Penalty And Interest For Late Payment of TDS

Income Tax

To increase the efficiency of the tax collection system, the government allows certain entities to deduct taxes while making payments to a taxpayer. This tax collection mechanism is commonly referred to as Tax Deducted at Source or TDS. The party responsible for the deduction of taxes is also liable to deposit the amount collected within the set time limit. Any default in collection and deposition can lead to a hefty fine and penalty. Read this blog to know more about TDS provisions to avoid paying interest and penalties for late payment of TDS. 

Due Dates to Make TDS Payments in 2022

For each month in the financial year, deductors have to ensure that they deposit the TDS collected within the time limit. The following are the due dates for each month:

Furthermore, once a deductor deposits the TDS amount with the Income Tax Department, the person also has to file TDS returns. The due dates for filing TDS returns are:

Also Read: Form 15G & 15H: How To Save TDS On Interest Income 

Defaults under TDS Provisions

As per the Income Tax Act of 1961, a TDS deductor can make two types of defaults. 

1. Deduction: Failure to deduct tax at source or delay in deducting TDS.
2. Payment: Failure or delay in depositing the full or a part of the TDS amount collected within the time limit. 

Depending on the category of default, a deductor might have to pay interest, late fees or face other penalties.  

Interest on Late Deduction and Late Deposit 

As per the types of defaults mentioned above, a deductor incurs the following interest under Section 201(1A) of the Income Tax Act: 

Let’s take an example to understand how interest calculation and application work. Employer XYZ has to deduct TDS of Rs. 5,000 on payment of professional fees of Rs. 50,000 under Section 194J of the Income Tax Act. 

The employer has to generate an invoice for this payment on October 24, 2021. However, the payment is made on November 5, 2021. Thus, interest payable on late deduction of TDS is:

Rs. 5000 x 2 months (October and November) x 1% (interest rate) = Rs. 100 

Now, let’s say that employer XYZ has deducted TDS but has not deposited the amount. If the TDS deduction took place on November 15, 2021, but they paid the amount on January 5, 2022, the interest payable on late payment is:

Rs. 5,000 x 3 months (November, December and January) x 1.5% (interest rate) = Rs. 225

Late Filing Fee

As mentioned above, a deductor has to file TDS returns on a quarterly basis. Failure to do so will lead to a late filing fee under Section 234E of the Income Tax Act. The fee is Rs.200 per day that a deductor pays till they do not file TDS returns. However, the maximum fee paid at once cannot be more than the TDS collected during that quarter. 

Thus, let’s say that you collect a TDS amount of Rs. 11,000  in Q2 of FY 2021-22. As per the time limit, you have to file the returns by October 31 2021. However, you do so on January 2 2022. Hence, there is a delay of 62 days (the Income Tax Department considers each month as 30 days for calculation). 

So, you will have to pay a late fee of Rs. 200 x 62 = 12,400. As this amount is more than TDS collected, you will only have to pay Rs. 11,000 as this fee. 

Penalty for Late Filing of TDS Returns

Under Section 271H of the Income Tax Act, one might have to pay a hefty penalty if an Assessing officer deems fit. This takes place when an individual does not file a TDS statement on time, and it is on top of a late filing fee. 

The penalty amount can range from Rs. 10,000 to Rs. 1,00,000. Furthermore, penalties under Section 217H also apply to incorrect filing of TDS returns.

However, one does not have to pay a penalty under section 271H if they fulfil the following conditions. 

• If deductor deposits tax deducted at source with the government. 
• When filing of TDS returns takes place before the expiry period of one year from the specified due date. 
• When a deductor pays a late filing fee to the credit of the Government.

Also Read: TDS Rate Chart for Financial Year 2022-2023 (AY 2023-2024) 

Penalty for Late Furnishing of TDS Certificate 

TDS Certificate or Form 16/16A contains details of TDS transactions between a deductor and deductee. Employers issue this certificate on behalf of their employees so that the deductor knows how much tax they have paid. 

However, a delay in furnishing TDS Certificate also carries a penalty. Under Section 272A of the Income Tax Act, one has to pay a fee of Rs. 100 per day until they issue this certificate. 

Final Word

Persons have to deduct TDS and deposit it within a specified duration as per the rules of the IT Act. Go through the information given above to understand the details and avoid paying interest on the late deduction of TDS. 

FAQs on Interest and Penalty on Late Payment of TDS

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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.