TDS penalty and interest for late payment

Hello and welcome. In this post, we will discuss about the TDS interest for late payment and penalty for late filing of TDS return.

When it comes to TDS interest, we come across two types of scenarios:

  • Non-deduction of TDS
  • Non-payment of TDS

The interest applicable on these scenarios are as follows:

Section of Default Nature of Default Interest subject to TDS amount INTEREST PAYMENT PERIOD
201A Non-Deduction of TDS, either in whole or part 1% per month From the date on which tax was deductible to the date of actual deduction
201A Non-payment of TDS (after deduction), either in whole or part 1.5% per month From the date of deduction to the day of TDS payment

TDS interest for late deduction

Interest for late deduction of TDS is applicable at the rate of 1% per month. It is applicable from the date on which tax was deductible to the date of actual deduction.

Let us consider this as an example.

A 5000 Rs. TDS deduction was to be made on 30th of May. The actual deduction was on 10th of June. In this case, interest will be applicable at a rate of 1% for two months i.e, May and June. The total interest amount payable will be Rs. 5000 x 1% p.m. x 2 months = Rs. 100.

Note: TDS return filing is possible only after paying the interest.

TDS interest for late payment

Under Section 201(1A) for late deposit of TDS after deduction, interest payment should be at a rate of 1.5% per month.

The calculation of interest is on a monthly basis and not on the number of days i.e. part of a month is considered as a full month.

For example, say the payable TDS amount is Rs 5000 and the date of deduction is 13th January. TDS payment date for that deduction is on 17th May. Then the interest payable is Rs 5000 x 1.5% p.m. x 5 months = Rs 375 (from the month of January to the month of May).

The payment of the interest amount should be from the date at which TDS was deducted, from the date of which TDS was due.

For example, The due date of TDS payment is 7th May for a TDS deduction on 19th April. If the TDS payment is later than 7th May, then interest calculation starts from 19th April and not 7th May.

Here, for calculating TDS interest, we should consider the calendar month. Therefore if you delay payment by one day, you have to pay interest for two months.

Consider the case in which you deposit tax one day after the due date. Say, TDS deduction is on 1st August. Then the due date is 7th September. But you deposit the tax is on 8th September (i.e. one day after the due date). Then interest is applicable from 1st August to 8th September i.e. for a period of 2 months. The interest payable will be of 1.5%  per month x 2 months = 3%.

Note:

  • Interest on late payment of TDS can be paid before furnishing TDS return or after demand raised by TRACES. Such interest can also be adjusted from the amount remaining in any TDS Challan (under any section).
  • Payment of interest can furnish before TDS return
  • Interest paid on delay in deposit of TDS is not allowed as an expenditure under Income Tax Act.

TDS not deducted in respect of payment made to resident:

However, by virtue of provision inserted to section 201 by the Finance Act, 2012 w.e.f 1st July 2012 the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee-in-default in respect of tax not deducted by him, if the following conditions are satisfied:

  • The resident recipient has furnished his return of income under section 139.
  • The recipient of the resident has taken into account the above income in its return of income.
  • The resident recipient has paid the taxes due on the income declared in such return of income.
  • The payee of the resident furnishes a certificate to this effect from an accountant in Form No. 26A.

However, such payer is also necessary to pay interest @ 1% from the day on which TDS is deductible to the date of furnishing of return of income by such resident payee.

Penalty for Short/Late payment of TDS:

The penalty can be imposed on the payer to the extent of an amount that was failed to be deducted or remitted.

Prosecution (Sec 276B): If a payer fails to pay the tax deducted to the credit of the Central Government, under the provisions of Chapter XVII-B, the payer shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine.

Late filing consequences:

Fees for delay in furnishing the statements: (refer section 234E of Income Tax Act)

Effective from 1st July 2012, any delay in furnishing the eTDS statement will result in a mandatory fee of Rs. 200 per day until the filing of the return. The total fees should not exceed the total amount of TDS deducted for the quarter. The payment of late filing fee should be before filing such delayed eTDS statement.

For example, say TDS amount deducted is Rs 5000 for the quarter ending 30th Septemeber. Filing of return should be on or before 31st October but is filed on 24th December (i.e. 55 days, counting 31st October). Then the calculation comes out to Rs 200 x 55 days = Rs 11000, but since this is greater than Rs 5000, you will have to pay only Rs 5000 as the late filing fee.

Penalty for failure to furnish statements and furnishing incorrect statements: (refer section 271H of Income Tax Act)

Failure to file eTDS statement delaying more than a year or furnishing incorrect details in the statement filed like PAN, Challan and TDS Amount etc, will result in a penalty ranging from Rs. 10,000 to one lac as directed by the Assessing Officer. The penalty under this section is in addition to the interest u/s 234E.

No penalty under section 271H levied in case of delay in filing the TDS/TCS return if following conditions satisfies:

  • The tax deducted at source is paid to the credit of the Government.
  • Also, late filing fees and interest (if any) is paid to the credit of the Government.
  • Filing of TDS return should be before the expiry of a period of one year from the due date specified in this behalf.

Related: Online challan addition in TRACES

That’s it for details on TDS interest for late payment and penalty. If you have any queries kindly drop them in the comment section below.

P.S: If you want to calculate TDS late interest, try our free tool – TDS interest rate calculator. 

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