Calculation of Late Payment Interest

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If the tax is deducted on 8th June it becomes due on 7th of next month i.e. 7th July (except for March for which it is 30th April), if this tax is deposited on 10th July to the government’s account i.e. not before 7th of July then it attracts interest at the rate of 1.5% per month or part of the month i.e. 2 months in this case, as it attracts interest from 8th June totalling to 3% of the amount.

Difference between Late Payment & Late Deduction

Interest on Late Payment of TDS

Interest on Late Deduction of TDS

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Calculation of Late Deduction Interest

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If tax was deductible on 2nd June (i.e. at the time of giving credit or actual payment of the dues whichever is earlier) but was deducted on 3rd  June then the interest charged would be 1% of the amount for the late deduction.

Difference between Late Payment & Late Deduction

Interest on Late Deduction of TDS

Interest on Late Payment of TDS

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Difference between Late Payment & Late Deduction

The difference between late payment and late deduction:

Late payment: After the tax is deducted at source it has to be deposited into the government account by 7th of the next month (except March for which it is 30th April). If it is deposited later than the due date, late payment interest is charged. The rate of interest for late payment is 1.5% per month or part of a month of the delay.

Late deduction: If the tax is deducted later than the date on which it was deductible i.e. either at the time of giving credit or at the time of payment of the dues, whichever is earlier, late deduction interest is charged. The interest for late deduction is at the rate of 1% per month or part of a month of the delay.

Calculation of Late Payment Interest

Calculation of Late Deduction Interest

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Interest on Late Payment of TDS

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In case the assessee deposits the TDS Payment after the due date of payment of the tax deducted at source, he shall be liable to pay interest @1.5% for every month or every part of the month during which the amount is not deposited with the government.

Interest @ 1.5% is liable to be paid from the date on which the TDS was deducted and not from the date the TDS was due. 

For example: TDS was deducted on 25th June and the due date for TDS Payment was 7th July. The assessee fails to deposit the TDS by 7th July. In such a case, the Interest would be calculated from 25th June and not from 7th June.

The interest is to be calculated as per illustrations below: 

Case 1:

Tax Deducted on 26th June, TDS deposited on 9th July (due date was 7th July)

The period of 26th June to 30th June will be calculated as one month (being part of a month) & from 1st July to 9th July will also be treated as one month. As such in this case, the interest payable is for two months. Total interest would be 3%. Sounds odd, but it is true –  for a delay of 2 days, one has to pay interest for two months. 

Case 2:

Tax Deducted on 20th March, TDS deposited on 5th May  (due date was 30th April)

The period of 20th March to 31st March will be calculated as one month, 1st April to 30th April will be another month & from 1st May to 5th May will be treated as another one month. As such in this case, the interest payable is for three months. Total interest would be 4.5%. For a 5 day delay, the interest payable is for 3 months. 

Logic behind this calculation is that, if dues are not paid on time, the interest for each month (or part thereof) is to be paid right from the date of deduction till date of deposit of the TDS. Each month is treated based on the Calendar Month instead of counting the number of days.

Important: there is a difference between late deduction and late payment. Learn more

Difference between Late Payment & Late Deduction

Interest on Late Deduction of TDS

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