Section 271C Of Income Tax Act

Section 271C of the Income Tax Act establishes the law governing the penalty that the Income Tax Department may levy for failing to deduct or remit TDS by the applicable due date.

Section 271C

1) If any person fails to deduct the entire or a portion of the tax as required by or under the provisions,

or Chapter XVII-B:

Pay the entire or any portion of the tax as required or required by,—

section 115-O, subsection (2); or

Section 194B’s second proviso,

Then, as a penalty, such person shall be obligated to pay a sum equal to

the amount of tax that such person failed to deduct or pay as required.

TDS Is Levied On The Payment Of Prize Winnings

Income tax on prizes is dealt with in Section 194B of the Income Tax Act. Section 194B requires TDS to be deducted at a rate of 30% on any prize money exceeding Rs. 10,000. In addition, a 3% education cess will be levied on the total tax amount.

Section 271C Of Income Tax Act

Penalty Amount

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

Applicability Of Section 271C

Section 271C penalties will be imposed in the following situations:

  • Failure to deduct taxes at the point of collection.
  • Failure to pay dividend distribution tax on distributed dividends.
  • Failure to pay taxes levied on winnings from lotteries or crossword puzzles.
  • Failure to collect tax at the point of collection.

Section 271C Of Income Tax Act

When Section 271C Does Not Apply

As a general rule, penalties should not be imposed if the person in question can demonstrate a reasonable reason for the default. Other reasons why the penalty under this section is not imposed include the following:

  • Making a genuine default. A genuine mistake is one that was not intentional on the part of the assessee.
  • A person who is a resident but not ordinarily resident is exempt from paying taxes on income earned or derived outside of India. Given this scenario, such a person would not be required to deduct tax at source and thus would not be subject to penalties under this provision.
  • A company that is not a resident of India is not taxable, even if its liaison office is located in India, because the latter may not conduct any business operations in the country and thus is not taxable. As a result, TDS or tax payments are not included in a non-resident company’s provisions.