Section 201 of ITA, 1961 : Section 201: Consequences Of Failure To Deduct Or Pay

Explanation using Example

Imagine a company, XYZ Corp, that hires a contractor, John, for a project. According to the Income-tax Act, XYZ Corp is required to deduct tax at source (TDS) on the payment made to John. However, XYZ Corp fails to do so.

As a result, under Section 201 of The Income-tax Act, 1961, XYZ Corp becomes an 'assessee in default' for not deducting the tax. This means XYZ Corp may face consequences such as interest charges and penalties for this failure.

However, if John has filed his income tax return, included the payment from XYZ Corp in his income, and paid the tax due on that income, then XYZ Corp can avoid being deemed an assessee in default by providing a certificate from an accountant confirming these facts.

If XYZ Corp still doesn't pay the TDS after deducting it, the company will owe interest on the unpaid amount, and this debt will be a charge on the company's assets.

It's also important to note that the company cannot be held as an assessee in default for this failure after seven years from the end of the financial year in which the payment to John was made or credited.