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Section 271C of Income Tax Act


Section 271C of Income Tax Act

Section 271C of Income Tax Act lays down the law relating to the penalty which should be imposed by the Income Tax Department for failure to deduct TDS or remit TDS before the applicable due date. In this article, we discuss the provisions of Section 271C.

Section 271C

"(1) If any person fails to—
  • Deduct the whole or any part of the tax as required by or under the provisions 
    of Chapter XVII-B; or
  • Pay the whole or any part of the tax as required by or under,—
    • sub-section (2) of section 115-O; or
    • the second proviso to section 194B,
then, such person shall be liable to pay, by way of penalty, a sum equal to 
the amount of tax which such person failed to deduct or pay as aforesaid.".

TDS on Payment of Prize Winnings

Section 194B of the Income Tax Act relates to income tax on prizes. Section 194B provides that TDS at a rate of 30% should be deducted on any prize money in excess of Rs. 10,000. In addition to it, an education cess of 3% will be payable on the tax amount.

Amount of Penalty

The maximum amount of penalty under Section 271C is the amount of tax which the taxpayer failed to deduct or pay as required under TDS regulations.

When Section 271C is Applicable

Penalty under Section 271C will be imposed in the following circumstances:

  1. Failure to deduct tax at source.
  2. Failure to pay dividend distribution tax on the dividends distributed.
  3. Failure to remit taxes which were imposed on the basis of winnings from lottery or crossword puzzles.
  4. Failure to collect tax at source.

When Section 271C is NOT Applicable

As a basic norm, penalties needn’t be imposed if the concerned person states a reasonable cause for the default.  The following are some of the other reasons when the penalty under this section is not imposed.

  • Committing a Bona Fide default. Bona Fide mistake is a type of mistake which was not intentional on the part of the assessee.
  • A person who is a resident but not ordinarily resident is not required to pay taxes for the income which accrues or arises outside India. Given this scenario, such a person need not deduct tax at source and hence would not be liable for penalties under this provision.
  • A company which is non-resident in India would not be taxable even if its liaison office is situated in India, as the latter may not conduct any business operations in the country, and therefore would not be taxable. As a result, TDS or tax payments are not included in the provisions of a non-resident company.