{"id":5861,"date":"2025-05-23T10:33:05","date_gmt":"2025-05-23T10:33:05","guid":{"rendered":"https:\/\/margbooks.com\/blogs\/?p=5861"},"modified":"2025-05-23T10:33:23","modified_gmt":"2025-05-23T10:33:23","slug":"how-does-section-201-of-income-tax-act-impact-tds-defaulters","status":"publish","type":"post","link":"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/","title":{"rendered":"How Does Section 201 of Income Tax Act Impact TDS Defaulters?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_69_1 ez-toc-wrap-left counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #1c6e70;color:#1c6e70\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #1c6e70;color:#1c6e70\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#What_Is_Section_201_of_Income_Tax_Act\" title=\"What Is Section 201 of Income Tax Act?\">What Is Section 201 of Income Tax Act?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#Consequences_Under_Section_201_Why_You_Shouldnt_Ignore_It\" title=\"Consequences Under Section 201: Why You Shouldn\u2019t Ignore It\">Consequences Under Section 201: Why You Shouldn\u2019t Ignore It<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#1_Interest_Penalties\" title=\"1. Interest Penalties\">1. Interest Penalties<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#2_Disallowance_of_Expenses\" title=\"2. Disallowance of Expenses\">2. Disallowance of Expenses<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#3_Prosecution_and_Penalty\" title=\"3. Prosecution and Penalty\">3. Prosecution and Penalty<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#Exceptions_to_Being_Deemed_%E2%80%9CAssessee_in_Default%E2%80%9D\" title=\"Exceptions to Being Deemed &#8220;Assessee in Default&#8221;\">Exceptions to Being Deemed &#8220;Assessee in Default&#8221;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#How_to_Avoid_Trouble_Under_Section_201\" title=\"How to Avoid Trouble Under Section 201?\">How to Avoid Trouble Under Section 201?<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#Use_Reliable_Online_Billing_Software\" title=\"Use Reliable Online Billing Software\">Use Reliable Online Billing Software<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#Choose_the_Best_GST_Billing_Software_%E2%80%93_MargBooks\" title=\"Choose the Best GST Billing Software \u2013 MargBooks\u00a0\">Choose the Best GST Billing Software \u2013 MargBooks\u00a0<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#Real-Life_Scenario_A_Costly_Mistake\" title=\"Real-Life Scenario: A Costly Mistake\">Real-Life Scenario: A Costly Mistake<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#Key_Takeaways\" title=\"Key Takeaways\">Key Takeaways<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/margbooks.com\/blogs\/how-does-section-201-of-income-tax-act-impact-tds-defaulters\/#Final_Thoughts\" title=\"Final Thoughts\">Final Thoughts<\/a><\/li><\/ul><\/nav><\/div>\n\n<p>If you\u2019re a business owner, accountant, or someone dealing with taxes, then TDS (Tax Deducted at Source) is not a new term for you. But what happens when TDS isn\u2019t deducted or deposited properly? That\u2019s where Section 201 of Income Tax Act steps in \u2013 and trust us, you don\u2019t want to be on the wrong side of it.<\/p>\n\n\n\n<p>In this blog, we\u2019ll break down what Section 201 is all about, how it affects TDS defaulters, and how smart businesses are staying compliant with the help of tools like MargBooks , the best GST billing software in India.<\/p>\n\n\n\n<div class=\"btn-div\">\n\n    <a href=\"https:\/\/me9.in\/MBB\" class=\"marg-btn\" target=\"_blank\" rel=\"noopener\">Get GST Billing Software<\/a>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Is_Section_201_of_Income_Tax_Act\"><\/span>What Is Section 201 of Income Tax Act?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Section 201 of the Income Tax Act, 1961 is essentially the big stick used by the Income Tax Department to deal with TDS defaulters. According to this section, if any person (including a company) is responsible for deducting tax at source:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Fails to deduct TDS, or<br><\/li>\n\n\n\n<li>Deducts TDS but fails to deposit it with the government.<\/li>\n<\/ul>\n\n\n\n<p>Then they are considered an &#8220;assessee by default.&#8221; In simple terms, they are treated as if they never paid that tax at all.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Consequences_Under_Section_201_Why_You_Shouldnt_Ignore_It\"><\/span><strong>Consequences Under Section 201: Why You Shouldn\u2019t Ignore It<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Now, you might think, &#8220;Okay, so I missed a payment or two, I\u2019ll fix it later.&#8221; But here\u2019s where it gets serious. The consequences under Section 201 of Income Tax Act can hit your business hard.