1. If any person fails to— Deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B; or Pay the whole or any part of the tax as required by or under,— sub-section (2) of section 115-O; or Second proviso to section 194B, then, such person shall be liable to pay, by way of penalty, a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid.”.

Section 115-O pertains to dividend distribution taxes. A domestic company will be mandated to remit dividend distribution tax for the amount of dividends declared, distributed or paid. The rate of TDS on dividend distribution is 15%.

2. Dividend Distribution Tax

Section 194B of the Income Tax Act relates to income tax on prize. Section 194B provides that TDS at a rate of 30% should be deducted on any prize money in excess of Rs. 10,000. In addition to it, an education cess of 3% will be payable on the tax amount.

3. Amount of Penalty under Section 271C

• The maximum amount of penalty under Section 271C is the amount of tax which the taxpayer failed to deduct or pay as required under TDS regulations.
• Failure to pay dividend distribution tax on the dividends distributed.
• Failure to remit taxes which were imposed on the basis of winnings from lottery or crossword puzzles.Failure to collect tax at source.

4. When Section 271C is NOT Applicable

As a basic norm, penalties needn’t be imposed if the concerned person states a reasonable cause for the default.The following are some of the other reasons when penalty under Section 271C is not imposed.

• Committing a Bona Fide default. Bona Fide mistake is a type of mistake which wasn’t intentional on the part of the assesse.
• A person who is a resident but not ordinarily resident is not required to pay taxes for the income which accrues or arises outside India. Given this scenario, such a person needn’t deduct tax at source and hence wouldn’t be liable for penalties under this provision.
• A company which is non-resident in India wouldn’t be taxable even if its liaison office is situated in India, as the latter may not conduct any business operations in the country, and therefore wouldn’t be taxable. As a result, TDS or tax payments are not included in the provisions of a non-resident company.