Is there any penalty for non filing of Nil TDS return? Requirement for filing Nil TDS return.

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TDS means Tax deducted at source. The concept of TDS in income tax act was introduced with an aim to collect tax from the very source of income. As per this concept, a person (deductor) who is liable to make payment of specified nature to any other person (deductee) shall deduct tax at source and remit the same into the account of the Central Government. The deductee from whose income tax has been deducted at source would be entitled to get credit of the amount so deducted on the basis of Form 26AS or TDS certificate issued by the deductor.

Now the person liable to deduct TDS has to file TDS return quarterly or else he would be liable to pay late fees as well as interest on such TDS amount.

However now the question arises that what to do in cases where people are not required to deduct TDS in a quarter. As in GST one has to file even Nil GST return and they don’t file Nil GST return they have to pay late fees for same. So, do they need to file Nil TDS return every quarter and what would happen if they don’t file Nil TDS return.

The question started arising when recently in 2019 people started receiving notices/ messages from Income tax department for non filing of TDS return for a quarter wherein it was advised that if there is no transaction during a quarter one need not to file a declaration regarding Nil TDS return. However this is not a new requirement if you look at it’s past wherein:

TRACES introduced NIL TDS Statement/Declaration of TDS from the FY 2014-15. This is applicable for Deductors who did not deduct any tax during the relevant quarter.

This is not a facility for the deductor but the department because as per income tax rules, nil eTDS statement is not mandatory due to which, the department is not able to find out the difference between the following two types of Deductors.

1. Deductors required to file return but not filed.

2. Deductors not required filing return.

After getting updating of status through this facility, department can get the details of willful defaulters.

The procedure to file a Nil TDS statement is to log in to TRACES website-> under statements/payments select Declaration for non filing of statements. In the next window you have to select the relevant period and reason for non-filing of TDS return and then submit the statement.

The main question of worry for everyone when one receives a notice is, whether any penalty/ interest will be charged if I don’t file Nil TDS statement?

The answer to same is No. There are mainly two sections under which interest or penalty is charged under TDS:

1. Section 201: which charges interest in the event of failure to deduct or pay TDS.

2. Section 234E: which charges late fee of Rs. 200 per day in a situation where a person fails to deliver a statement within the time prescribed in sub-section (3) of section 200.

Section 200 relates to duties of person deducting tax and therefore only those person who are deducting tax are required to file a statement and late fee would also be charged only from them.

Thus, both the above section relates to person who are liable to deduct TDS and other than this there is no general penalty in relation to TDS.

Therefore, no penalty can be charged if you don’t file Nil TDS return and it’s just a service to government and not a compulsion.

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