Disallowance on account of non-deduction / non-payment of TDS: Budget 2010

As per existing provisions of Section 40(a)(ia) of the Act, certain payments made to residents were not allowable as deduction where tax was not deducted or after deduction, was not paid before end of the year. In case where the tax was deducted in the last month of the year, then no disallowance u/s. 40(a)(ia) would be made, so long as the tax was deducted during the year and paid before the due date of filing the return of income.
It is now proposed that so long as the tax is deducted during the year and it is also paid on or before the due date of filing the return of income, then no disallowance will be made u/s. 40(a)(ia) of the Act. However, it must be kept in mind that in any case, the deduction of TDS is required to be made on or before the end of the year. If there is a failure to deduct tax, the disallowance will be made, notwithstanding the fact that the tax has been deducted after end of the year and paid before the due date.

This amendment will take effect retrospectively from 1st April, 2010, and will, accordingly, apply in relation to the assessment year 2010-2011 and subsequent years.