What happens if the TDS is not deducted by the buyer of the property or TDS is not submitted to Government?

In case of non-compliance of buyer of property not deducting the TDS or paying TDS late one has to interest under section 201, but also late fee under section 234E of the Income Tax Act.

The buyer of the property has to pay Penalty under section 201:

If tax is deducted by buyer of the property and is not deposited by the 7th of next month of the month of deduction, but is paid at a later date. Then, Interest of 1.5% for every month or part of the month from the date on which such tax was deducted till the time it was actually paid. In simple words, 1.5% of the TDS amount from the due date till the date of late payment will be charged as interest. Lets see it with an example.

Example: Rs. 80000 tax was deducted on Apr 24, 2016, which required to be deposited with the government account till May 7, 2016, but if the same is paid on June 7, 2016 then number of months of default is 3, because part of April will be counted 1, full May & part of June will be counted as 1 month each, thus making a total of 3 months of default. So Amount of Interest: Rs. 80000×1 .5% X 3= Rs. 3600

If tax is not deducted at all by the buyer on property

If TDS or tax is not deducted by the buyer of the property at all then interest at 1% for every month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted. Note: Interest calculated will be simple interest. The fraction/part of the month is considered as full month.

For Example: Mr X bought property in Apr 2015 for 80 lakh. Rs. 80000 tax was deducted on Apr 24, 2015, which required to be deposited with the government account till May 7, 2015, but he did not pay it. If the same is paid on June 7, 2015 then number of months of default is 3, because part of April will be counted 1, full May & part of June will be counted as 1 month each, thus making a total of 3 months of default. So Mr X has to pay = 80,000 + 800(1% of 80,000)  *3 = 82,400

Penalty for not paying TDS on buying property under section  234E

In case of default of non-filing or late filing of Form 26QB, an additional penal fee along with the ones mentioned in Sec. 201 will applicable under section 234E of the Income Tax Act. Rs. 200 has to be paid for every day during which such failure continues. It cannot exceed the TDS which had to be paid. If Rs. 80,000 was to be paid by 7th May 2016, nut if the same is paid on 7th June, 2016, then late fee will be calculated as:

No. of days from 8th May to 7th June= 32 days. Late fee= 32× Rs. 200= Rs. 6,400 or Rs. 55,000 (amount of tax) whichever is lower i.e. Rs. 6,400

For example, if TDS Amount is Rs 20,000 and delay is of 200 Days then the late fee is 200 X Rs 200 i.e. Rs 40,000. Lower of Rs 20,000 and Rs 40,000 is Rs 20,000 therefore max late fee penalty is Rs20,000. In Short, max late fee penalty cannot exceed TDS Amount

 Penalty under section 271H

Assessing Officer may levy penalty under section 271H at his discretion. This section is applicable when a statement as required by the tax laws is not submitted timely. Penalty under this section is more than Rs 10,000 and can extend to Rs 1 lakh. However, if TDS is deposited with fee, applicable interest and statement is submitted within 1 year of the time prescribed, no penalty shall be levied.

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