Delay in payment OF TDS for one day – Interest chargeability @ 3% INJUSTICE TO ASSESSEE

“Pay as you earn” and “collect as it earned” is the basic concept of Tax Deducted at Source. It is one of modes of collecting Income Tax at the source of Income under the Income Tax Act, 1961. Simply it is an indirect method of collection of tax. Its importance to the government lies in the fact that it prepones the collection of tax, provides a greater reach and wider base for tax. The concept of TDS requires that the person, on whom responsibility has been cast, is to deduct tax at the appropriate rates, from payments of specific nature which are being made to a specified recipient.

The recipient from whose income tax has been deducted at source gets the credit of the amount deducted in his personal assessment on the basis of the certificate issued by the deductor. The deducted sum is required to be deposited to the credit of the Central Government. The deductor of the Income Tax is required to deposit the tax deducted with in the specified time with Income Tax Department.

The deductor is required to deposit the tax deducted with in seven day of the next month. In the case of March, the deductor can deposit the tax deducted by 30th April. If the assessee does not deduct the tax or after deduction does not deposit it, he is required to pay the interest u/s 201(1A). Section 210(1A) states as under:

“(1A) Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest,

(i) at one per cent for every month or part of a 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 per cent 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.

After studying the provision of Section 201(1A) (i), it is clear that the interest for non deduction of TDS will be paid from the date on which the tax is required to be deducted to the date of actual deduction @1% and for non payment interest will be calculated from the date of deduction to the date of actual payment @1.5% p.m.

This has been a matter of dispute that what should be the definition of month as emphasized above. The definition of month has not been defined in the Income Tax Act, 1961. Whether while counting the no. of months for the purpose of calculation of interest, it should be considered as a calendar month as per General Clauses Act or it means a period of thirty days.

CPC – TDS is using TDS Reconciliation Analysis and Correction Enabling System (‘TRACES’) for processing the e-tds return. The software which has been used by it takes the definition of month as calendar month and due to which it has become a nightmare for the assessee.

For e.g. If an assessee has made a transaction of Rs. 5 Crores on January 31, 2020 and required to pay Rs. 50 lakhs as TDS on that amount. He deducted the TDS and required to pay the amount on February 7, 2020. Unfortunately he made the payment on February 8, 2020. For a delay of a single day as per the Software of the TRACES, he will be required to pay interest for two month i.e. January and February @ 3%. If will get a demand calculated @3% from the TRACES as soon as he will file the return.

Even though while defining the definition of ‘Month’ in number of cases held by High Court/Tribunals it has been mentioned that the definition of month should be taken as thirty days and not English Calendar Month.

In the case of CIT v. Laxmi Ratan Cotton Mills co. Ltd. [1974] 97 ITR 285 (ALL.), Allahabad High Court has held that

“we are of the view that the word “month” as occurring in this sub-section must be taken to mean a period of thirty days. This provision was enacted for the purpose of imposing a penalty on an assessee who had not filed his return during the prescribed time, and was enacted to serve as a deterrent for such lapses. The penalty is imposable for every month during which the default continues. If the meaning ascribed to this word in the General Clauses Act is adopted, it may in some cases lead to a defaulting assessee escaping penalty altogether, in spite of default. To take an illustration: Let us assume that time is given to an assessee up to the 30th of January in a particular year for filing a return and he defaults. He, thereafter, files his return on the 27th February. If the word “month” occurring in the section is taken to mean a full calendar month, the assessee in such a case would not be liable for any amount of penalty. Such a result is not contemplated by the language of the sub-section, for the sub-section in clear and unambiguous terms makes every assessee liable for penalty during the period of default. In the circumstances, it is not appropriate to import the meaning of the word “month” given in the General Clauses Act in the sub-section, for it does not fit in with the context and scheme of the section, and results in some cases in setting at naught the purpose of the enactment. We are thus of the view that the Tribunal was not right in holding that the word “month” occurring in this sub-section refers to the English calendar month.”(Emphasis applied)

Further in the case of Kesharwani Zarda Bhandar v. Commissioner of Income-tax, [2013] 30 taxmann.com 387, the Allahabad High Court has held that

“The charging of interest for four months was a clear error of law on the facts of the case in which the Assessing Officer had failed to take into account that the return was due to be filed by 31-7-1979. Whereas it was filed on 31-12-1979, by taking the month to mean a period of 30 days, interest was to be required to be charged for five months and not for four months.”

