Introduction
The taxpayer can claim the TDS credit while filing the income tax return. However, if the taxpayer fails to deduct the TDS or deducts but does not deposit it with the government, interest is levied on the amount of TDS that was not deducted or deposited. In this article, we will discuss everything you need to know about the interest on late payment of TDS.
What is the interest on late payment of TDS?
Interest on late payment of TDS is to be levied if the person is not deducting TDS.
- A person will be liable to pay simple interest if the person including principal officer or a company doesn’t:
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- Deduct part or TDS, or
- Deduct whole of TDS, or
- After deducting, fails to deposit such TDS
- This interest is applicable from the date on which TDS was deducted to the date on which TDS is deposited.
- This interest is applicable from the date on which TDS was due to be deducted to the date on which TDS is actually deducted.
- The interest should be paid before furnishing the statement under Section 200 of the Income Tax Act, 1961.
Rate of TDS
- The interest rate for late deduction of TDS is:
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- 1.5% per month or part of the month – In case, from the date on which tax is deducted to which it is actually paid
- 1% per month or part of the month – In case, from the date the tax was deductible to the date which it is deducted
When is Interest on Late Payment of TDS Levied?
There are various cases when interest on late payment of TDS is levied by the income tax department. These include:
- Failure to deduct TDS: If the person liable to deduct TDS does not deduct it at all or deducts it at a lower rate than prescribed, he or she has to pay interest from the date on which TDS was deductible to the date on which it was actually deducted.
- Failure to deposit TDS: If the person who has deducted TDS does not deposit it to the government account within the due date, he or she has to pay interest from the date of deduction to the date of payment.
- Late deposit of TDS: If the person who has deducted and deposited TDS does not file the quarterly statement of TDS within the due date, he or she has to pay interest from the due date of filing to the actual date of filing.
Interest on Late Payment of TDS Calculation
Interest on late payment of TDS is calculated as follows:
- From the date on which the TDS was deductible to the date on which it was actually deducted
- From the date on which the TDS was deducted to the date on which it was actually deposited
- In both cases, interest is calculated at a rate of 1.5% per month or part of the month.
Interest to be deducted where the tax is paid but TDS not deducted
Under the proviso to Section 201(1A) of the Income Tax Act, 1961, where the person fails to deduct TDS on sum paid to resident or credited to the resident but it is not deemed as assessee-in-default, it will still be liable to pay interest under Section 201(1A) from the date on which tax was deductible to the date of furnishing the return.
Charge on all the assets of the person or company
If the tax is not paid after it is deducted, the amount of the tax and the amount of simple interest shall be a charge upon all the assets of the person, or the company
What is the Consequence of Not Paying Interest on Late Payment of TDS?
If the taxpayer fails to pay the interest on late payment of TDS, the same is treated as an “assessee in default”. The taxpayer may then be liable to pay a penalty and also prosecution for his default.
How to Avoid Interest on Late Payment of TDS?
To avoid interest on late payment of TDS, the taxpayer should ensure that the TDS is deducted and deposited on time. The taxpayer should also ensure that the correct amount of TDS is deducted and deposited with the government.
Conclusion
Interest on late payment of TDS is an important concept that every taxpayer should be aware of. Failure to deduct or deposit the TDS can lead to interest, penalties, and even prosecution. Hence, it is important to comply in accordance with the TDS provisions and deposit the TDS within a time limit as mentioned in the provision of the Income Tax Act, 1961.
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