Late Payment of TDS and Late Deduction of Tax

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. (Part of a month is reckoned as one month)

Illustration: Tax Deducted on 28th  June, TDS deposited on 10th July (due date was 7th July)

The period of 28th June to 30th June will be calculated as one month (being part of a month month i.e. 30 – 28 = 2 days) & from 1st July to 10th 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 3 days, one has to pay interest for two months.

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.

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 20th  of June and it is deducted on 30th 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.