Employers are legally obligated under the Income Tax Act, 1961, to deduct Tax Deducted at Source (TDS) from their employees' salaries and deposit the same with the government. This process ensures that taxes are paid in a timely manner and relieves employees from managing tax deductions on their own. However, instances may arise where employers fail to deduct or, after deduction, fail to deposit TDS. Such non-compliance can lead to significant issues for employees, including discrepancies in their tax records and potential legal complications. This article explores the legal provisions governing TDS deductions, the consequences for employers who fail to comply, and the remedies available to employees to protect their rights and ensure their tax liabilities are properly accounted for.
Section 192 of the Income Tax Act, 1961: Employer's Responsibility to Deduct TDS
Section 192 mandates employers to deduct TDS from their employees' salaries based on the applicable income tax slab rates. This deduction must be done at the time of payment, and the employer must provide a TDS certificate (Form 16) to the employee as proof of the tax deducted and deposited. Section 201 of the Income Tax Act: Consequences of Failure to Deduct or Pay TDS
Under Section 201, if an employer fails to deduct TDS or, after deducting, fails to deposit it with the government, they are deemed an "assessee-in-default." This designation carries several consequences: Interest on Non-Deduction or Non-Payment:
Non-Deduction: If TDS was not deducted, interest is charged at 1% per month from the date it was deductible until the date it is actually deducted.
Non-Payment: If TDS was deducted but not deposited, interest is charged at 1.5% per month from the date of deduction to the date of payment. Penalties and Legal Action:
The employer may be liable to pay penalties and could face prosecution under Section 276B, which can result in imprisonment and fines for willful non-compliance.
Remedies for Employee:
Communicate with the Company: The initial step as an employee is to approach the employer and request them to deposit the TDS and issue the necessary certificate. This direct communication can often resolve misunderstandings or errors.
Checking Form 26AS: Employees should regularly review their Form 26AS, a consolidated tax statement that displays the amount of TDS deducted and deposited against their PAN. This form serves as a critical check for any discrepancies.
Filing a Complaint with the Income Tax Department: If the employer does not rectify the situation, the employee can file a complaint with the Income Tax Department. This complaint can be lodged online via the Income Tax e-filing portal or in person at the local tax office. The complaint should include the employer's details, the amount of TDS deducted, and any previous communications.
Seeking Legal Remedy: In cases where communication and complaints do not resolve the issue, the employee may seek legal action. This can include sending a legal notice to the employer and, if necessary, filing a lawsuit for the recovery of the TDS amount. If the deductor is a professional (e.g., a Chartered Accountant), a complaint for professional misconduct may also be filed with the relevant regulatory body.
Credit for TDS Not Deposited: In some situations, the employee may claim credit for the TDS deducted even if it has not been deposited by the employer. This typically requires proof that the income was declared, and taxes were paid in full. However, this is a complex process and should be approached with the assistance of a tax professional.
Rectification of TDS Return: If the issue arises from clerical errors or mismatches in the TDS returns filed by the employer, the employer can submit a revised or corrected TDS return. Employees should follow up to ensure that these corrections are made and reflected in their Form 26AS.
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