Interest on Non Payment or Non Deduction of TDS. Interest on late payment/short deduction of TDS. Implementation of laws and regulations should be accompanied by penal provisions in order to get the purpose of the rules achieved. In income tax there very numerous provisions which talk about penalties for late payments, late deductions of tax , non deduction of tax in case of TDS.
There’s been a confusion among many readers about the computation of interest for late payment of tds and non deduction of tds. Here in this post I’m going to discuss some points on this concept. Now you can scroll down below and check more details for Interest on Non Payment or Non Deduction of TDS
Interest on Non Payment or Non Deduction of TDS
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Before beginning the discussion about the penal provisions we need to Understand the provisions related to payment of TDS.
1.Tax deducted during the month of April to February should be paid to the credit of the Government on or before 7 days from the end of the month in which the deduction is made.
2.Tax deducted during the month of March should be paid to the credit of the Government on or before 30 th day of April.
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(1) Interest for non deduction of TDS / delay in payment of TDS :
As per section 201, if any person who is liable to deduct tax at source does not deduct it, or after so deducting fails to pay, the whole or any part of the tax to the credit of the Government, then, such person, shall be liable to pay simple interest as given below:
a) Interest shall be levied at 1% 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 was deducted.
b) Interest shall be levied at 1.5% 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 was actually remitted to the credit of the Government.
In other words, interest will be levied at 1% for every month or part of a month for delay in deduction and at 1.5% for every month or part of a month for delay in remittance after deduction.
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Tax collected at source :
As per section 206C there are various items on which tax is to be collected at source. The tax so collected is to be paid to the credit of the Government within a period of 7 days from the last day of the month in which the tax is collected at source. Where it is collected by an office of the Government then it shall be paid to the credit of the Central Government on the same day.
(2) Interest for failure to collect tax at source/delay in payment :
As per section 206C(7), if the person responsible for collecting tax does not collect the tax or after collecting the tax fails to pay it to the credit of Government within the due date prescribed in this regard, then he shall be liable to pay simple interest at the rate of 1% per month or part thereof on the amount of such tax. Interest shall be levied for a
period from the date on which such tax was collectible to the date on which the tax was actually paid.
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There’s always been a dilemma in terms of Calculation of the period for computing the interest. let’s have an example
M/s ABC Ltd has paid Rs 80000 to Cvb caterers for supplying food to them on a function.This payment was made on 5th April 2015. And they deducted the Tax while making the remittance. As per the provisions of income tax act it should be paid on any date before 7th of the next month i.e May 2014. But they remitted the tds to the department on 8th May 2014.i.e with a delay of one day.
Therefore interest on TDS is to be paid for 2 months because the period of default starts from the date on which the liability to deduct TDS arises. So from 5th April to 30th April one month and from 1st may to 8th may another month , total two months interest should be paid (As per law part of the month also should be considered as full month).
Must Read – TDS Section 194IA