Tax Consultant
1312 Points
Posted on 19 June 2026
Section 201(1A) has TWO different interest scenarios, often confused with each other.
Scenario 1 , TDS was deducted on time but deposited LATE:
Interest rate: 1.5% per month or part of a month on the amount not deposited.
Period: from the date of deduction to the actual date of deposit.
Scenario 2 , TDS was NOT deducted at all (or deducted short):
Interest rate: 1% per month or part of a month on the undeducted amount.
Period: from the date the TDS was deductible to the actual date it was deducted.
Key rules for calculation:
- Part of a month is treated as a full month. So if you deducted on March 1 and paid on March 25, that is 1 full month at 1.5%.
- Interest is simple (non-compounding), calculated on the TDS amount that was delayed.
- Interest is paid along with TDS using Challan 281. Use Nature of Payment code that matches the original section.
Example: You deducted TDS of Rs 10,000 on April 5 and deposited on June 12. Duration: April 5 to June 12 = 3 months (April, May, and part of June = 3 full months). Interest = Rs 10,000 x 1.5% x 3 = Rs 450.
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