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What to do if TDS is deducted by employer but not deposited?

What to do if TDS is deducted by employer but not deposited?
Employer deducts TDS from the salaries of the employees. This amount is further deposited with the tax authorities by the employer directly. Now, imagine that the Tax Deducted at Source (TDS) which was taken back regularly from your salary and you had to bear the brunt of meeting the daily expenses as your salary was less than that amount was not deposited by the company to the Income Tax Department.

This was the loophole that the Income Tax Department has recently plugged.This practice was carried on for years. An employee was the sole loser in the exercise. Sometimes, he was troubled as he didn't get the refund on time and many had to wait for years to get their refund.

How will you get it on time, when your company was deliberately delaying to deposit the money to the Income Tax department? Now the Central Board of Direct Taxes (CBDT) has become more vigilant on this malpractice and has decided to slap heavy penalties on the companies that are not meeting the compliance.

Tax Deduction at Source (TDS) is a method of collection of taxes, in which a fixed percentage of amounts are deducted by a company and that fixed amount is deposited to the Government account. However, many companies fail to deposit that tax to the govt. in stipulated time frame. Now, CBDT has regulated strict instructions to charge a penalty on such companies, ranging from Rs 200 to Rs 1 Lac. The CBDT has asked all TDS range officers of the department to be sure about compliance in this area. It has also asked them to notify & make alert the entire authorized receiver regarding new action initiated by the department.

As per the new instructions issued, any receiver either government or private has to bear a compulsory fine of Rs 200 per day for delay in filling TDS or TCS beyond the permissible date of remittance and in the same manner a penalty of Rs 10,000 to Rs One Lakh on furnishing wrong information or failure to file the collection statement within due date. The assessing officials will use Section 234 E and 271 H of IT Act to make sure that TDS & TCS collection are not delayed.


Penalties on the Deductor in Case of Not Depositing TDS

According to the Government, it is the sole responsibility of employer to deduct the applicable tax at source and forward it to the credit of the govt. in the stipulated time limit. If the employer is defaulted in depositing the TDS collected, it shall be legally responsible to give the interest at the prescribed rate on the tax amount.

In certain conditions, if employer is unable to give TDS certificate to the employee, it doesn't mean liability of employee has ended. Also, the Income Tax Act has sufficient provisions to punish the defaulter and can recover the amount of TDS along with interest from the deducted person.

Under Section 201, 201 (A), the income tax department has full right to demand TDS amount which was not deposited on time and also charge 1 % per month of tax not deposited. They can also prosecute a rigorous imprisonment of not less than 3 months but which can be extendable up to 7 years with fine.

What an Employee can do in Case of Non - Timely Deposit by the Employer

A taxpayer can preserve his salary slips at least till the time he gets tax certificate. Then if form 16 is not received, he can file his returns on the basis of salary slips (as TDS deduction by employer is mentioned in it). So, in this way, employee can get his claims even if the form 16 is not available. In other words, we can say an employee need not worry about paying taxes again on his income only to get form 16 from the employer.

These are few guidelines of CBDT about the timely payment of taxes. With the new rules, employers need to focus on timely payment and on the other hand employees also need to be aware on how to claim their TDS claim in case employer has not deposited the TDS to the government.

About the Author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at

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