Section 40(a)(ia) - Non-compliance of provisions of TDS where payment is made to Resident

TDS non-compliance disallowance: failure to deduct or timely deposit tax limits expense deduction unless payee files return and pays tax.

Section 40(a)(ia) disallows a portion of expenditure where tax deductible at source under Chapter XVII-B is not deducted or, if deducted, not paid by the due date; a corresponding portion is allowed in the year the tax is actually deducted or paid. The proviso to section 201(1) exempts a deductor from being an assessee in default if the payee files a return, includes the sum in income and pays the tax, and the deductor obtains a Form No.26A certificate from a chartered accountant, permitting the deductor to claim the expenditure deduction by deeming tax paid on the payee's return date.