# Section 40(a)(ia) - Payments to Residents
## Trigger
Payment to a resident AND:
- TDS not deducted, OR
- TDS deducted but not paid to Government up to the due date of return u/s 139(1).
## Disallowance
- 30% of the expenditure is disallowed.
## Subsequent Year Allowance
- If TDS is deducted and paid (or paid to Government) in a later year, the 30% earlier disallowed is allowed as deduction in that later year.
## Section 201(1) - 'Bachne Ka Tarika' (Escape Route)
If payer has NOT deducted TDS, the payer is NOT treated as 'assessee in default' AND the disallowance does not happen if all the following conditions are met by the PAYEE (Resident or NR):
1. The payee has furnished his return of income u/s 139(1),
2. The payee has taken such payment into account while computing his income, AND
3. The payee has paid tax on such income.
4. The payer furnishes a CA certificate in this regard to the Assessing Officer.
## Timing of Subsequent Deduction
- In such case, the expense will be allowed in the year in which the payee files his return (deemed TDS deduction date).
- It will remain disallowed in the current year since TDS was not actually deducted then.
## Interest under Section 201(1A)
- The payer must pay interest at 1% per month or part thereof from:
- Date on which TDS was deductible TO
- Date on which return was filed by the payee.
## Illustration Timeline
```
01.04.2025 ─── 31.03.2026 ─── 20.07.2026 ─── 31.07.2026
│
Payee files return → TDS deemed deducted in P.Y. 2026-27
```