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:

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

Back to Learn

Frequently Asked Questions

Common questions about Section 271C Income Tax Act: TDS Penalty Regulations.

Section 271C of the Income Tax Act lays down the provisions for imposing penalties on failure to deduct or remit Tax Deducted at Source (TDS) as required under the Income Tax Act. It states that if a person fails to deduct or pay the whole or any part of the TDS, they shall be liable to pay a penalty equal to the amount of tax they failed to deduct or pay.

The penalty under Section 271C is applicable in the following circumstances: failure to deduct tax at source, failure to pay dividend distribution tax on dividends distributed, failure to remit taxes imposed on winnings from lottery or crossword puzzles, and failure to collect tax at source.

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

No, the penalty under Section 271C is generally not imposed if the concerned person can demonstrate a reasonable cause for the default, such as a bona fide mistake, which is an unintentional mistake made in good faith.

Non-resident individuals or companies may not be liable for penalties under Section 271C in certain cases. For example, a non-resident individual who is not ordinarily resident in India is not required to pay taxes on income that accrues or arises outside India, and hence, would not be liable for penalties for not deducting TDS on such income. Similarly, a non-resident company without any business operations in India may not be subject to TDS or tax payments, and consequently, not liable for penalties under this provision.

The purpose of Section 271C is to ensure compliance with the provisions of the Income Tax Act related to deduction and remittance of Tax Deducted at Source (TDS). It acts as a deterrent against non-compliance by imposing penalties on those who fail to deduct or pay the required TDS.

According to Section 194B of the Income Tax Act, TDS at the rate of 30% should be deducted on any prize money in excess of Rs. 10,000. Additionally, an education cess of 3% will be payable on the tax amount.

The penalty under Section 271C can be waived or reduced if the assessee can demonstrate a reasonable cause for the default, such as a bona fide mistake or other valid reasons. The Income Tax authorities have the discretion to reduce or waive the penalty based on the circumstances of the case.

The penalty under Section 271C is applicable to any person, including individuals, companies, and other entities, who fail to deduct or remit TDS as required under the Income Tax Act.

If the penalty imposed under Section 271C is not paid, it can lead to further legal consequences, such as interest on the unpaid penalty amount, recovery proceedings, and potential prosecution for non-compliance with the Income Tax Act.