New TDS Deposit Rules: The government has eased the regulations surrounding the time frame within which companies or deductors must deposit TDS (deducted from payments made by them) with the government before a prosecution notice is issued. The standard due date for depositing TDS with the government is the 7th of the month following the month in which it is deducted.
Employees may be concerned that the relaxation in TDS compliance granted to companies could affect the timely deposit of the tax against their respective PANs.
According to an ET report, there have been recent instances of companies, such as SpiceJet and Byju’s, not depositing TDS with the government on time, resulting in employees encountering income tax issues.
What are the new TDS Deposit Rules?
Previously, companies had 60 days from the original due date to deposit the outstanding TDS (tax deducted at source). However, starting from October 1, 2024, the new income tax laws provide companies with additional time to accomplish this.
From October 1 onwards, companies will have until the deadline to file the TDS return to deposit TDS with the government. Nevertheless, if the TDS is deposited after the original due date, penal interest would have to be paid in addition.
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This effectively grants an extra 20 days to make the TDS deposit, i.e., 60 days from the original due date plus an additional 20 days.
The income tax department has introduced a new rule regarding the prosecution notice for companies that fail to deposit the TDS by the due date for filing the TDS return.
Previously, the notice would be sent after 60 days from the due date for depositing the TDS. However, under the new TDS laws, the notice will be sent immediately if the company fails to deposit the TDS, along with the penal interest, by the TDS return filing deadline. This change applies only if the TDS amount exceeds Rs 25 lakh.
New TDS Deposit Rules Explained with Example
To illustrate this change, consider a scenario where a company deducts tax from an employee’s April salary. The last date to deposit the tax deducted in April is May 7, and the last date to file the TDS return for the tax deducted in April, May, and June is July 31. Under the earlier laws, if the company failed to deposit the tax deducted by July 7 (60 days from the due date of May 7), the income tax department would send a notice asking why the company should not be prosecuted.
With the new TDS laws, the income tax department will send the prosecution notice if the company fails to deposit the TDS, along with the penal interest, by July 31, the TDS return filing deadline.
According to the income tax laws, the tax deductor must deposit the TDS dues on or before the seventh of the subsequent month, with an exception in April. For government employees, the March TDS is deposited on or before April 7, while for others, it is April 30.
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Should employees be worried?
The recent amendments to the TDS laws provide companies with additional time to deposit the TDS with the government. However, concerns have been raised about the potential negative impact on employees.
Many employees do not regularly review their Form 26AS and Annual Information Statement (AIS) during the financial year to verify if their employer has deposited the tax deducted from their salary against their PAN.
Typically, employees check their Form 26AS and AIS in the following year while filing their income tax returns. When employers fail to deposit the TDS, employees are often surprised when they review their Form 26AS and AIS.
Media reports have highlighted instances where employees of Byju’s received tax notices from the income tax department regarding unpaid TDS dues. Recently, SpiceJet acknowledged that TDS dues remained unpaid between April 2020 and August 2023.
Pranay Bhatia, Partner & Leader, Corporate Tax, Tax & Regulatory Services, BDO India, was quoted as saying by ET, “The new TDS laws provide extra time for companies to deposit TDS dues with the government. While this relaxation will help companies, it will not adversely affect the employees’ TDS credit. The income tax department can still send the prosecution notice to the companies if they fail to deposit the tax deducted on or before the due date to file TDS return statement.”
Naveen Wadhwa, Vice President of Research and Advisory Division, Taxmann, adds, “The relaxation of TDS laws from October 1, 2024, offers companies extra time to deposit TDS along with the penal interest before the prosecution notice is sent. However, the new TDS laws will not adversely impact employees’ TDS credit against their PAN.”
Recent reports have highlighted instances where employers have withheld TDS from their employees’ salaries but failed to remit the funds to the government. As a result, numerous employees faced difficulties in claiming TDS credit when submitting their income tax returns.
According to Wadhwa, “Section 205 of the Income-tax Act prohibits tax recovery from taxpayers, provided tax is deducted from their salary or any other income but not deposited with the tax department. However, taxpayers must provide proof to the income tax department that tax has been deducted from their salary.”
By furnishing evidence of TDS deductions, individuals can ensure they receive the appropriate TDS credit and prevent any additional tax liabilities.
