Tds late payment interest calculation

DHARMENDRA PRAJAPAT (CA FINAL) (105 Points)
Replied 24 December 2013

this is true we have also getting the same problem. then after i call to the traces department.

the contention of the depts that you deduct TDS for the month of sept.and deduct the TDS in oct. after the due date i.e. after 7th day of the month. The plea of the depts is that you deduct TDS in the month of sept. means delay for 1 month & you deposit the TDS after 7th day of oct. that means extra delay of 1 more month i.e. total 2 months delay.

the overall meaning of the above is that if we deposit the TDS by delaying for merely 1 day we have to pay for 2 months interest on the same. is the department is right or wrong i also confused sir....

(Guest)

Because interest is calculated from the date of deduction to the date of payment on monthly basis as per Sec. 201(1A)(ii) i.e. interest is calculated for sept and oct month.

DHARMENDRA PRAJAPAT (CA FINAL) (105 Points)
Replied 24 December 2013

yes manish is right but the tds department traces plea is that if you deduct tds on whichever day of the month it is deemed default for a whole month even you deduct the tds on last day of the month.

can it possible.........??

Vivek Jarial (Student) (272 Points)
Replied 24 December 2013

Dear All

Please read the section on interest leviable for delay in deposit of TDS:

Section 201(1A) lays down that every person shall be liable to pay simple interest -

(i) at 1% for every month or part of the 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 percent 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.

Such interest, if chargeable, is mandatory in nature and has to be paid before furnishing of quarterly statement of TDS for respective quarter.

Earlier – Pre TRACES, the Income Tax dept. (TDS Ward) used to calculate Interest on late payment of TDS as below:

In case where date of deduction is 30.09.2013 and TDS was deposited on 15.10.2013 i.e. after due date (07.10.2013) then Interest used to be calculated from 30.09.2013 till 15.10.2013 but part of the month considered as one month so interest used to be applied for 1 month.

Post TRACES (TDS CPC), we noticed significant change in calculation of interest (based on recent notices received by a few Companies) explained as below:

In the above case the interest would be for 2 months considering end of calendar month (September 2013) as 1 month and 15 days of October month would be second month (part of month will be considered as one complete month)

So, Interest would be levied for 2 months as per JUSTIFICATION REPORT received by TDS CPC instead of 1 month as against it used to be.

There is no written clarification in any of the circular/notification from Income Tax Dept.

During our past visits to TDS CPC (TRACES) at Vaishali, we met representatives of few Companies came to resolve this ambiguity but Inspectors advised all of us to calculate and deposit interest according to this methodology only.

Hence, we would like to have your view on the same so that we will be able to calculate it and communicate to you in all such cases where there is delay in deposit of TDS by your Company.

DHARMENDRA PRAJAPAT (CA FINAL) (105 Points)
Replied 25 December 2013

It is not justifiable to pay 2 months interest for merely 1 days late payment of TDS.

The department should think about the matter.

manikandan.J (Accounts Manager) (363 Points)
Replied 25 December 2013

Just login TRACES site. Dashboard under available in the of Summary you can entered which FY & Quarter filed. Then fill your TDS E-return filed Token Number & any one of amount deposited challan respective combination. You can have abstract of penalty & breakup Summary.

Ankur (Professional) (95 Points)
Replied 25 December 2013

It is very old law indicating that interest shall be applied from date of deduction not date of payment. Since it covers part of month so delay of 1 day from due date counts 2 months. If you are aware of tds software you can see that they even calculate interest for two months not for one month. LOGICALLY IT IS CORRECT TO CHARGE TWO MONTHS INTEREST since you are using funds from date of deduction however government gives you 7th of next month to pay as a grace .

Ankur (Professional) (95 Points)
Replied 26 December 2013

please read the relevant section for interest which is clearly mentioned that interest chargeable from date of deduction . Part of month includes whole month and thus cover whole month if you delay the payment just by one day. THIS IS NOT NEW , i have been deducting in this manner only for the last two years and hence never received any notice for shortfall of interest paid. ONE MORE THING, i would like to INITMATE you that inetrest is calculated on backward rouding to multiple of Rs100. for e.g tds of rs99/- does not fetch any amount of intrest, since backward rounding of 99 is 0. other example is 1071 is 1000 for interest calculation.

