Budget 2024: Taxpayers to get relief as TDS default rules proposed to be eased

Budget 2024 introduces much-needed relief for taxpayers by easing the rules for initiating prosecution proceedings in cases of TDS defaults. This move aims to streamline tax laws and reduce the litigation burden on taxpayers. Currently, tax laws consider delays in the payment of taxes deducted at source as a criminal offence if not paid or paid late beyond the specified due date, usually the 7th day of the following month after deduction.

However, Budget 2024 proposes to decriminalise delays in TDS payments by allowing payments up to the filing date of the TDS return for the respective quarter. This effectively grants taxpayers up to 85 days to deposit taxes without facing prosecution, though applicable interest will still be levied.

Cases exempt from relaxation

This rationalisation does not apply to certain cases such as TDS on winnings, income from the transfer of virtual digital assets, or on perquisites (where payment is partly or fully in kind). The rationale behind this differentiation appears to be that they are often one-time occurrences for either the payer or receiver, rather than regular payments.

Consequently, the TDS on such transactions is unlikely to undergo changes in subsequent periods, unlike TDS under other sections such as contractual payments or lease payments. It is also important to note that no rationalisation has been proposed for initiating prosecution proceedings in case of deposits of TCS.

Furthermore, Budget 2024 proposes to introduce Standard Operating Procedures (SOPs) for TDS defaults and rationalise the compounding guidelines for such defaults.

If accepted by the houses, these changes will take effect from 01 October, 2024. A pertinent issue arises regarding ongoing prosecution inquiries that may extend beyond 30 September, 2024. It remains to be seen whether notices will be retracted considering the revised provisions and compounding guidelines once they are finalised.

Impact of delayed tax payments

The tax laws contain several provisions, with one of the most significant provisions concerning the initiation of prosecution proceedings for defaults in tax payments. If a person fails to deposit the tax deducted by him with the Central Government within the stipulated period, an offence is said to have been committed under the present section.

As a consequence, the defaulter can face rigorous imprisonment ranging from a minimum of three months to a maximum of seven years, accompanied by added financial interest and penalties. The defaulter can avoid imprisonment by paying applicable fees to waive off the prosecution charges, commonly known as compounding of offences.

The current compounding guidelines state that cases shall not be processed for prosecution in normal circumstances if the non-payment (including delayed payment) of TDS is ₹25 lakh or below, and the delay in deposit in less than 60 days from the due date. However, the blueprint of the new compounding guidelines, along with SOP, is still awaited from the tax authorities.

Conclusion

The existing legislation underscores the importance of timely payments and highlights the gravity of the repercussions in case of delays. While the intent of the legislation may be to penalise the defaulters who intend to misuse government funds, many taxpayers have been impacted by this stringent provision, even in case of genuine difficulties. The proposed amendment unequivocally seeks to mitigate litigation and effectuate the decriminalisation of tax statutes, aligning with the government’s intention to streamline litigations.

Disclaimer: The views, thoughts and opinions expressed in the article are solely the author’s and are not representative of the author’s employer/ organisation.

Rony Antony, Partner & Leader, Corporate Tax (South), Tax & Regulatory Services, BDO India