The concept of tax deduction at source (TDS) was introduced by the Income Tax Department to collect the taxes from the persons who would otherwise escape the tax net. According to the scheme of TDS, the persons responsible for making payment of income are required to deduct the tax at source. They have to remit the deducted amount to the Government’s Treasury within the stipulated time. This scheme is governed and regulated by the Income Tax Act, 1961 and the rules made there under.
What’s the logic?
The Income Tax Law governs the taxation of a person who earns income. If a person earns income, then it is the duty of that person to pay the tax as per the prevailing law.
For the income tax liability of another person, why should any other person deduct the tax, and remit to the government. It is the duty of the Income Tax Department to collect the tax from the assessees and not the common person’s duty to act as an agent of Income Tax Department in the tax collections.
All Costs – No Benefits!
Just because another person may not pay his tax honestly, the Department has shifted the duty of collecting taxes on the common persons. This shift of duty cost a huge amount.
The following are the associated costs and monetary exposures.
--> Printing & Stationery for TDS Certificates, Correspondences, Returns, etc.
--> Cost of Human Resources, The man hours spent for preparation of TDS Certificates, filing returns, remittances of deducted tax - his salary, welfare costs, etc.
--> The expenses incurred for deploying a professional like chartered accountant for the consultancy – Professional Charges, Consultancy Charges, etc.
--> The opportunity cost of utilizing the time spent for TDS compliances – That time could have been usefully utilized for other core business purposes leading to profits to the business. The loss of revenue on account of spending time in unnecessary activities is very important.
--> No one is perfect in this world, and even if there are some mistakes or faults committed in TDS compliance it would cost the assessee dear.
--> Every deductor should have a TAN (TDS Account Number). If there is a failure to apply for TAN, then there is a penalty of Rs.10,000/-
--> You are required to deduct the tax at source. If there is a failure to deduct the tax, penalty equal to the sum not deducted will be levied. As if that is not enough, interest @ 15% p.a. is to be paid.
--> Even if the tax is deducted at source properly, if there is a delay in remitting the same, then there is a penalty equal to the sum not deducted and interest @ 15% p.a. is to be paid.
--> If all the formalities are done correctly, but the TDS Certificate is not issued in time, there is a penalty of Rs.100/- per day of delay. Fortunately or unfortunately this penalty is restricted to the maximum of the amount of TDS involved.
--> If throughout the year the going was smooth in relation to TDS compliances but at the end of the year, if there is a delay in submitting the TDS Return, again there is a penalty of RS. 100 per day of delay.
--> So long as money is concerned, you can pay the fines, etc and get relieved. BUT this is not the end. A person can be put behind the bars atleast for 3 months rigorous punishment and maximum upto 7 years with fine for the failure to deposit the tax which you had deducted. This loss of reputation and damage to the esteem cannot be measured in terms of money. So the cost incurred in this regard is INFINITY.
--> To file the return, these days, the assessees are required to file their returns in electronic media. i.e. e-TDS. To comply with that one needs to buy a e-TDS software which costs around Rs.2000/-
--> Apart from the cost of software, the data has to be keyed in, for that purpose your valuable human resource will be used for the data entry which will again result in loss of man-hours for unproductive activities.
--> Not to be ignored, the depreciation of the assets used for purposes of TDS compliances will have to be considered.
Depending on your organizational structure and volume and nature of activities you can estimate the cost and risk your organization is exposed to because of the additional burden of deducting taxes of other persons and remitting to the government in addition to paying your own taxes.
Just calculate the cost & risk of exposure in monetary terms as per the above 8 points and do not be startled if they all add up to Rs.0.5 Lakh or Rs.1 Lakh or Rs.10 Lakh or MORE.
Soon to realize, late to regret.
If I earn income, I should pay the tax as per the Income Tax Law prevailing. If someone else earns income, that other person should pay the tax as per the Income Tax Law. Where is the question of any one else intervening and deducting taxes at source????
------------- Sanjay Kadel, Chartered Accountant
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