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.
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|
|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|
As per the Income Tax Act of 1961, a TDS deductor can make two types of defaults.
Depending on the category of default, a deductor might have to pay interest, late fees or face other penalties.
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 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
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.
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.
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.
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.
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.
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.
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.
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.
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 the TRACES portal and submitting ‘correction returns/statements.’
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
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.
|Section 194IB||Section 44AA||Section 80E|
|Section 195||Section 80EEA||Section 80DD|
|Section 80CCC||Section 80GG||Section 80 G|
|Section 54F||Section 1941A||Section 10|
|Section 194Q||Section 192||Section 269SS|
|Section 80DDB||Section 44AD||Section 194C|
|Section 194A||Section 194H||Section 80D|
|Section 80C||Section 80C, 24(b), 80EE & 80EEA||Section 234A|
|Section 50C||Section 80C||Section 80EEA|
|Section 194B||Section 194J||Section 206C|
|Section 80CCG||Section 80 EEB||Section 24Q|
|Section 40b||Section 194C||Section 54EC|
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