Interest Liability under IT S. 201(1A)/ 206C(7) for TDS/ TCS Defaults

Amendments proposed in sections 201(1A) and 206C(7) of the Income Tax to provide clarity and to avoid litigation caused by misinterpretation, which provides to abide by the computation of interest for TDS/ TCS defaults under respective provisions, as made in the order passed by AO, vide Clauses 60 and 62 of the Finance Bill 2022 (budget 2022-23):

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.

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. 71977

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