However, in one of the case while computing the time for the purpose of section 54EC the ITAT Ahmedabad (SB) in the case of Alkaben B. Patel v. ITO, ward – 14(2) [2014] 43 taxmann.com 333, has held that the time limit of ‘six months’ in sec 54EC means ‘six British Calendar months’ in view of the General Clauses Act, 1897. It has held that in the absence of any definition of the word ‘month’ in the Act, the definition of the General Clauses Act, 1897 will be applicable. Legislature in its wisdom has chosen to use the world ‘month’. This was done keeping in view the definition in section 3(35) of the General Clauses Act, 1897. It has rejected the Revenue’s interpretation that ‘month’ should be understood in the ordinary sense i.e. the month is a period from a specified date in a month to the date numerically corresponding date in the following month.

Due to this anomaly, the TRACES is processing the e-tds return on the basis of definition of month as calendar months and raising demands on assesses accordingly. In other words, if there is a delay of one day, the assessee is getting demand letter for two months interest which is nothing else than harassment on him. On his appeal to the TDS officers, they are not accepting the plea of the assessee as this is inbuilt in the software/system and they can’t do anything.

The systems are made by us for our convenience only and they can be changed/modified easily but the main question is that whether we are interested in changing the same or what our final view on the same is. As per my opinion, by charging tax on calendar month basis the department is harassing the assesse. In the Information Technology Era, where we can transfer money from one account to other in one second even I don’t feel comfortable that a part of month should be considered as one month. You have developed software and you can make calculation of interest charged easily on the day to day basis as well easily. It is opined that a writ petition should be filed before the high court against the harassment of the department for charging undue interest from the assessee.

(Author may be contacted at navneet.singal@gmail.com )

Republished with Amendments

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51 Comments

  1. Manohar says:

    Dear Sir,
    Please Give to me One Suggestion, I have received notice for Late Filling U/s. 234E, Can I File the Revise Quarterly Returns after Payment of Late Filing Fee.
    Please help to me Sir

    Thanks in Advance
    Manohar Patel

  2. P N Rao says:

    Test the decision whether the S C decision is binding on the IT Department or not by going for an appeal when they pass on order for paying Interest and penalty.

  3. P N Rao says:

    I agree fully. Because some people lack the patience and money to challenge the orders with a view why to get into disputes, they will pay and even if the ITO knows that actually it is not liable for TDS (like in the case mentioned by Amol) they will not pass an order favorable to assesee, They expect these assesee to appeal to their CIT or Tribunal so that they will take a decision to favor the assesee in genuine cases, as if they take the decision, tomorrow C & AG will haul them up saying they have foregone revenue to the Government. So for this fear they wont take any favorable decisions to assesee even if they know, genuinely the assesee need not pay tax or interest or penalty.

  4. P N Rao says:

    I do not think any one has taken this matter as a PIL with High Court/ Supreme Court. The IT provisions are harsh on citizens, as for delay in filing return for the taxes paid are being charged at Rs 200 per day or the amount of tax involved which ever is lower. Why the big builders cannot do this for purchasers of flats/ villas from the Big Builders who have fleets of people for selling the flats by paying huge commissions to sellers. Why this burden put on ordinary citizens can be taken big builders. It is understandable that when two individuals are involved ok govt wants it can task the purchaser to deduct the 1% tax and pay to govt, but why this concession has to be extended to big Corporate Builders as if they cannot manage these. It is atrocious to charge penalty of Rs 200 per day for a return ( which is shrouded in complicated language to be understood as return for TDS return) for the TDS withheld and paid. if any one is taking up I will be very happy and I may be contacted on 9449059050

  5. Salunkhe says:

    i made entry for date of payment is 18/12/2015 and date of deduction is 21/12/2015 then also then IT deparment charge interest on late deduction why?

  6. P N Rao says:

    It is quite understandable that the rigorous provisions of Due date for payment of TDS can be to some extent practiced by Companies employing specialists for handling this job, so that penal interest will not be there.

