Interest on late deduction/ payment and Late filing fees under TDS provisions (Section 201(1A) and section 234E)

TDS in income tax i.e. Tax deducted at source is also a very confusing phenomenon for some people and they can’t understand when to deduct TDS or when they are liable to deduct TDS and what are the interest or penalties leviable if they don’t deduct TDS or after deduction don’t pay TDS to government. In this post we shall discuss provision related to interest payable on late deduction of TDS or late payment of TDS and late filing fee of TDS.

Interest on Late deduction of TDS:

In most section of TDS, it needs to be deducted at the time of payment or credit in books, whichever is earlier whereas in some case TDS needs to be deducted at the time of payment only. Therefore late deduction means that TDS was not deducted when it was required to as per the respective provisions and for that a person is liable to pay interest @1% per month or part of month till the time TDS is deducted which is mention under clause (i) of sub section (1A) of section 201 of the Income Tax Act:

“Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,—

(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and

(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid,

and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200.”

Interest on Late payment of TDS:

Now the second clause has been framed interestingly which deals with interest on TDS if it has not been deposited within due time (due date of depositing TDS is 7^th of next month in which TDS has been deducted except for the month of March when it’s 30^th April). Interest for late payment is 1.5% per month or part of month till the time TDS has been actually paid. However the starting point is important which says that if TDS is not paid within due time one needs to pay interest from the day TDS was deducted till the time it’s actually paid which is unlike the first clause which charges interest from the time TDS was liable to be deducted to the time it’s actually deducted.

Also, one needs to pay such interest before filing the TDS return. (However, prima facie there is no penalty/ restriction for not paying it before filing such return.)

Let’s understand this with an example:

Example 1:

Suppose A paid an advance professional fee to B of Rs. 35000 on 21.10.2019 against total service of 75000.

Now as per TDS provision of section 194J he has to deduct TDS at time of payment or credit whichever is earlier.

Technically now if he shows TDS deduction entry on 22.10.2019 then also one will have to pay TDS for whole month @1%. However, there are various ways to save such TDS, but it won’t be possible if you use SAP or other such software.

Example 2:

Now let’s continue the above example and as per above example due date for payment was 7^th November and if person fails to pay TDS on 7^th November and pay on 8^th November then one will have to pay 1.5% interest for the month of October and November as the provision says one needs to pay interest from the day TDS was deducted to the day it is actually paid.

This is where we can see there is overlapping effect because of clause (ii) of sub section (1A), where if you deduct TDS late and even deposit the TDS late then you will have to pay 2.5% interest for the month of October.

Also, from the above provision it’s also clear that we need to pay interest for whole month even when we are late just by a day.

Late fee for filing TDS return after due date (Section 234E):

Before discussing the penalty let’s discuss the due date for filing TDS return:

TDS return for quarter	Due date
1^st April to 30^th June	31^st July
1^st July to 30^th September	31^st October
1^st October to 31^st December	31^st January
1^st January to 31^st March	31^st May

As per provision of section 234E, the late fee for filing TDS return is Rs. 200 per day and it shall be calculated from the next day after the due date till the date you actually file the return.

However, the amount of late fee shall not exceed the total amount of TDS in that statement.

For example: Total amount of TDS in the statement is Rs. 1800 and you are filing TDS return after 10 days which makes the late fees of Rs. 2000, however it shall be restricted to Rs. 1800 because of the sub section 2 of section 234E.

Also such late fee needs to paid before filing the TDS return. (However, prima facie there is no penalty/ restriction for not paying it before filing such return.)

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