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1_Interest_Penalties\"><\/span><strong>1. Interest Penalties<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>1% per month<\/strong> (or part of a month) from the date TDS was deductible to the date it was actually deducted.<br><\/li>\n\n\n\n<li><strong>1.5% per month<\/strong> (or part of a month) from the date of deduction to the date of actual deposit.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2_Disallowance_of_Expenses\"><\/span><strong>2. Disallowance of Expenses<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Under Section 40(a)(ia), 30% of the expense on which TDS wasn\u2019t deducted or paid can be disallowed. That\u2019s a big blow during audits.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3_Prosecution_and_Penalty\"><\/span><strong>3. Prosecution and Penalty<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In extreme cases, failure to pay TDS can result in rigorous imprisonment for up to 7 years, along with fines.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Exceptions_to_Being_Deemed_%E2%80%9CAssessee_in_Default%E2%80%9D\"><\/span><strong>Exceptions to Being Deemed &#8220;Assessee in Default&#8221;<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There is a slight relief provided by the CBDT (Central Board of Direct Taxes). A person won\u2019t be treated as an assessee in default if:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The payee has filed their income tax return.<br><\/li>\n\n\n\n<li>The amount is disclosed in their return.<br><\/li>\n\n\n\n<li>The taxes have been paid.<br><\/li>\n\n\n\n<li>The deductor obtains a CA certificate (Form 26A).<\/li>\n<\/ul>\n\n\n\n<p>While this helps, it\u2019s still a cumbersome process and best avoided by staying compliant from the start.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_Avoid_Trouble_Under_Section_201\"><\/span><strong>How to Avoid Trouble Under Section 201?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Avoiding the wrath of Section 201 of Income Tax Act is simpler than you think. It\u2019s all about timely compliance and using the right digital tools.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Use_Reliable_Online_Billing_Software\"><\/span><strong>Use Reliable Online Billing Software<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Gone are the days when manual entries ruled your accounts. Now, businesses are switching to <a href=\"https:\/\/margbooks.com\/billing-software.html\"><strong>online billing software<\/strong><\/a> that automatically tracks invoices, calculates GST, and flags TDS requirements.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Choose_the_Best_GST_Billing_Software_%E2%80%93_MargBooks\"><\/span><strong>Choose the Best GST Billing Software \u2013 MargBooks\u00a0<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>MargBooks is a cloud-based accounting and billing software designed specifically for Indian businesses. It not only helps with GST filing and invoicing but also makes it easy to manage TDS compliance.<\/p>\n\n\n\n<p>Here\u2019s why many SMEs and tax consultants trust MargBooks :<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Auto-detection of TDS on payments<br><\/li>\n\n\n\n<li>Real-time TDS reports<br><\/li>\n\n\n\n<li>One-click TDS filing integration<br><\/li>\n\n\n\n<li>Alerts and reminders for due dates<br><\/li>\n\n\n\n<li>Supports Form 26Q, 27Q and more<\/li>\n<\/ul>\n\n\n\n<p>So, instead of scrambling at the end of the quarter, you\u2019re always audit-ready.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Real-Life_Scenario_A_Costly_Mistake\"><\/span><strong>Real-Life Scenario: A Costly Mistake<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Let\u2019s take a real-life inspired example.<\/p>\n\n\n\n<p>Rajesh runs a mid-sized business in Pune. In FY 2023-24, he forgot to deduct TDS on contractor payments worth \u20b910 lakhs through our <a href=\"https:\/\/margbooks.com\/gst-billing-software.html\"><strong>GST billing software<\/strong><\/a>. The tax officer later detected this and applied Section 201.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Interest penalty: \u20b915,000+<br><\/li>\n\n\n\n<li>Disallowed expense: \u20b93 lakhs added to taxable income<br><\/li>\n\n\n\n<li>Late filing fines and notices followed<\/li>\n<\/ul>\n\n\n\n<p>If Rajesh had used MargBooks, the system would have auto-flagged the transaction and helped him avoid the blunder entirely.<\/p>\n\n\n\n<div class=\"btn-div\">\n\n    <a href=\"https:\/\/me9.in\/MBB\" class=\"marg-btn\" target=\"_blank\" rel=\"noopener\">Get Billing Software<\/a>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_Takeaways\"><\/span><strong>Key Takeaways<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Let\u2019s quickly summarise what we\u2019ve learnt:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Section 201 of Income Tax Act treats TDS defaulters seriously and imposes penalties, interest, and disallowances.