The interest is to be calculated as per illustrations below:
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.
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.