Interest on Late Payment of TDS

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.

Earlier, the Interest liable to be paid was 1% but this has been increased to 1.5% pm with a view to discourage the practice of delaying the deposit of tax after deduction.

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

The period of 26^th June to 30^th June will be calculated as one month (being part of a month) & from 1^st 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 20^th March, TDS deposited on 5^th May  (due date was 30^th April)

The period of 20^th March to 31^st March will be calculated as one month, 1^st April to 30^th April will be another month & from 1^st May to 5^th 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.