Disallowance of expenditure on account of non-compliance with TDS provisions
A. The existing provisions of section 40(a)(ia) of Income-tax Act provide for the disallowance of expenditure like interest, commission, brokerage, professional fees, etc. if tax on such expenditure was not deducted, or after deduction was not paid during the previous year.
However, in case the deduction of tax is made during the last month of the previous year, no disallowance is made if the tax is deposited on or before the due date of filing of return.
It is proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income specified in sub-section (1) of section 139.
This amendment is proposed to take effect retrospectively from 1st April, 2010 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years.
B. Under the existing provisions of section 201(1A) of the Act, a person is liable to pay simple interest at 1% for every month or part of month in case of failure to deduct tax or payment of tax after deduction.
With a view to discourage the practice of delaying the deposit of tax after deduction, it is proposed to increase the rate of interest for non-payment of tax after deduction from the present one per cent to one and one-half per cent for every month or part of month.
This amendment is proposed to take effect from 1st July, 2010.