Employers, who are not collecting and depositing tax deducted at source (TDS) from the salaries of their employees, will have to pay heavy penalty from April 1 onward as the Income Tax Department has decided to tighten the noose around them.

Sources in the Income Tax Department said till now no penalty is specified under the Income-tax Act for failure to collect TDS.

However, the Central Board of Direct Taxes (CBDT) has been receiving information from various quarters that in a number of cases, employers as well as accounting departments in many corporates were not collecting and depositing the TDS, especially after the expansion of the provisions of TDS.

In a recent circular, the Department has inserted a new section 271CA to provide for imposition of penalty on any person who is responsible for collecting tax and has failed to collect TDS in accordance with the provisions of Act.

This amendment will take effect from April 1, 2007, and will, accordingly, apply in relation to the assessment year 2007-08 and subsequent assessment years, sources said.

The employers, who fail to collect TDS, will have to pay a penalty equal to the amount of tax which they failed to collect at source and will be imposed by the Joint Commissioner of Income Tax.

However, employers would be able file an appeal against the order of the department, if they consider that the penalty has been imposed wrongfully.

The Income Tax Department will also ensure that no penalty is imposed if the person concerned proves that there was a justified cause for his failure to collect and deposit TDS taxes.