Ankur (Professional) (95 Points)
Replied 26 December 2013

please read the relevant section for interest which is clearly mentioned that interest chargeable from date of deduction . Part of month includes whole month and thus cover whole month if you delay the payment just by one day. THIS IS NOT NEW , i have been deducting in this manner only for the last two years and hence never received any notice for shortfall of interest paid. ONE MORE THING, i would like to INITMATE you that inetrest is calculated on backward rouding to multiple of Rs100. for e.g tds of rs99/- does not fetch any amount of intrest, since backward rounding of 99 is 0. other example is 1071 is 1000 for interest calculation.

Ankur (Professional) (95 Points)
Replied 27 December 2013

due date for march 10 tds is 7 april . it is correct.

Srinivasan Rangarajan (Officer - Insurance Industry) (131 Points)
Replied 10 February 2014

Full interest is being charged by TRACES for a part of a month (of the English Calendar, interpreting the words ‘month’ & ‘part of a month’ as that of a month of the English Calendar), U/S 201(1A) of the Income Tax Act, 1961, thereby charging two month’s interest though actual number of days from the date of deduction to the date of payment is less than 30 days. Is it correct?

The relevant portion of the Section 201(1A) of the Income Tax Act, 1961, for imposing interest runs as under:

“at one and one-half percent 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...”

In this regard, let us examine the law laid down by the Hon’ble High Court of Allahabad in Commissioner of Income-Tax Vs Laxmi Rattan Cotton Mills Co. Ltd on 4th April 1973 ( Citation: 1974 97 ITR 285 All ).

In the said case, the question before Hon’ble Court was whether the word ‘month’ occurring in Section 271(1)(a)(i) referred to an English Calendar month, as interpreted by the Tribunal, against which the appeal was filed by the Commissioner of Income-Tax.

To state the facts of the case in brief, the assessee had not filed his return for the assessment year 1958-59 by November 15, 1958, the prescribed date. The return was filed on February 18, 1959 i.e after a period of three months and 3 days after the cut-off date (15.11.1958).

Therefore, the assessee was charged penalty for the default @ 2% per month for three months (leaving the three days that exceeded the three months, as the Section mentioned only of a month and not a part of it) U/S 271(1)(a)(i), according to which the penalty would be “.... a sum of 2% of the tax for every month during which the default continued..”

The Tribunal had held that the said Section meant a full calendar month and the assessee was in default for only two full calendar months ( December 1958 & January 1959 ), and hence penalty could be levied for only two months.

The Hon’ble High Court observed that:

The word ‘month’ has not been defined in the Act;
The ‘month’ as per the Act was not the ‘English Calendar’ month as defined in the General Clauses Act;
It is settled that the word ‘month’ is normally understood to mean a ‘lunar month’ i.e a period of thirty days.

Accordingly, the appeal filed by the Commissioner of Income-Tax against the order of the Tribunal which interpreted the meaning of a ‘month’, which was not defined under the Act, to be an ‘English Calendar’ month, was allowed.
It may be seen that it was only the Commissioner of Income Tax who had asserted before the Hon'ble Court that the 'month' was not the English Calender month but a lunar month of 30 days.
As definition of a ‘month’ under the Income Tax Act, 1961, has been settled by the Hon’ble High Court Allahabad, can the word ‘month’ could mean an “English Calendar” month in another Section of the Act?
The interpretation by the IT department has to be consistent and equitable and in any case, the department cannot apply different yardsticks for its own case and that of the assessee.
Now, by substituting the words ’30 days’ for ‘month’ in Section 201(1A) of the Act, it would read that “at one and one-half percent for every thirty days or part of thirty days 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 interpretation of a ‘month’ to mean ‘thirty days’ U/S 201(1A) akin to 271(1)(a)(i) is totally equitable and fair, for, the other interpretation entails two months interest for a delay of thirty days or less, which definitely defies all logic and reasoning.

It may be seen that in the case before the Hon’ble High Court of Allahabad, the Commissioner of Income-Tax did not charge a month’s penalty for the three days exceeding three months because, as per that section, penalty was to be levied only for ‘every month’ and not ‘part of a month’.

