The TDS deductor or collector will have to bear all legal repercussions and tax penalties just because he/she failed to check the status of the deductee’s PAN and deducted a lower TDS amount.
“If the TDS deductor does not check the status of PAN of the deductee on the date of TDS deduction then all the penalty and other legal repercussions would be applied to him and nobody else. This is because it is the TDS deductor’s responsibility to check the status of PAN,” says Mihir Tanna, associate director-direct tax, S.K Patodia LLP, a CA firm.
Source: Income-tax department website as of March 20, 2024
Also read: Income Tax dept is calculating your advance tax liability by tracking these financial transactions.
Why is it important to check PAN’s status on the date of TDS deduction?
TDS deducted must be deposited with the government within 30 days from the end of the month in which it was deducted. However, there is a possibility that the PAN which was inoperative on the day TDS was deducted and became operative later during the period before the statutory deadline of depositing the deducted amount with the government.For example, TDS was deducted on March 20 and deposited on April 15. Experts say that if the seller’s PAN was inoperative on March 20, though it may have been operative on April 15, a higher TDS amount must be deducted.”In view of the requirement of operative PAN, it is now significant for every payer of TDS to not only check the existence of a valid PAN but also required to check whether PAN is operative on the date on which TDS is required to be deducted. Recently, many of our clients have received ‘short deduction of TDS’ notices from the Tax Department on account of PAN-Aadhar linking status on the ‘Date of Payment of Consideration’ for sale of property viz-a-viz on the ‘Date of Payment of TDS’ to the Government,” Tanna further added.
What are the transactions where TDS is deducted?
There are certain transactions wherein TDS is deducted or collected.
According to Rahul Charkha, Partner, Economic Laws Practice (ELP), a law firm given below are some of the transactions when TDS is deducted/collected:
- Rent from house property exceeding Rs 50,000 per month.
- Sale of Immovable Property of Rs 50 lakh or more.
- Payment to Resident Contractors and Professionals exceeding specified limits.
- Salary payments,
- Expenditure on Foreign Remittance in specific cases.
How to check the status of a PAN?
Individuals can verify the status of PAN by visiting the Income-tax department’s website and clicking on ‘Verify PAN Status’ option under the ‘Quick Links’ section.
According to Charkha, this online tool allows users to verify PAN details by providing basic information such as PAN, full name, date of birth, and other relevant details.
Source: Income-tax department website
What will happen if a taxpayer fails to deduct/collect correct amount of TDS
If an individual is supposed to deduct or collect TDS but has failed to deduct the correct amount of TDS, then the repercussions are severe.
According to Charkha, failure to deduct the correct amount of TDS will lead to various challenges. “Failure to deduct the correct amount of TDS may prompt the tax department to impose additional interest, penalties, and also potential legal proceedings to enforce compliance. These consequences highlight the importance of diligently adhering to TDS provisions, ensuring accurate deduction, and timely depositing of TDS to avoid financial liabilities, penalties, and legal repercussions,” says Charkha.
Why it is important to verify PAN Aadhaar linking status of deductee on deduction date to avoid receiving an income tax notice for TDS deduction.
According to Mihir Tanna, associate director-direct tax at S.K Patodia LLP, failure to verify the deductee’s PAN status can result in severe legal repercussions and penalties for the TDS deductor or collector. It is their responsibility to ensure the correct TDS amount is deducted based on the PAN status.
Source: Income-tax department website as of March 20, 2024
Also read: Income Tax dept is calculating your advance tax liability by tracking these financial transactions.
Why is it important to check PAN’s status on the date of TDS deduction?
The TDS deducted must be deposited with the government within 30 days from the end of the month in which it was deducted. Failure to verify the PAN status at the time of deduction can result in higher TDS amounts being required if the PAN becomes active later. It is essential for TDS payers to check the PAN’s operative status before deduction to avoid penalties.
What are the transactions where TDS is deducted?
Rahul Charkha, Partner at Economic Laws Practice (ELP), lists some common transactions where TDS is deducted or collected:
- Rent from house property exceeding Rs 50,000 per month.
- Sale of Immovable Property of Rs 50 lakh or more.
- Payment to Resident Contractors and Professionals exceeding specified limits.
- Salary payments.
- Expenditure on Foreign Remittance in specific cases.
How to check the status of a PAN?
Individuals can verify the PAN status on the Income-tax department’s website by using the ‘Verify PAN Status’ option under the ‘Quick Links’ section. This online tool requires basic details like PAN, full name, date of birth, and other relevant information to verify the PAN status.
Source: Income-tax department website
What will happen if a taxpayer fails to deduct/collect correct amount of TDS
Failure to deduct the correct amount of TDS can lead to additional interest, penalties, and legal proceedings imposed by the tax department. It is crucial to adhere to TDS provisions diligently to ensure accurate deduction and timely depositing to avoid financial liabilities and legal repercussions.