    The Government in its wisdom made ordinary citizens responsible for deducting and paying TDS on Payments made to Big Builders. If ordinary citizens make mistakes, it is the ordinary citizens, who are normally law abide-rs, have to pay penalties in the form of unjust interest etc. However the Big Builders have no responsibility, as they collect the cheques in advance for net of Tax deductible amount.

    It is time some good soul takes up this issue with nothing less than Supreme Court as PIL or in any other form, for stopping harassment of ordinary citizens.

  7. NARENDRA VASHIST says:

    We have deposited TDS for the m/o November on 07/12/2007 but same shown on OLTAS on 08/12/2007, Department charge interest for 2 month for each challan.
    We have to submit that we deposit the tds on due time and in challan also date of deposit marked as 07/12/2007, the amount also dedeuct from our bank on 07/12/2007 Now can you advise that this demand is valid or we fight for it.
    Regards
    Narendra Vashisht

  8. Rupesh says:

    Please tell me, Entry booked on 31.03.2014 for Amt 123596 (Professional Fees) and 10% TDS Payment made on 07.08.2014. On above amount how much interest will be charged???

  9. prakash mekala says:

    I have not paid TDS on 7th of June now i want to pay on 10 june what is the interest rate on amt 1354/ total how much i have to pay today.

  10. Faiz Anwar says:

    I think we should ask for some more time to let us submit quarterly TDS returns instead of just 15 days, for the first 3 quarters?

  11. CA P. T. BHAMBHANI says:

    SIR,

    THESE PROVISIONS CLEARLY REFLECTS THAT TILL DATE WE ARE SLAVES, BEFORE 1947 BRITISH RULE WAS THERE AND NOW A DAYS IAS/IRS AND PLOITIANS RULE US. EVEN AFTER SO MANY REPRESENTATION THE SAME HAS NOT BEEN CHANGED. THE LATE FILING FEES IS ANOTHER PROOF THAT WE ARE SLAVES TILL DATE.

    IS THERE ANY PENALTY ON THE LATE REFUND ISSUED BY THE DEPT.? OR LATE PROCESSING OF ANY APPLICATION FOR REFUND OR ANYTHING ? THE ANSWER IS NO. ONLY GENERAL PULIC IS SUPPOSED TO FACE ALL THE RESULTS/PENALTY/FINE/INTEREST ETC. FOR GENUINE DELAYS

  12. sundar raj says:

    sir,

    I have small doubt is TDS interest calculation is days or month.example Jan-15 month TDS payment paid on dt:10.02.15, I have calculated in 10 days interest for 18%,is it correct or wrong.

  13. Mukesh Khetwani says:

    Why don’t any of the associations file a case against this harassment by the GOVT of INDIA.

    Why are we silent & accepting such a provision.

    Please inform if anyone has filed any or not, maybe I will take this step if none has taken.

  14. Dashrath Singh says:

    Sir, if we deducted on 31st march & pay tds on 1st may in this case payable interest 4.5% for only one day it means interest rate 1642.50%(365*4.5) per annum .this is world highest interest rate. This is tax terrorism.

  15. Pankaj Parihar says:

    If i have a notice of 2 months interest penalty @1.5% per Month. and i am depositing that interest after 6 months of receiving notice.

    Then How many months shall be taken into consideration for interest calculation.

  16. Amol Adsule says:

    It is really ridiculous to work for the government and then get harrassed as well. I have got a notice to pay late fee which is equal to the TDS. In fact the agreement was done before the rule came in but since the balance payment was made after the rule came in I asked the IT dept and they were confused. They said pay for the amount you paid after the rule came so I honestly paid it, now I am facing the music. These IT babus are horrible, they really don’t care for sincere tax payers, they care for people who evade the taxes.

  17. Maninder Prashar says:

    I had submitted TDS of Rs 54500(on March 31, 2014) on property purchased worth 54.5 L(on Sep 16, 2013) in four equal parts since there were 2 buyers(me n my wife) and 2 sellers. Four 26QB forms were generated as a result of same each having TDS amount of Rs. 13625.

