No tax recovery shall be enforced on taxpayers if tax has been deducted at source from their salary or other income but has not been remitted to the tax department by the deductor
Previously, if an employer failed to deposit with the central government the tax deducted at source (TDS) from the salaries of their employees within the prescribed time frame (generally within seven days of the succeeding month), the employer was subject to rigorous imprisonment for a term not less than three months, which may extend up to seven years, in addition to incurring a monetary fine.
To ease the above compliance and reduce unwanted litigation, the Union Finance Minister, Smt. Nirmala Sitharaman introduced amendments in section 276B of the Income Tax Act vide the Finance (No. 2) Act, 2024, which is in effect from 1 October 2024.
What The Amendment Means
“Under the amended provisions, employers are permitted to deposit the deducted tax before filing the return statement for such payments. It is pertinent to note that although the timing for depositing TDS has been relaxed, interest shall continue to be levied on delayed payments. Hence, employers are advised to ensure timely deposits to avoid incurring interest, notwithstanding the easing of penalties related to non-compliance,” says Suresh Surana, a Mumbai-based chartered accountant.
For example, if the employer deducts tax from an employee’s salary for October 2024, the due date for depositing such tax is 7 November 2024. Failure to deposit such payments may result in penalties and imprisonment for a term not less than three months, which may extend to seven years.
However, under the amended provisions, the employer may deposit such tax until the due date to file the return of such payment. In this instance, the last date to deposit the amount without incurring penalties or imprisonment is 31 January 2025.
“However, the interest on such delay will continue to be levied. This amendment in section 276B of the IT Act would provide additional time to the employer to comply with this requirement of depositing the TDS, without inviting the prosecution provisions,” says Surana.
What It Means For The Employee
Furthermore, to protect the interests of the deductee (in this case, employee), section 205 of the Income-Tax Act stipulates that no tax recovery shall be enforced on a taxpayer if tax has been deducted at source from their salary or other income but has not been remitted to the tax department by the deductor.
“The taxpayer must provide proof to the income tax authorities that the tax was deducted from their salary or income. Such proof may include salary slips, Form 16, or other relevant documents issued by the deductor, demonstrating the tax liability accounted for through the deduction,” says Surana.
Also, there will be no change in the obligation of employees regarding the payment of tax. The tax to be deducted from the salary will depend on the tax regime opted by the employee, whether it is the old or new taxation regime. The employer will make the deduction by the applicable rates and provisions under the chosen regime.