TDS Late Payment Interest: Calculation & Formula

The Income Tax Department charges interest for delay in depositing TDS (Tax Deducted at Source). This article explains how interest is calculated, with the formula, applicable rates, and consequences of non-compliance.

Key Takeaways

• Always deduct TDS on time when making eligible payments
• Deposit TDS before 7th of next month to avoid interest
• Use Form 26Q, 24Q for TDS return filing
• Keep track of Challan Identification Numbers (CIN) for audit trail

TDS Due Date and Criticality

TDS is the tax deducted at the source of income by the payer before making payment to the payee (employee, vendor, contractor, etc.). As per the Income Tax Act, TDS deducted must be deposited within the due date, failing which attracts interest under Section 201(1A).

TDS Due Dates

Interest on Late Payment of TDS – When and How Much?

Interest is levied in two cases:

Non-deduction of TDS (Failed to Deduct) Section 201(1A)(i)

• Interest Rate: 1% per month.

• Period: From the date it was deductible to the date it was actually deducted.

Non-payment of TDS (Deducted but Not Deposited) Section 201(1A)(ii)

• Interest Rate: 1.5% per month

• Period: From the date of deduction to the date of deposit

Interest on Late Payment of TDS – Calculation Formula

Interest = TDS Amount × Rate × Number of Months

Or

Interest = (Tax Deducted/Collected x Interest Rate x No. of Months Delayed in Filing) / 100

Example: TDS Deducted but not Deposited (1.5% Interest per Month)

• TDS deducted on: 10th June
• Due date: 7th July
• Actual payment: 2nd August
• Delay = 1 full month (June 10 – August 02)

Interest = ₹10,000 × 1.5% × 2 = ₹300

Example: Non-Deduction of TDS (1% Interest per Month)

Scenario:

• A company pays ₹1,00,000 as professional fees to a consultant on 10th May 2025.
• TDS of 10% (₹10,000) was applicable under Section 194J.
• The company forgot to deduct the TDS at the time of payment.
• It realized and deducted TDS only on 25th August 2025.

Calculation Of Interest

Since TDS was not deducted on time, interest is levied at 1% per month or part thereof from the date on which TDS was deductible to the date it is actually deducted.

Penalty and Prosecution

In addition to interest:

Quarterly TDS Return Deadlines

The TDS deposited with the Government should be filed as a report quarterly. These apply to forms 24Q, 26Q, and 27Q.

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