Penalty Interest on Late Payment Deduction Under TDS

As you know, the Indian government levy financial penalty for late filing and late payment of TDS returns. Thus, it is extremely important for individuals to have proper knowledge about the TDS interest that is charged by the Indian government on delayed returns. So, the article will make you familiarize with the TDS interest procedure and how it is calculated for late filing and payment of TDS returns.

TDS Interest for Late Deduction and Late Payment

Taxpayers have to pay TDS interest in two common scenarios, which include non-deduction and non-payment of TDS. In case of non-deduction or late deduction of TDS, 1% interest rate is applicable starting from the specified deduction date to the actual deduction date.

For example, if a TDS deduction of INR 5000 was required to be made on 11th July. However, the actual deduction was made on 10th December. In such a scenario, 1% interest rate will be levied for a total of 6 months starting from July and ending in December. The total TDS interest amount payable would be INR 5000 x 1% p.m. x 6 months = INR 300.

On the other hand, in the case of non-payment or late payment of TDS after deduction, a higher rate of 1.5% is levied per month starting from the actual payment month up to the month in which TDS payment has been made. The important thing to note is that calculation of interest will be on a monthly basis and will start from the date on which the TDS was deducted, not from the date which it was due.

For example, let’s suppose the due date for TDS payment is 7th May for a TDS deduction on 19th March. In such case, if the TDS payment is after 7th May, then the interest calculation will start from 19th March not from 7th May. Even if a particular misses a TDS payment date by one day, then too one has to pay interest for two months.

However, as per the section 201 by the Finance Act, 2012 w.e.f 1st July 2012, the payer who fails to pay the whole or any part of the tax for a resident payee cannot be deemed as an assessee-in-default if following conditions met:

  • The resident recipient has showcased his return on income under section 139

  • The resident has paid the taxes due on the income declared under the return of income

  • Recipient of such resident has taken into account the above income under its return of income

The penalty for Late or Short Payment of TDS

As per the government mandate, the penalty imposed on a payer cannot exceed the amount that was failed to remitted or deducted.

Prosecution (Sec 276B): As per this prosecution, if any payer fails to pay the tax that is deducted to be credited to the Central Government account, under the provision of Chapter XVII-B, the payer will be punishable with a rigorous imprisonment , which is entitled not to be less than three months and can extend up to 7 years along with fine.

Consequences of Late Filing Delay in Furnishing of e-TDS statement

As per the section 234E of Income Tax Act, w.e.f. 1st July 2012, a mandatory fine of INR 200 will be imposed on any delay in furnishing the eTDS statement. However, the total penalty here should not surpass the total amount of TDS deducted for the quarter or the specified time period. The payment for late filing fee must be done before the filing of such delayed eTDS statement.

For more details about the penalties that can be imposed due to failure in furnishing statements on time or incorrect statements can be seen in detail under the section 271H of Income Tax Act. The important thing to note is that furnishing incorrect details in filed statements like incorrect PAN number and delaying e-TDS statement filing for more than one year can result in penalty starting from INR 10,000 to INR 1 lakh as imposed by the assessing officer. However, for you to save the penalty, you can also file TDS return absolutely free for 5 active hours, check out the free Gen TDS Softwarehere!

As per the section 271H of Income Tax Act, no penalty can be levied in case of delay in filing the TDS/TCS return if the following conditions is satisfied:

  • The tax that has been deducted at sources is paid to the credit of Government

  • Late Filing fees and interest (if any) paid to the credit of the government

  • Filing of TDS return has been under the one year period starting from the due date specified for the same.

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