Section 200(1) of Income Tax Act: Duty of Person Deducting Tax (TDS)

The Indian taxation system relies heavily on Tax Deduction at Source (TDS). It is a mechanism where a portion of income is deducted by the payer before making the payment to the recipient and then deposited with the government. The objective is to ensure steady revenue collection and minimize tax evasion.

The law relating to TDS obligations is found in Section 200(1) of Income Tax Act, 1961. This section lays down the duty of a person deducting tax—whether it is an employer deducting tax from an employee’s salary, or a business deducting tax from payments to contractors, rent, or professional fees.

What is Section 200(1) of Income Tax Act?

Section 200(1) of Income Tax Act provides that any person responsible for deducting tax at source shall deposit the amount deducted to the credit of the Central Government within the prescribed time limit.

This means that once tax is deducted, the deductor cannot hold on to it. It must be deposited promptly. Along with this, the deductor has to file statements providing details of the tax deducted, deposited, and reported.

In simple words, this section ensures that TDS collected from taxpayers is deposited into government accounts without delay.

Duty of Person Deducting Tax

The duty of person deducting tax under Section 200(1) can be divided into three main obligations:

1. Deduct tax at source (TDS): Employers & other payers must deduct the correct TDS as per applicable rates.
2. Deposit the tax with the government: The deducted tax must be deposited into the Central Government account within due dates."
3. File TDS returns: Regular statements must be filed with the Income Tax Department, giving details of TDS deducted and deposited.

Thus, Section 200(1) ensures smooth functioning of the TDS mechanism by assigning responsibility to the deductor.

Also Read: The Cost of Delay in Filing TDS Returns

TDS Deduction from Salary: Employer’s Responsibility

One of the key applications of Section 200(1) is in the context of salary payments. Employers are legally obligated to deduct TDS from the salaries of employees.

• The employer must calculate the employee’s total income for the financial year.
• Applicable deductions and exemptions are considered.
• Based on the final taxable income, the employer calculates monthly TDS.
• The TDS deducted each month is deposited with the government.

This way, employees do not have to pay large tax amounts at the end of the year. Instead, their tax liability is spread over 12 months.

Due Dates for Depositing TDS

To comply with Section 200(1), employers & deductors must follow due dates strictly.

• TDS for non-government deductors: 7th of the next month.
• TDS for March (year-end): On or before 30th April.
• TDS by government offices: Same day without challan, or by 7th with challan.

Failure to deposit TDS within time attracts penalties and interest.

Filing of TDS Returns

In addition to depositing tax, Section 200(1) also covers submission of quarterly TDS returns. Deductors must file statements in prescribed forms (Form 24Q for salaries, Form 26Q for non-salary payments).

These statements must contain:

• PAN of deductees.
• Amount of tax deducted.
• Amount deposited.
• Challan details.

This ensures that TDS is properly credited to the taxpayer’s account & reflected in Form 26AS.

Consequences of Non-Compliance

Section 200(1) imposes clear duties, and failure to comply leads to strict consequences:

1. Interest: If TDS is not deducted or not deposited on time, interest is charged (1% per month for delay in deduction, 1.5% per month for delay in deposit)."
2. Penalty: A penalty equal to the amount of TDS may be levied.
3. Prosecution: In extreme cases, prosecution under Section 276B may be initiated.
4. Disallowance of expense: If TDS is not deducted, the corresponding expense may be disallowed under Section 40(a)(ia).

This shows that Section 200(1) is not just a procedural provision—it has significant financial implications.

Also Read: Disallowance of Expenses for TDS Default

Importance of Section 200(1)

The significance of Section 200(1) lies in:

• Ensuring timely tax collection for the government.
• Making employers & payers responsible for compliance.
• Avoiding burden on individuals at year-end by deducting tax monthly.
• Building accountability into the tax system.

Without Section 200(1), the entire TDS mechanism would collapse, leading to delays and revenue loss.

Real-Life Example

Imagine a company with 200 employees. Each month, the company deducts TDS of ₹10,000 per employee, totaling ₹20 lakh. As per Section 200(1), the company must:

• Deposit ₹20 lakh into the Central Government account by the 7th of next month.
• File quarterly TDS statements providing details of each employee.

If the company delays deposit by 2 months, it may face interest & penalty, making the cost much higher than the TDS amount itself.

Technology and Compliance

Today, TDS compliance under Section 200(1) has become easier with digitization:

• Online challan payment through NSDL.
• Filing of e-TDS returns.
• TRACES portal for managing TDS certificates & statements.

Employers and businesses can no longer make excuses for delay, as the system is transparent and automated.

Common Mistakes by Deductors

Despite clarity in law, mistakes often occur:

1. Deducting tax at wrong rates.
2. Delaying deposit beyond due dates.
3. Not filing TDS returns correctly.
4. Failing to issue Form 16 to employees.

Such mistakes not only attract penalties but also damage the credibility of the business.

Safeguards for Employers and Deductors

To ensure compliance with Section 200(1), businesses should:

• Use payroll software for salary TDS.
• Reconcile challans with returns.
• Regularly check TRACES portal for mismatch.
• Educate employees about TDS & Form 16.

Timely compliance avoids penalties and builds trust with employees and the Income Tax Department.

Also Read: When TDS Defaults Turn Into Criminal Offences

FAQs on Section 200(1)

Q1. Who is responsible under Section 200(1)?
Any person deducting tax, including employers, businesses, or government bodies.

Q2. What happens if TDS is not deposited?
Interest, penalty, prosecution, & disallowance of expenses.

Q3. Does Section 200(1) apply only to salary?
No. It applies to all types of TDS, including rent, contractors, professional fees, and commission.

Q4. Is late filing of TDS returns penalized?
Yes. A fee of ₹200 per day under Section 234E applies until filing is done.

Conclusion

Section 200(1) of Income Tax Act is a cornerstone of India’s TDS framework. It clearly outlines the duty of person deducting tax, especially employers, to deduct TDS from salaries and other payments, deposit it with the government, and file accurate returns.

For taxpayers, compliance ensures peace of mind. For businesses, it avoids penalties & legal troubles. For the government, it ensures steady and timely revenue.

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