TDS/-

Hi Joshua,

Great question — and an important one in practical tax compliance.

✅ Short Answer:

No, non-payment of interest on delayed payment of TDS does NOT lead to disallowance of the underlying expenseunder the Income Tax Act.

📌 Let’s break it down:

🔹 What leads to disallowance under Income Tax?

As per Section 40(a)(ia) of the Income Tax Act:

If TDS is not deducted or TDS is deducted but not deposited on or before the due date of filing ITR, then 30% of the corresponding expense is disallowed in the year of default.

However...

🔸 Interest on delayed TDS (u/s 201(1A)) is a separate liability:

• Interest is compensatory, not penal.

• It's not a precondition for allowing the expense.

• Non-payment of this interest won’t cause disallowance of the expense already subjected to TDS.

📍 Example:

You paid professional fees of ₹1,00,000 in May.

• You deducted TDS of ₹10,000 but deposited it late in September.

• You also did not pay the interest under Section 201(1A).

➡️ Since you did deduct and deposit TDS before ITR filing due date, the expense will not be disallowed.

But the department may raise a demand for interest separately.

⚠️ Caveat:

While disallowance won't happen, not paying the interest may:

• Attract demand notices

• Lead to penalties or prosecution in rare cases of wilful default

• Cause issues during tax audits or assessments

✅ Conclusion:

• Non-payment of TDS interest ≠ Disallowance of expense

• But you must still pay the interest to remain compliant and avoid future complications

Let me know if you want a quick calculator for TDS interest or reference to the law section.