How to rectify and avoid interest default in Payment of TDS and 

Income Tax Department  displaying defaults in TDS returns filed  on its website www.tin-nsdl.com (TAN registration login). The defaults will be raised as & when processed and will be kept updated in this area. It will be in a Zipped Excel sheet (no password) and quarter wise separate files will be available. (for which defaults are identified).

It is observed that most of the Assessee default on payment of TDS which results in payment of interest, penalty and may also lead to criminal prosecution.  Read our Article – Consequences for Non Payment or Late Payment of TDS  . In this article we are discussing what is the rate of interest which Assessee may have to pay for delayed payment of TDS, when this interest becomes payable, what is the due date of tds payment, when tds needs to be deducted, how to calculate interest on TDS, Example of Interest Calculation, how to avoid and rectify interest default. 

When is interest payable ?

As per income-tax , interest is payable under the following two circumstances

1. Tax is not deducted , when it was deductible
2. Tax once deducted, is not paid on or before  due date

When tax is to be deducted - TDS on all types of payments on which TDS is applicable  is required to be deducted, at the time of credit or payment, whichever is earlier.

What is the Due date of deposit of TDS ?

The Tax deducted at source in accordance with the provisions of Chapter XVII-B of the Income tax Act, 1961 by deductors other than an office of the Government shall be paid to the credit of the Central Government -

  (i)  on or before 30th day of April where the income or amount is credited or paid in the month of March; and

 (ii)  in any other case, on or before seven days from the end of the month in which the deduction is made; or income-tax is due under sub-section (1A) of section 192.

What is the rate of interest ?

If a person fails to deduct the whole or any part of the tax at source, or, after deducting, fails to pay the whole or any part of the tax to the credit of the Central Government within the prescribed time, he shall be liable to action in accordance with the provisions of section 201. Sub-section (1A) of section 201 lays down that such person shall be liable to pay simple interest

Interest Rate w.e.f 01-07-2010

(i) at one percent for every month or part of the month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted and

(ii) at one and one-half percent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid. Such interest, if chargeable, has to be paid before furnishing of quarterly statement of TDS for each quarter.

Interest Rate Prior to 01-07-2010

(i) From FY 2006-07 onwards for delayed deposit, from date of deduction till actual date of payment, rate of interest is 1.0% p.m. In Other words Prior to 01.07.2010 there was no interest payable for the period of delay in deduction of TDS.

Example of Interest Calculation

What is the due date of payment  of interest ?

Interest must be calculated and paid before furnishing of quarterly statement of TDS for each quarter.

How is interest to be calculated ?

• Interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month The amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees and for this purpose any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.

Avoiding Interest Default- To avoid interest default Assessee needs to do the following:-

• Deduct tax at source in time
• Deposit TDS by due date
• In case of delayed deduction / deposit ,calculate interest and deposit the same
• Show such interest properly in eTDS statement

Rectifying Interest Default –

• To rectify interest default we need to first login to our TAN account.
  

• Download default notices  -Default Notice is a plain excel sheet without any password protection
• Pay the interest as shown in default notice if the same is payable
• After  payment  file correction statement by including the interest payment challan.