Late Payment of TDS: Interest and Penalty for Late Payment

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.

Penalty and Interest on Late Payment For 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:

Month	Due Date for TDS Payment
April	May 7
May	June 7
June	July 7
July	August 7
August	September 7
September	October 7
October	November 7
November	December 7
December	January 7
January	February 7
February	March 7
March	April 7 (for government deductors)April 30 (for non-government deductors)

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:

Quarter	Quarter Period	Due Date for Filing TDS Returns
1st	April 1 to June 30	July 31
2nd	July 1 to September 30	October 31
3rd	October 1 to December 31	January 31
4th	January 1 to March 31	May 31

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.

Deduction: Failure to deduct tax at source or delay in deducting TDS.
Payment: Failure or delay in depositing the full or a part of 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:

Type of Default	Interest Incurred by Deductor	Applicability of Interest
Failure or delay in deduction of tax at source	1% per month	1. Interest begins from the day on which tax was deductible and is applicable till the deductor collects TDS. 2. The calculation of interest applicable is done monthly and not daily.
Failure or delay in payment of tax deducted at source	1.5% per month	1. Interest begins from the day of deduction and is applicable till the day of payment. 2. For interest calculation, any part of the month gets treated as a full month.

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 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 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 late deduction of TDS.

FAQs on Interest and Penalty on Late Payment of TDS

Q1. What is TDS Exemption Certificate?

Ans: Under Section 197 of the Income Tax Act, one can obtain a TDS Exemption Certificate if their income falls under this section. As the name suggests, this certificate allows a taxpayer to opt for no or lower tax rate, if applicable. Generally, those with an annual income below the threshold limit submit TDS Exemption Certificate.

Q2. What happens if I miss the TDS payments deadline by a few days?

Ans: If you miss the TDS payment deadline, you will have to pay an interest of 1.5% of the TDS amount per month. However, Section 201(1A) only applies interest on a monthly basis. Thus, it does not matter how many days you missed the deadline.

Q3. Will I face interest on late deduction of TDS if the employee’s salary is below threshold limit?

Ans: An employer does not have to deduct any TDS on an employee’s monthly salary if their annual income is below Rs. 2.5 lakh. Thus, as there is no TDS deduction, one does not face any kind of interest or penalty.

Q4. What is Form 26AS?

Ans: Form 26AS is an annual statement containing all the details of tax deducted from an individual’s or company’s annual income. It provides information on TDS, TCS, advance tax, self-assessment tax, and refunds that a taxpayer receives in a financial year.

Q5. Can I make corrections to my TDS Statement?

Ans: Submitting a complete and correct TDS returns form is mandatory, and a failure to do so leads to a penalty. However, you can make corrections to your original TDS returns by logging in to TRACES portal and submitting ‘correction returns/statements.’

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