Understanding TDS Late Payment Interest
Under Section 201(1A) of the Income Tax Act, 1961, if a deductor fails to deduct Tax Deducted at Source (TDS) or fails to deposit it with the government by the due date, they are liable to pay penal interest. Our TDS Interest Calculator computes this penalty accurately according to the exact statutory rules.
1% vs 1.5% Interest Rate
The interest rate applied depends on the nature of the default:
- Late Deduction (1% per month) If you fail to deduct TDS on the day the expense was recorded/credited, you owe 1% per month from the date the tax was deductible to the date it is actually deducted.
- Late Payment (1.5% per month) If you successfully deduct the TDS but fail to deposit it to the government by the due date (usually the 7th of the next month), you owe 1.5% per month from the date of deduction to the date of payment.
The "Month or Part of a Month" Rule
The most confusing aspect of calculating TDS interest manually is how the Income Tax department defines a "month."
The law states interest is calculated for "every month or part of a month." This means that a fraction of a month is rounded up to a full month.