<br><\/li>\n\n\n\n<li>Avoiding TDS compliance isn\u2019t just risky \u2013 it\u2019s costly.<br><\/li>\n\n\n\n<li>Using reliable online billing software like MargBooks can make a massive difference in keeping your business compliant.<br><\/li>\n\n\n\n<li>Don\u2019t leave your tax compliance to chance. Automate it.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Final_Thoughts\"><\/span><strong>Final Thoughts<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Tax laws in India aren\u2019t always easy to interpret, but one thing is clear \u2013 Section 201 of Income Tax Act is not to be taken lightly. Whether you\u2019re running a small enterprise or managing accounts for a large firm, staying TDS-compliant should be at the top of your list.<\/p>\n\n\n\n<p>If you&#8217;re still relying on spreadsheets or manual entries, it\u2019s high time to upgrade to the best GST billing software like <a href=\"https:\/\/margbooks.com\/\"><strong>MargBooks<\/strong><\/a><strong> <\/strong>. Not only will it keep you on the right side of the law, but it\u2019ll also make your life a whole lot easier.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>If you\u2019re a business owner, accountant, or someone dealing with taxes, then TDS (Tax Deducted at Source) is not a new term for you. But what happens when TDS isn\u2019t deducted or deposited properly? That\u2019s where Section 201 of Income Tax Act steps in \u2013 and trust us, you don\u2019t want to be on the [&hellip;]<\/p>\n","protected":false},"author":7,"featured_media":5862,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[1948],"tags":[86,1093,201,1065],"class_list":["post-5861","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-income-tax","tag-gst-billing-software","tag-gst-compliance","tag-online-billing-software","tag-tax-compliance"],"blocksy_meta":[],"blog_post_layout_featured_media_urls":{"thumbnail":["https:\/\/margbooks.com\/blogs\/wp-content\/uploads\/2025\/05\/section-201-of-income-tax-act-150x150.jpg",150,150,true],"full":["https:\/\/margbooks.com\/blogs\/wp-content\/uploads\/2025\/05\/section-201-of-income-tax-act.jpg",1200,576,false]},"categories_names":{"1948":{"name":"Income Tax","link":"https:\/\/margbooks.com\/blogs\/category\/income-tax\/"}},"tags_names":{"86":{"name":"gst billing software","link":"https:\/\/margbooks.com\/blogs\/tag\/gst-billing-software\/"},"1093":{"name":"GST compliance","link":"https:\/\/margbooks.com\/blogs\/tag\/gst-compliance\/"},"201":{"name":"online billing software","link":"https:\/\/margbooks.com\/blogs\/tag\/online-billing-software\/"},"1065":{"name":"tax compliance","link":"https:\/\/margbooks.com\/blogs\/tag\/tax-compliance\/"}},"comments_number":"0","wpmagazine_modules_lite_featured_media_urls":{"thumbnail":["https:\/\/margbooks.com\/blogs\/wp-content\/uploads\/2025\/05\/section-201-of-income-tax-act-150x150.jpg",150,150,true],"cvmm-medium":["https:\/\/margbooks.com\/blogs\/wp-content\/uploads\/2025\/05\/section-201-of-income-tax-act.jpg",300,144,false],"cvmm-medium-plus":["https:\/\/margbooks.com\/blogs\/wp-content\/uploads\/2025\/05\/section-201-of-income-tax-act.jpg",305,146,false],"cvmm-portrait":["https:\/\/margbooks.com\/blogs\/wp-content\/uploads\/2025\/05\/section-201-of-income-tax-act.jpg",400,192,false],"cvmm-medium-square":["https:\/\/margbooks.com\/blogs\/wp-content\/uploads\/2025\/05\/section-201-of-income-tax-act.jpg",600,288,false],"cvmm-large":["https:\/\/margbooks.com\/blogs\/wp-content\/uploads\/2025\/05\/section-201-of-income-tax-act.jpg",1024,492,false],"cvmm-small":["https:\/\/margbooks.com\/blogs\/wp-content\/uploads\/2025\/05\/section-201-of-income-tax-act.jpg",130,62,false],"full":["https:\/\/margbooks.com\/blogs\/wp-content\/uploads\/2025\/05\/section-201-of-income-tax-act.jpg",1200,576,false]},"_links":{"self":[{"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/posts\/5861","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/comments?post=5861"}],"version-history":[{"count":1,"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/posts\/5861\/revisions"}],"predecessor-version":[{"id":5866,"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/posts\/5861\/revisions\/5866"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/media\/5862"}],"wp:attachment":[{"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/media?parent=5861"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/categories?post=5861"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/margbooks.com\/blogs\/wp-json\/wp\/v2\/tags?post=5861"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}