penalties, and Interest payments have been made duly.
  • Payment of Establishment Expenses and Compounding Fees are made.
  • The Compounding Charges are equal to or less than 10 Lacs and no complaint has not been filed yet.
  • Subsequent offences after the first offence will be compounded, only if the default is unintentional and the assessee has already taken steps to rectify the dues before being detected by the IT Department.

What are the fees related to Compounding?

The Compounding Fees are calculated as per the date of committing the Offence:

If an offence was committed before 1st April 1989:

  • 10% for a month or part of a month of the default amount where the total amount is more than Rs.1 lakh.
  • 2% for a month or part of a month of the default amount in other cases.

If the offence is committed on or after 1st April 1989:

  • 5%for a month or part of a month of the amount of tax in default.

Apart from the Composition Fees, the assessee is also required to pay prosecution establishments that also cover litigation charges.

What are Prosecution Establishment Charges?

These are charges to institute a prosecution in the event of litigation.Prosecution Establishment charges are applicable at 10% of the Composition fee which is, however, subject to an upper limit of Rs.50000.

Are all cases of wilful default or failure to furnish return or non-remission of TDS prosecuted?

A recent circular of the CBDT said the prosecution is a criminal proceeding based upon evidence gathered and the offence of tax evasion has to be “proven beyond reasonable doubt”

According to new criteria laid down by the CBDT to ensure that only “deserving cases get prosecuted”, it said

For cases involving a "wilful" attempt to evade tax and where the amount sought to be evaded or tax on such under-reported income is Rs 25 lakh or below, shall not be processed for prosecution except with prior administrative approvals of collegiums of two Chief Commissioners of the tax department.

Are All Offences Compoundable?

No, All Offences are not Compoundable under the Act.

The following offences cannot be compounded:

  • Category A offence, where compounding was requested or availed under the same section on 3 or more occasions.
  • Category B offence leaving the first offence
  • Involved in Anti-national/terrorist activity
  • Convicted by any court for any offence under any law which provides for an imprisonment term of 2 years or more, which has a bearing on the offence sought to be compounded.
  • Any offence having bearing on any case currently under investigation by ED, CBI, Lokpal or a Lokayukta.
  • Convicted by a court of any offence under Direct Tax Laws.
  • Offences for which complaint was filed with competent court 12 months before receipt of an application for compounding.
  • Any other offence considered not fit by CCIT/DGIT given its nature power of Principal Commissioner or Commissioner to grant immunity from prosecution – 278AB.
  • The application shall be made to the Principal CIT or CIT by a person who has made an application for settlement under section 245C, provided the proceedings have abated.
  • Such application should not be made after the institution of the
  • Prosecution proceedings after abatement.
  • Immunity may be granted because such a person has cooperated with the department and made full and true disclosure of his income.

The immunity granted under this section can be withdrawn if such person fails to comply with the conditions subject to which immunity is granted or subsequently it comes to light that he had given false evidence or concealed any material particulars of income.

For judicious, equitable, and effective implementation of the Prosecution Provision u/s 276B of the Income Tax Act, first and foremost, the defaulters must be categorised into different categories as stated by the nature and severity of default which is described in terms of the amount, duration and primarily intent and upon consideration of the aforesaid factors, the penal consequences shall follow.

For the purpose of making categorizations, the element of subjectivity within the categorization must be altogether done away with. Instead, the entire exercise of making categorisations shall be subject to a process of standardisation, as done under Computer Assisted Scrutiny Selection. For defining the categorisation of defaulters, due care should be given to the status of pendency or otherwise of the regular undisputed income tax refund of the defaulter assesses.

Reason for Charging an Interest

Interest is charged on non-compliance with Section 276B. The Income Tax Act, of 1961 has separate provisions for charging of interest, penalty and criminal prosecution. For charging interest, the department has the reason that the taxpayer has deprived the department of the amount of money it could have put to use otherwise. The criminal proceedings will not be affected by the charging of interest or penalty. The non-payment of TDS to the credit of the Central Government can hold the assessee liable for penalty as well as prosecution.

FAQS

1. What is tax deducted at source?

TDS is a certain amount that is deducted when a payment like a salary, commission, rent or interest is paid. The person who pays the amount deducts the payment and the person who earns an income has the liability to pay the tax.

2. What are Section 276B prosecution conditions?

If a taxpayer fails to pay the credit of tax deducted at source to the central government, the taxpayer will be punishable with rigorous imprisonment for a term between 3 months and 7 years.

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