TDS penalty on less interest payment

I deposit TDS on purchase of property for the payments made to builder. This time I deposited the payment late i.e. for the payment made on 27 Jan 22, the TDS deposit was done on 23 March 22, with interest. I made a mistake in calculating the interest and instead of 3 months of interest I deposited for the two months. Now after 5-6 days I got a demand notice from Income tax department asking to pay the penalty of Rs.4200 for that 1month of less interest. I deposited only Rs.80 less and I did it myself. The total TDS deposit was Rs.5504.So I have to pay double the amount in lieu of the Rs. 80 short payment.

So instead of asking me to deposit the extra interest they are considering the TDS deposit as late and adding late fee of Rs.200 per day for 21 days. Is there any way to get it fixed except making the payment of demand amount. I think this is very very unfair.

Hi Rajendra! I totally get why this feels unfair—paying a huge penalty for just Rs. 80 shortfall in interest can be frustrating. Let me explain the scenario and your possible options:

What Happened?

You deposited TDS late and paid interest on delayed TDS deposit.
Interest was under-calculated by one month (short by Rs. 80).
IT department sent a demand notice for Rs. 4200 (which includes a late fee of Rs. 200/day for 21 days).
You feel penalty is disproportionate to the short interest amount.

Why this happens?

Interest short payment is treated as delay in deposit of TDS.
Under Section 201(1A), interest on delayed TDS is 1% per month or part of a month.
Additionally, Section 234E mandates a late fee of Rs. 200 per day for delay in TDS deposit.
The penalty is strict and applies per day, independent of the amount short.

Options you have:

File a Rectification Request / Appeal
- You can approach the Assessing Officer (AO) or file rectification on the portal requesting to waive or reduce the late fee on grounds of:
  - Genuine mistake and self-correction.
  - Minimal shortfall (only Rs. 80).
  - Willingness to pay the correct interest immediately.
- Sometimes, authorities may reduce or waive the penalty.
Pay the Demand and Claim Refund Later
- You may choose to pay the demand to avoid further complications.
- Then file an appeal or rectification to recover excess amount.
Check if Section 273B applies
- Section 273B allows waiver of penalty if delay is due to reasonable cause.
- Submit a written application explaining the situation.
Consult a Tax Professional
- In some cases, penalties are strictly imposed but a tax lawyer or consultant might help draft a suitable representation.

Summary:

Situation	Explanation	Possible Action
Short payment of interest	Treated as delay in TDS deposit	File rectification/appeal
Late fee Rs. 200/day	Strict provision under Sec 234E	Request waiver citing reason
Penalty seems disproportionate	Genuine mistake, self-corrected	Explain to AO, appeal

Practical Tip:

Always keep proof of payment and interest calculations handy.
In your appeal or representation, be polite and clearly explain the shortfall was unintentional and promptly corrected.