Wrong calculation of interest u/s 201(1a) by tds cpc
This query is : Resolved
14 December 2013
Traces is calculating Interest u/s 201(1A) on a wrong footing. Section 210(1A) states as under :
“(1A) 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.
The Traces is calculating interest on month to month basis. E.g. even if TDS was deducted on 31.05.13 and paid on 08.06.13 (due date is 07.06.13), interest is being charged for 2 months instead of 1 month as per statute.
Is the calculation of Interest doing by traces correct as per the provision of sec 201(1A)?
“(1A) 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.
The Traces is calculating interest on month to month basis. E.g. even if TDS was deducted on 31.05.13 and paid on 08.06.13 (due date is 07.06.13), interest is being charged for 2 months instead of 1 month as per statute.
Is the calculation of Interest doing by traces correct as per the provision of sec 201(1A)?
14 December 2013
The calculation being done by the Traces is
correct and lawful.
.
The question can be raised about the provision itself.
.
"month" word in the law is understood as month of the English calender.
.
Read more at -
https://www.caclubindia.com/experts/meaning-of-month-or-part-of-month-for-calculating-interest-80836.asp#.UqxwMdIW1A0
correct and lawful.
.
The question can be raised about the provision itself.
.
"month" word in the law is understood as month of the English calender.
.
Read more at -
https://www.caclubindia.com/experts/meaning-of-month-or-part-of-month-for-calculating-interest-80836.asp#.UqxwMdIW1A0
15 December 2013
I would like to bought to your notice that Allahabad Highcourt in case of "Commissioner Of Income-Tax vs Laxmi Rattan Cotton Mills Co. Ltd. on 4 April, 1973" (Equivalent citations: 1974 97 ITR 285 All) given decision that month means period of 30 days and not month as per general clause act. however, this decision is given in case of dispute arise in interpretation of Sec 271(1)(a)(i) but in my view same is well applicable for interpretation of month u/s 201 (1A).
03 August 2025
Here’s a summary and some insights on your query about interest calculation under section 201(1A) and the issue with TRACES calculating interest on month-to-month basis:
Issue:
Section 201(1A) levies interest for:
(i) 1% per month (or part thereof) from the date tax was deductible to the date tax was deducted.
(ii) 1.5% per month (or part thereof) from the date tax was deducted to the date tax was actually paid.
TRACES is calculating interest by counting calendar months (i.e., if tax was deducted on 31 May and paid on 8 June, it charges interest for 2 months instead of 1 month).
Legal Interpretations:
TRACES’s calculation is technically following the statutory wording: “month or part of month,” and it interprets a month as a calendar month.
However, the Allahabad High Court in CIT vs Laxmi Rattan Cotton Mills Co. Ltd (1974) 97 ITR 285 (All) ruled that in some contexts “month” means a period of 30 days (a “month” as a fixed 30-day period), not necessarily a calendar month.
This ruling, though given for Section 271(1)(a)(i), can be argued to apply here, suggesting interest should be charged on actual days (or 30-day blocks), not calendar months.
Practical Implications:
The Income Tax Department and TRACES currently follow the calendar month interpretation, which results in a slightly higher interest amount.
Taxpayers may contest this interest calculation by citing the Allahabad High Court ruling and argue that interest should be calculated on a 30-day period basis.
However, there is no clear binding precedent that TRACES must follow the 30-day interpretation under Section 201(1A), and Courts have also upheld calendar month interpretation in some cases.
Conclusion:
TRACES’s calculation is legally valid but may appear harsh to taxpayers.
You can challenge this interest calculation in your appeal or rectification application by citing the Allahabad HC case and requesting recalculation on actual days or 30-day months.
Await any further judicial pronouncements or amendments for a final clarity.
Issue:
Section 201(1A) levies interest for:
(i) 1% per month (or part thereof) from the date tax was deductible to the date tax was deducted.
(ii) 1.5% per month (or part thereof) from the date tax was deducted to the date tax was actually paid.
TRACES is calculating interest by counting calendar months (i.e., if tax was deducted on 31 May and paid on 8 June, it charges interest for 2 months instead of 1 month).
Legal Interpretations:
TRACES’s calculation is technically following the statutory wording: “month or part of month,” and it interprets a month as a calendar month.
However, the Allahabad High Court in CIT vs Laxmi Rattan Cotton Mills Co. Ltd (1974) 97 ITR 285 (All) ruled that in some contexts “month” means a period of 30 days (a “month” as a fixed 30-day period), not necessarily a calendar month.
This ruling, though given for Section 271(1)(a)(i), can be argued to apply here, suggesting interest should be charged on actual days (or 30-day blocks), not calendar months.
Practical Implications:
The Income Tax Department and TRACES currently follow the calendar month interpretation, which results in a slightly higher interest amount.
Taxpayers may contest this interest calculation by citing the Allahabad High Court ruling and argue that interest should be calculated on a 30-day period basis.
However, there is no clear binding precedent that TRACES must follow the 30-day interpretation under Section 201(1A), and Courts have also upheld calendar month interpretation in some cases.
Conclusion:
TRACES’s calculation is legally valid but may appear harsh to taxpayers.
You can challenge this interest calculation in your appeal or rectification application by citing the Allahabad HC case and requesting recalculation on actual days or 30-day months.
Await any further judicial pronouncements or amendments for a final clarity.
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