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
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
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 amount was deducted and not from the date the TDS payment 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 July.
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 month i.e. 30 – 26 = 4 days) & 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.
Note: In the above case, if tax was deducted on 30th June instead of 26th June, the number of days in June is calculated as 30 – 30 = 0 days. As such interest for one month will be charged i.e. only for July.
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 amount. Each month is treated based on the Calendar Month or part thereof, instead of counting the number of days. However, if tax is deducted on the last day of the month, in that case, that month is not counted for calculation of interest.
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
The due date for deduction is either at the time of giving credit or payment of the dues, whichever is earlier. Late deduction happens in the event the tax is not deducted when the deduction is due and is deducted at a later date. The interest for the delay in deduction is charged at the rate of 1% per month or part of a month of the delay. For Example if the due date for a deduction is 2nd of June and it is deducted on 8th of July in the same year, then the interest is charged at the rate of 1% for each month i.e. (June & July) aggregating to 2% interest.
Important: there is a difference between late deduction and late payment. Learn more
Interest on Late Payment of TDS
Difference between Late Payment & Late Deduction