As with other TDS defaults the consequences for Non deduction of Withholding Tax (WHT) may be broadly classified as under:
- Disallowance of the amounts paid under Section 40 (a) (i). It should be noted that the scope of the section dealing with payments to non residents is wider than that of 40 (a) (ia) which deals with residents.
- Simple Interest at 12 % p.a. u/s 201A (which is on a month to month basis after the Finance Act 2007). As per amendment w.e.f. July 1, 2010, the rate of Interest is 1 % per month or part thereof, from the date on which tax was deductible to the date on which tax is actually deducted. The rate of Interest is 1.5 % per month or part thereof, from the date on which tax was actually deducted to the date on which tax is actually paid.
- Penalties for non deduction (u/s 271C) (Minimum Penalty is the amount of tax which such person has failed to deduct or pay) and failure to pay the deducted tax to the government (u/s 221) (Minimum Penalty is any such amount as the Assessing Officer may impose and maximum Penalty amount is equal to tax not deducted or paid)
- Prosecution u/s 276B
Note: Section 195 A provides for the grossing up of payments in case of Net of Tax Payments.