Summary: Section 201(1A) of the Income Tax Act outlines the interest implications for the late payment of Tax Deducted at Source (TDS). If TDS is deducted but not deposited by the due date, interest is levied at a rate of 1.5% per month or part thereof. The interest calculation period commences from the date TDS was deducted until the actual payment date. This period is counted in full calendar months; any part of a month is considered a full month. Interest is computed on the TDS amount due, not on the gross amount from which TDS was deducted. For instance, if TDS for April is deducted on April 30th but paid on June 10th, interest accrues for three months (April, May, and June). If TDS deduction itself is delayed, a 1% interest per month applies from the date it should have been deducted until the actual deduction date, in addition to the 1.5% for late payment. It’s important to note that interest paid under this section is disallowed as an expense under the Income Tax Act, meaning it cannot be claimed as a deduction by the assessee, and no deferred tax is created on this interest.
Sec 201(1A) Interest on late payment of TDs:-
1. Rate of interest:-
- If TDs is deducted but not deposited on time then interest liability will arise @1.5% per month or part thereof.
2. Period for calculation:
- From the date on which TDs was deducted till actual date of payment.
- Suppose, TDs of April month is deducted on 30th April, but deposited on 10th June then interest will be levied from April to June.
3. Principal amount:-
- Interest will be levied on TDs amount instead the amount on which TDs was deducted.
4. Rounding up:-
- For interest calculation, part of month shall be considered as full month.
5. Example 1:-
| S. No. | Particulars | Amount |
| 1 | Professional fees for the month of April | 10,00,000 |
| 2 | TDs liability | 1,00,000 |
| 3 | Liability for deduction of TDs | In April month |
| 4 | Actually deducted | In April month |
| 5 | Due date of payment | 7th May |
| 6 | Actual date of payment | 10th June |
| 7 | Interest rate | 1.5 % |
| 8 | Liability of interest | 4,500 ** |
** Interest for late payment of TDs: 1,00,000 * 1.5% * 3 months = 4,500
Example 2:-
| S. No. | Particulars | Amount |
| 1 | Professional fees for the month of April | 10,00,000 |
| 2 | TDs liability | 1,00,000 |
| 3 | Liability for deduction of TDs | In April month |
| 4 | Actually deducted | In May month |
| 5 | Due date of payment | 7th June |
| 6 | Actual date of payment | 10th June |
| 7 | Interest rate | 1.5 % |
| 8 | Liability of interest | 5,000 ** |
** Interest for late payment of TDs: 1,00,000 * 1.5% * 2 months = 3,000.
** Interest for late deduction of TDs: 1,00,000 * 1% * 2 months = 2,000.
6. Time period:-
- A month will be considered as a calendar month.
- A month will not be calculated based on the number of days for interest calculation.
7 Practical scenario:-
| S. No. | Actual date of deduction | Due date of payment | Actual date of payment | Period for interest calculation |
| 1 | 15-04-2025 | 07-05-2025 | 05-05-2025 | 0 month |
| 2 | 15-04-2025 | 07-05-2025 | 07-05-2025 | 0 month |
| 3 | 15-04-2025 | 07-05-2025 | 08-05-2025 | 2 month |
| 4 | 15-04-2025 | 07-05-2025 | 31-05-2025 | 2 month |
| 5 | 15-04-2025 | 07-05-2025 | 07-06-2025 | 3 month |
| 6 | 15-04-2025 | 07-05-2025 | 30-06-2025 | 3 month |
Note: Period will be counted from the date of deduction instead from the due date of payment.
8. Allowance or disallowance of interest:-
- Interest is disallowed under Income Tax Act. Assessee cannot claim such interest as an expense.
9. Deferred tax on interest:-
- It is a type of permanent difference. Hence, no deferred tax is created on interest.
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