The only difference between the two sections is that, in view of the words ‘part of a month’ as appearing U/S 201(1A) of the Act, for every thirty days or part thereof, interest is payable, in contrast to Section 271(1)(a)(i).
Therefore, as discussed above, the method of interest calculation adopted by TRACES is totally unjust and inequitable.

Srinivasan Rangarajan (Officer - Insurance Industry) (131 Points)
Replied 10 February 2014

Full interest is being charged by TRACES for a part of a month (of the English Calendar, interpreting the words ‘month’ & ‘part of a month’ as that of a month of the English Calendar), U/S 201(1A) of the Income Tax Act, 1961, thereby charging two month’s interest though actual number of days from the date of deduction to the date of payment is less than 30 days. Is it correct?

The relevant portion of the Section 201(1A) of the Income Tax Act, 1961, for imposing interest runs as under:

“at one and one-half percent 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...”

In this regard, let us examine the law laid down by the Hon’ble High Court of Allahabad in Commissioner of Income-Tax Vs Laxmi Rattan Cotton Mills Co. Ltd on 4th April 1973 ( Citation: 1974 97 ITR 285 All ).

In the said case, the question before Hon’ble Court was whether the word ‘month’ occurring in Section 271(1)(a)(i) referred to an English Calendar month, as interpreted by the Tribunal, against which the appeal was filed by the Commissioner of Income-Tax.

To state the facts of the case in brief, the assessee had not filed his return for the assessment year 1958-59 by November 15, 1958, the prescribed date. The return was filed on February 18, 1959 i.e after a period of three months and 3 days after the cut-off date (15.11.1958).

Therefore, the assessee was charged penalty for the default @ 2% per month for three months (leaving the three days that exceeded the three months, as the Section mentioned only of a month and not a part of it) U/S 271(1)(a)(i), according to which the penalty would be “.... a sum of 2% of the tax for every month during which the default continued..”

The Tribunal had held that the said Section meant a full calendar month and the assessee was in default for only two full calendar months ( December 1958 & January 1959 ), and hence penalty could be levied for only two months.

The Hon’ble High Court observed that:

<ul>
<li>
The word ‘month’ has not been defined in the Act;
</li>
<li>
The ‘month’ as per the Act was not the ‘English Calendar’ month as defined in the General Clauses Act;
</li>
<li>
It is settled that the word ‘month’ is normally understood to mean a ‘lunar month’ i.e a period of thirty days.

Accordingly, the appeal filed by the Commissioner of Income-Tax against the order of the Tribunal which interpreted the meaning of a ‘month’, which was not defined under the Act, to be an ‘English Calendar’ month, was allowed.
</li>
<li>

It may be seen that it was only the Commissioner of Income Tax who had asserted before the Hon'ble Court that the 'month' was not the English Calender month but a lunar month of 30 days.
As definition of a ‘month’ under the Income Tax Act, 1961, has been settled by the Hon’ble High Court Allahabad, can the word ‘month’ could mean an “English Calendar” month in another Section of the Act?</li>
<li>The interpretation by the IT department has to be consistent and equitable and in any case, the department cannot apply different yardsticks for its own case and that of the assessee.</li>
<li>
Now, by substituting the words ’30 days’ for ‘month’ in Section 201(1A) of the Act, it would read that “at one and one-half percent for every thirty days or part of thirty days 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 interpretation of a ‘month’ to mean ‘thirty days’ U/S 201(1A) akin to 271(1)(a)(i) is totally equitable and fair, for, the other interpretation entails two months interest for a delay of thirty days or less, which definitely defies all logic and reasoning.

It may be seen that in the case before the Hon’ble High Court of Allahabad, the Commissioner of Income-Tax did not charge a month’s penalty for the three days exceeding three months because, as per that section, penalty was to be levied only for ‘every month’ and not ‘part of a month’.

The only difference between the two sections is that, in view of the words ‘part of a month’ as appearing U/S 201(1A) of the Act, for every thirty days or part thereof, interest is payable, in contrast to Section 271(1)(a)(i).
</li>
<li>
Therefore, as discussed above, the method of interest calculation adopted by TRACES is totally unjust and inequitable. 
</li>
</ul>