    I got the notice through email for late payment of TDS on property today and they have sent 4 mails(for each buyer-seller PAN combination).

    The statement on one of the email is” This is to give you a notice that a sum of Rs.15050.00(including Interest) has been determined to be payable by you in respect of statement filed by you as above ”

    Sum determined u/s 200A of the Income Tax Act, 1961
    Interest on Late Payment is 1428

    Sum determined u/s 234E of the Income Tax Act, 1961
    Late Filing fee u/s 234E is 13625.00
    Net Payable(Rs.) 15050

    Same calculation has been mentioned on rest of the three letters.

    Can you please let me know what tax amount do I need to pay as late payment fee for TDS on my property purchase?

    Many Thanks,
    Maninder

  18. Dev Singh says:

    I have this doubt in tds as tds is required to be deposit on 7th of the following month but the same was deposited on 8th , so this leads to interest of 2 months on the tds. but what if we have paid only the tds original amount on the 8th and not the interest , now my doubt is if we now make the payment of interest then interest would be charged only for 2 months or interest till date would be charged.

  19. TAXGURU PIYUSH says:

    IF TDS IS NOT DEPOSITED ON 7th DAY OF NEXT MONTH AND DEPOSITED EVEN ON 8th, THEN TRACES WILL RAISE DEMAND FOR COMPLETE 2 MONTHS @1.5% PER MONTH TOTAL 3% INTEREST FOR DELAY OF JUST ONE DAY.

  20. pkb says:

    in the case of march tds due date is 30th april , by any reason if delay is for 1 day interest charged is 4.5% that is whopping 1642.50% PA. and the deptt is paying intt only 6 % simple interest. they should make the same rates for delay in refund.

  21. Mahesh Khanna says:

    I had paid all the self assessment tax before 31.07.2014 but the return was filed late due to net problems now the IT department is claiming interest till date, whereas there is a SC decision if the taxes are paid before the due date of filing return no interest can be levied since there is no loss of revenue to the Govt. Whether the IT department is exempted from the SC decision?

  22. Kishor Kumar Jha says:

    Sir,

    Absolutely I also agree with Navneet Sir.

    As per my understanding, as department is charging “Fee” to enable delay filing of TDS return, it is legal.

  23. pkb says:

    please check if the due date is 30th april & due to mistake by bank if you deposit on 1st may they will charge interest of 4.5% if you calculate on day to day basis interest rate is whopping 1642.50% PA yes 1642.50% PA (365*4.5%). And department is paying only 6% simple interest.

  24. Hiral Chauhan says:

    Sir,
    Absolutely I also agree with Navneet and all Others.
    For the month of March also it will become 4.5%.
    Even this should be communicated to the Dept as so many Assessee are facing the problem and litigations
    Interest should be in form of Late Fees on Delay Days basis.

  25. Vayu Singh says:

    I agree with Mr Navneet. As per me also, the delay interest charged by TRACES is not correct as it calculates month as “calender month” which ideally should be “lunar month”. In few cases, even IT department has taken a stand that “month” means “Lunar month”. Then how a different interpretation is possible for another section of same ACT??
    However as far as Rs 200 per day for late filing of TDS return is concerned, it is actually “fees” not “penalty”. The words used in Sec 234E is “fee”. Supreme Court in case of Vijaylakshmi Rice Mills v. Commercial Tax officers,Palakol 2006 (201) E.L.T. 329 (S.C) held that “TAX is compulsory exaction of money for public purposes by State, whereas FEE is charge for special services rendered by governmental agency where “Quid Pro Quo” is necessary”.
    As per my understanding, as department is charging “Fee” to enable delay filing of TDS return, it is legal.

  26. Sadashiv R Gaikwad says:

    Period of Tax payment and return upload filing date should be extend upto double.Late ?Fees is Rs 200/- per day is injustice for the assessee.Govt make Vote Bank a/c scheme e.g. for Jammu & Kashmir Due date again extent upto 31.03.2015, but sincere, honest tax payer not get single relief.

  27. CA JITENDRA KUMAR says:

    I am 100% agree with you. This is total harrassement of the assessee.You should go for the writ petition for that if possible.

    It is very difficult to make them understand that why a single day delay raised a interest penalty for two months..

