Missing a TDS filing deadline can result in TDS late payment penalty and interest charges. As per the Income Tax Act, interest of 1% per month is levied for late deduction and 1.5% per month for late deposit. Failure to pay TDS on time can also lead to penalties equal to the unpaid amount or imprisonment from 3 months to 7 years. Additionally, late filing of TDS returns attracts a fine of ₹200 per day, up to a maximum of the TDS amount. To stay compliant and avoid penalties, ensure timely TDS payments and return filing with Vakilsearch.
TDS Late Payment Penalty and Its Consequences
Timely TDS payment and filing is a crucial responsibility for businesses, ensuring tax compliance and avoiding legal repercussions. The government imposes TDS late payment penalty and interest on TDS late payment when there is a delay in deduction or deposit. Non-compliance not only leads to TDS penalty charges but can also result in imprisonment in severe cases. Understanding the applicable TDS default interest rate, penalties, and due dates helps businesses avoid unnecessary liabilities. This article provides a detailed insight into TDS late fees and interest, TDS penalty charges, and consequences of non-compliance, helping businesses stay on track with their tax obligations.
TDS Interest For Late Payment
There are two types of TDS late payment interest and penalty provisions:
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Late deduction of TDS: The interest rate for late deduction of TDS is 1% per month. This interest rate will be charged from the moment the tax became deductible until the date of deduction. The default of TDS interest for late payment is outlined under Section 201A of the Income Tax Act. TDS return filing is only possible after paying this interest.
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Interest on TDS late payment: Section 201(1A) provides for monthly interest payment of 1.5% on late deduction of TDS after deduction. This interest is calculated on a monthly basis rather than on a daily basis. This is why even a portion of a month is seen as a complete month. Here, the interest is calculated from the date the TDS payment due date is missed.leading to TDS late payment penalty.
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Let us suppose your TDS due amount is ₹10000 and the tds payment due date is 10th January. If you pay the TDS on 27th May, then the interest payable will be ₹10000 x 1.5% p.m. x 5 months = ₹750.
| Under the Income Tax Act, interest on late payment of TDS is allowable expenses. |
Interest on Late Payment of TDS is Allowable Expenses?
A common question among businesses is whether interest on late payment of TDS is allowable expenses for tax computation. However, as per the Income Tax Act, interest paid on delayed TDS deposits is not considered an expense and cannot be claimed as a deduction.
TDS Default Interest Rate and Late Fees
The TDS default interest rate varies based on the type of delay. If TDS is deducted late, a 1% monthly interest applies, whereas if TDS is deducted but not deposited on time, the interest increases to 1.5% per month. This results in additional TDS late fees and interest payable before filing TDS returns.
TDS Not Deducted for Payment Made to Resident
According to Section 201 of the Finance Act, if the following circumstances are met, the payer who does not deduct the entire or a portion of the tax on the payment forwarded to the resident payee is not deemed an assessee-in-default
- The resident recipient has provided his return for his income under Section 139.
- The above income has been taken into account by the recipient resident in his tax return.
- The taxes due on the income has been paid by the resident recipient on the income declared in such return of income.
- A certificate to this effect has been furnished by the payee to this effect in Form no. 26A: Form Link
TDS on Interest on Late Payment to Creditors
In case a business fails to make timely payments to creditors, TDS on interest on late payment to creditors may be applicable. According to the Income Tax Act, any interest paid to creditors due to delayed payments is subject to TDS deduction. Businesses must ensure that the correct TDS rate is applied to avoid penalties and compliance issues.
TDS Due Dates for Government and Non-Government Deductors
The TDS Payment due date for Non-Government deductors, is the 7th of the next month, except for the month of March, where the due date is 30th April
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The due date for deposit of TDS for Government deductors is the 7th of the next month if paid through Challan. And the same day on which the TDS is deducted if paid through book entry.
| If the TDS payment due date falls on a Sunday or a public holiday, the TDS can be paid on the next working day. |
Late Deduction of TDS and Its Implications
A delay in deducting TDS attracts late deduction of TDS interest at 1% per month from the date when the tax was deductible until the actual deduction. This interest must be paid before filing the TDS return filing penalty to ensure compliance and avoid TDS late payment penalty.
Penalty for Late Deposit of TDS
The deductor may face a penalty for late TDS payment equal to the amount that was not deducted or remitted. He may even be liable to face rigorous imprisonment for a minimum of three months and a maximum of seven years. In addition to this, non-compliance may result in a TDS late payment penalty imposed by the tax authorities.
Click the link to check out the TDS penalty calculator on the Income Tax Dept. website.
TDS Return Filing Penalty and Consequences of Late Filing
From 1st July 2012 onwards, a delay in providing the eTDS statement will result in a mandatory fine of ₹200 per day till the return is filed. However, in this case, the total fine shall not exceed the total amount of TDS deducted for the given quarter. The TDS return filing penalty has to be paid before filing such an eTDS statement.
If there is a failure or delay in filing the eTDS statement for more than a year or the details such as PAN, Challan, and TDS amount furnished in the statement are incorrect, there may be a penalty ranging from ₹10,000 to ₹1 lakh, as determined by the Assessing Officer. Such delays may also result in an additional TDS late payment penalty.
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