Prosecution for Delay in Deposit, Income Under-Reporting and Non-Filing of IT Returns Relaxed

The CBDT relaxes the prosecution norms for three common Income tax offences in a bid to ease the non-compliance stress on common taxpayers.

Prosecution for Delay in Deposit, Income Under-Reporting and Non-Filing of IT Returns Relaxed

A CBDT notification dated 9 September 2019 has relaxed some of the norms related to delay in deposit of Tax Deducted at Source (TDS), under-reporting of income and non-filing of Income Tax (IT) returns.

In cases where non-deposit of TDS is less than Rs 25 lakhs or the delay in the deposit is less than 60 days, the prosecution will not be initiated. However, in case of serial defaulters, it will be initiated, with the approval of a collegium constituting two senior-ranking officials. The idea is to spare honest taxpayers in India from harassment because of minor or procedural violations. One such instance was the three months’ rigorous imprisonment sentence given to film producer Firoz Nadiadwala for the delay in TDS deposit. 

The approval of the collegium has been made applicable for the prosecution in cases of under-reporting of income. This is applicable for under-reporting of income up to Rs 25 lakhs. Under-reporting is treated as concealment of income and carries a prison term of up to seven years.

Related: Are you an NRI? Here’s how you can claim a TDS refund 

Similarly, in case of non-filing of IT return in which tax of Rs 25 lakh or less has been evaded, the approval of the collegium is required for prosecution process. 

The pronouncements of the circular will also be applicable to existing cases where the prosecution complaint is yet to be filed by the taxmen. In a different circular the CBDT offered a one-time relaxation to the existing 12-month window available for compounding applications. This is a recourse that is available to taxpayers in India to pay a stiff penalty in lieu of prosecution, and the aforementioned relaxation is applicable until the end of December.

Who can be an offender in these cases?

In case of delay in TDS deposit, the offender can be anyone who deducts TDS from payments but fails to deposit it. Employers who deduct TDS from employees, tenants who deduct TDS on rent payment, TDS deducted by someone in a property sale or purchase transaction, or tax deducted on any other payment, including a non-resident, for reasons other than salary can become defaulters.

In case of under-reporting and non-filing, the defaulter can be anyone who fails to report income or doesn’t file IT return, and the tax sought to be evaded exceeds Rs 25 lakhs.

Related: Are you an NRI? Here's how you can claim a TDS refund 

What are the existing measures taken against these offences?

Under Section 276B, failure to timely deposit TDS can lead to rigorous imprisonment of three months to six years and a fine. In case of under-reporting of income and failure to file IT returns, the rigorous imprisonment can start from three months and go up to a maximum of seven years, apart from the fine. The sections governing these two offences are Section 276C(1) and Section 276CC.

How has the prosecution for late deposit of TDS evolved over the years?

The chairman of the taxation committee of Bombay Chartered Accountants Society mentioned that the stance of IT with regard to delay in deposit of TDS was originally much relaxed. In a 1980 CBDT notification, IT officials were instructed not to initiate proceedings in cases where the delay is less than a year. This instruction was withdrawn only as recently as August 2013. Prior to the recent circular, taxpayers had a two month period, and the amount was not a factor. Have a look at how to submit Form 15G and 15H to avoid TDS on interest income to understand the TDS form filling process.


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