What are the consequences if TDS is not deducted, or is deducted but not deposited?

There are three main consequences for the deductor.

• Interest under Section 201(1A): 1% per month (or part of a month) from the date the tax was deductible to the date it is actually deducted, and 1.5% per month (or part of a month) from the date of deduction to the date of deposit.
• Disallowance of expense: where tax on a payment to a resident was not deducted or not deposited in time, 30% of that expense can be disallowed under Section 40(a)(ia); it is allowed in the year the tax is deposited.
• Penalty and prosecution: a penalty equal to the tax not deducted or deposited can be levied under Section 271C, and in serious cases prosecution can follow for non-deposit of tax deducted.

A deductor who fails to deduct is not treated as in default if the payee has included the income in their return and paid the tax, and the deductor obtains the accountant's certificate in Form 26A. The interest for the period still applies. Your CA can confirm how these rules apply to your case.