Section 271H of the Income Tax Act, 1961, provides for penalties in cases where there is a failure to furnish certain statements or reports, such as TDS (Tax Deducted at Source) or TCS (Tax Collected at Source) statements. This section ensures accountability and compliance with statutory requirements for tax reporting. Below is a comprehensive guide to the penalties and exceptions under Section 271H.
1. Scope of Section 271H
Section 271H applies to failures in:
- Furnishing TDS or TCS statements within the prescribed time.
- Furnishing incorrect information in TDS or TCS statements.
This section is aimed at ensuring timely and accurate filing of these statements, which are crucial for maintaining the integrity of the tax system.
2. Penalties Under Section 271H
a) Amount of Penalty
- Minimum Penalty: ₹10,000.
- Maximum Penalty: ₹1,00,000.
b) Applicability
- Failure to furnish statements of TDS or TCS by the due date.
- Furnishing inaccurate information in the statements.
c) Additional Interest and Late Fees
- In addition to the penalty, the defaulter may also be liable to:
- Interest under Section 201(1A) for TDS defaults.
- Late fees under Section 234E for delayed filing of TDS/TCS statements.
| Nature of Default | Penalty (₹) | Additional Liabilities |
|---|---|---|
| Failure to furnish TDS statement | ₹10,000 to ₹1,00,000 | Interest under Section 201(1A), late fees under Section 234E. |
| Incorrect information in TDS/TCS | ₹10,000 to ₹1,00,000 | Corrective action and applicable interest. |
3. Exceptions to Penalty Under Section 271H
a) Reasonable Cause
- No penalty shall be imposed if the taxpayer proves that the default was due to a reasonable cause, such as:
- Technical glitches in reporting systems.
- Natural disasters disrupting business operations.
b) Time-Bound Compliance
- Penalty for failure to furnish TDS/TCS statements will not apply if:
- The statements are filed within one year of the due date.
- The tax deducted or collected is deposited with the government along with applicable interest and fees.
4. Procedure for Imposing Penalty
- Detection of Default:
- The Assessing Officer (AO) or relevant tax authority identifies the failure during assessments or audits.
- Issuance of Notice:
- A show-cause notice is issued to the defaulter, allowing them to explain the reasons for non-compliance.
- Evaluation by Tax Authority:
- The AO evaluates the explanation and evidence provided by the taxpayer.
- Imposition of Penalty:
- If the explanation is unsatisfactory, a penalty order is issued under Section 271H.
5. Judicial Precedents on Section 271H
- M/s. K. L. Enterprises v. CIT (2017):
- Highlighted that penalties under Section 271H are not automatic and reasonable cause must be considered.
- CIT v. Standard Chartered Bank (2016):
- Emphasized the need for timely compliance with TDS filing requirements.
6. Importance of Section 271H
- Ensures Compliance: Promotes timely and accurate filing of TDS and TCS statements.
- Deters Defaults: Discourages negligence in fulfilling tax reporting obligations.
- Protects Revenue: Ensures proper tracking and collection of taxes.
Conclusion
Section 271H is a crucial provision for maintaining discipline in tax reporting by imposing penalties for non-compliance. Taxpayers should prioritize timely and accurate filing of TDS/TCS statements to avoid penalties and additional liabilities. Demonstrating reasonable cause and adhering to corrective measures can help mitigate penalties.
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Additional Resources
Learn more about Tax Provisions on the official Income Tax India website.
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