  28. CHANDRA SEKHAR says:

    Penalty u/s 234E, Belated interest on month basis are most unreasonable demands.

    Service Tax, VAT etc are also governed by Finance Ministry. But they charge
    belated interest on daily basis. Then why separate set of rule for TDS?

  29. T.V.VENKATARAMAN says:

    Yes what you have stated is absolutely right. This is nothing but pure harassment. The paradox is that there are many , many who do not deduct TDS or after having deducted TDS do not remit it to the credit of the Govt. A/c. T o add to this even if TDS is deducted and paid the Qly. e-TDS returns are not filed. So much so the deductee stands to suffer. The biggest harassment is Section 234E, wherein for delay in filing the e-TDS returns the deductor is levied a fee for default or delay in filing of the e-TDS return. While the Govt. and quasi govt. Deductors were given a one time exemption by a circular, the regular or NON GOVT. deductors havebeen levied this penal fee of Rs.200/- per day which at times has been equivalent to the TDS deducted, which some times is quite a heavy sum.

  30. rakesh malani says:

    Deductor is working as a chain between ITD and Tax payer to help ITD in collection of Tax . It means working as Free of Cost servant of ITD. The Department do not consider whether payment to payee has been done or not only on passing entry the deducator become liable to pay TDS within 7 days from the date of passing entry.

    Imposing interest and Penalty on late payment of TDS is totally injustice.

  31. Srinath KN says:

    Interesting topic Navneet and well said Senthil. In the present situation, seems no one at ITD is in a mood to understand anything putting the entire issue on the software. The assessees should not be put to difficulty due a programming bug. In fact my view is that there should be commission to be paid to the deductors as they are collecting and remitting on behalf of the Government.

  32. CA. Yashesh A. Jakhelia says:

    Sir,

    for the liability of March Due Date is 30 April & 1 day delay there will cost 4.5% interest liability. 1.50% for 3 months.

  33. Biju says:

    For TDS deducted on 31st March, due date for payment is 30th April, but if you remitted it on 1st May, the actual delay is one day only. But they are charging interest for 3 months @ 1.5% per month, ie, March, April & May. (Total becomes 4.5% for a delay of one day. They are actually looting the public money.

  34. SATYA PRASAD says:

    ITS CORRECT SIR,

    SAME WE ARE FACED. AT THE TIME OF PAYMENT MADE TO TDS PAID ONLY ONE MONTH INTEREST, BUT AFTER FILING OF TDS AND WE RECEIVED DEMAND FOR SHORT PAYMENT OF INTEREST, PAY INTEREST AMOUNT UPTO DEMAND RAISED DATE

  35. RAVI KIRAN R says:

    True.. It’s a harassment to the assessee in the name of automated process. Would be happy if you go on a writ petition and set a precedent in this regard. Another injustice is Sec. 234E late fee of Rs. 200 per day. A similar provision in Karnataka VAT Act was struck down by Karnataka High Court in writ petition on the grounds that the penalty sought to be levied is highly unreasonable; later on Govt. of Karnataka brought an amendment to VAT Act by reducing the penalty for delay in filing of VAT return to Rs. 50 per day.

    These days, nobody has time or resources to get into a lengthy legal battle with the department; they also fear harassment subsequently. If a huge stake is involved in the case, like that of yours, it surely makes sense to go on an appeal.

  36. J.R.Sharma says:

    The topic state above is the real fact, we the perosn working on the data are really facing these problem, client do not understand the fact that there is no short payment , but teh erroe in calaculation, which according to us is not an error.

  37. A SENTHIL says:

    Deductors actually do help to ITD by deducting TDS from their payments to the parties and remit it to government on monthly basis. For this help they suffer a lot. In TDS many things Injustice to the Assessee. All rules framed favorable to ITD, and deductors highly affected. Daily Rs.200 penalty for non-filing of ETDS return, Interest charged on calender month basis, Additional interest charged for late payment of dues are some examples. TDS is very tedious.

  38. CA ASHISH SONI says:

    Absolutely correct navneet sir

    Assessees suffer a lot due to this..
    And sometimes it is difficult to make them understand that why a single day delay raised a interest penalty for two months..

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