Is late fee on non filling of TDS return 200 per day allowable or is disallowed under income tax?

Under the Income Tax Act of India, the late fee for not filing the TDS (Tax Deducted at Source) return is levied at ₹200 per day until the return is filed. However, this late fee is subject to certain conditions:

1. Allowability as Expense: The late fee paid for the delay in filing the TDS return is not an allowable business expense for income tax purposes. This means that while the fee must be paid, it cannot be claimed as a deduction when calculating taxable income.
2. Maximum Cap: The late fee cannot exceed the amount of TDS for which the return is required to be filed. This ensures that the penalty does not exceed the TDS amount itself.
3. Mandatory Payment for Filing: It’s important to note that the TDS return will not be considered as filed until the late fee is paid. Hence, the payment of this fee is essential for the filing process.
4. Other Penalties: Apart from the late filing fee, there could be other penalties under the Income Tax Act for non-compliance with TDS provisions, such as failure to deduct TDS or delay in depositing the TDS with the government.

In summary, while the late fee for non-filing of TDS returns must be paid to comply with the filing requirements, it is not an allowable expense for income tax purposes. This means it cannot be deducted from the business’s taxable income. Compliance with TDS provisions, including timely filing of returns, is crucial to avoid such fees and penalties.

Some Important judicial Decisions on disallowance of late fee –

There have been several important judicial decisions regarding the disallowance of late fees for non-filing of TDS returns under the Income Tax Act in India. These decisions help clarify the legal stance on the treatment of such fees. Some notable cases are:

1. Bharti Airtel Limited vs. Commissioner of Income Tax (2019): The Delhi High Court in this case held that the expense on account of late filing fees under Section 234E of the Income Tax Act is not allowable as a business expenditure. The court reasoned that this fee is in the nature of a penal charge and not a compensatory one, and thus not an expenditure laid out wholly and exclusively for the purpose of business.
2. Commissioner of Income Tax vs. Rajasthan State Beverages Corporation Ltd (2017): The Rajasthan High Court held that fees paid under Section 234E for late filing of TDS return cannot be allowed as a deductible business expenditure. The court observed that this fee is a penal levy for default in complying with statutory obligation.
3. Principal Commissioner of Income Tax vs. Vector Shipping Services (P) Limited (2016): The Allahabad High Court in this case held that no disallowance can be made for the late filing fee paid under Section 234E. However, this judgment was more focused on whether Section 234E levies could be applied retrospectively and didn’t directly address the allowability as a business expenditure.
4. Sibia Healthcare Private Limited vs. Deputy Commissioner of Income Tax (2015): The Punjab & Haryana High Court in this case specifically dealt with the constitutional validity of Section 234E, which imposes a levy for late filing of TDS returns. The court upheld the validity of the provision.

These judgments reflect the general legal perspective that late filing fees under Section 234E are seen as penal in nature and, therefore, not allowable as a business expenditure under the Income Tax Act.