Explained: Byju’s Employees TDS Fiasco — Legal Remedies And Employer Liability

The reasons for non-deposit of TDS can vary from genuine cash-flow issues or business downfall to straightforward financial mismanagement, according to Abbas Jaorawala, senior director and head of direct tax at Khaitan Legal Associates.

According to Section 192 of the Income Tax Act, 1961, employers must deduct TDS from their employees' salaries and pay it to the government by the seventh of the following month. They also need to file TDS returns on time. Employers are considered in default if they deduct TDS from employees but do not deposit it with the government.

The income tax laws impose severe penalties for non-payment or short payment of TDS, including 1.5% monthly interest from the deduction date to payment, a penalty equal to the outstanding TDS, and potential prosecution with imprisonment of three months to seven years plus fines. 

According to a 2019 circular, prosecution may be initiated against the responsible person if TDS defaults exceed the specified limits or deadlines, which are Rs 25 lakhs and 60 days, or if 'a reasonable cause' for delay isn't established.

The Income Tax Department has recently been proactive in issuing show-cause notices for levying penalties and initiating prosecution proceedings upon receiving information regarding non-payment of TDS, according to Rahul Charkha, a partner at Economic Laws Practice.

So what happens when a situation similar to Byju's arises? The TDS would naturally not show up in the employee’s annual tax statement on Form 26AS. 

This could result in a tax demand and subsequent litigation, as per Jaorawala of Khaitan Legal Associates.

Employees facing TDS credit discrepancies can first request rectification from their employer. If issues persist, employees can escalate to the Income Tax Department with evidence like salary slips and Form 26AS. They can also approach the Labour Court for non-payment cases or file a civil suit for dues recovery. Criminal complaints and legal actions are further options available to ensure compliance under the income tax laws. 

Employers file TDS returns on a quarterly basis, detailing salaries and TDS deductions for each employee. This information updates the employees' annual tax statement, or Form 26AS, continuously. 

It's crucial for employees to regularly monitor Form 26AS, not just when they file their tax returns, to ensure their employer accurately reflects and credits their TDS deductions, according to Jasmine Damkewala, advocate-on-record at the Supreme Court of India.

Jaorawala suggests that the government could improve the current structure by amending the law to mandate monthly TDS returns for large taxpayers, similar to the GST regime. This will enable regular tracking of TDS data and taking timely action, he said.