Summary: Based on Section 206C of the Income Tax Act, a person who fails to collect Tax Collected at Source (TCS) on time is liable to pay interest at a rate of 1% per month or a part of a month. The interest is calculated on the actual TCS amount, not on the total value of the transaction from which it was collected. The period for interest calculation starts from the date the TCS was due for collection and ends on the date it was actually collected. For this purpose, even a partial month is treated as a full month. For example, if TCS for April is collected in June, interest is charged for three full months (April, May, and June). This interest is not a deductible business expense and cannot be claimed as an allowance by the assessee. Since it represents a permanent difference, no deferred tax is created.
1. Introduction:
This article covers the computation of interest in cases of late collection of TCS, as defined under Section 206C of the Income Tax Act.
2. Rate of interest:
- If TCs is not collected on time then interest liability will arise @1% per month or part thereof.
3. Period for calculation:
√ From the date when TCs was collectible till the actual date of collection.
√ Suppose, TCs of April month is collected in the month of June, then interest will be levied from April to June.
4. Principal amount:
√ Interest will be levied on TCs amount instead of the amount on which TCs was collected.
5. Rounding up:-
√ For interest calculation, part of month shall be considered as full month.
6. Example:-
| S. No. | Particulars | Amount |
| 1 | TCs liability | 1,00,000 |
| 2 | Liability for collection of TCs | In April month |
| 3 | Actually collected | In June month |
| 4 | Interest rate | 1% |
| 5 | Liability of interest | 3,000 ** |
** Interest calculation 1,00,000 * 1% * 3 month = 3,000
7. 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.
8. Practical scenario:-
| S. No. | Date of liability of collection of TCs | Actual date of collection | Period for interest calculation |
| 1 | 15-04-2025 | 15-04-2025 | 0 month |
| 2 | 15-04-2025 | 16-04-2025 | 1 month |
| 3 | 15-04-2025 | 01-05-2025 | 2 month |
| 4 | 15-04-2025 | 01-06-2025 | 3 month |
| 5 | 15-04-2025 | 31-05-2025 | 2 month |
| 6 | 15-04-2025 | 30-06-2025 | 3 month |
Note: The period will not be calculated based on the number of days. For example, from 15-04-2025 to 01-05-2025, the total number of days is 17. However, this will not be considered as one month. In such cases, interest will be levied for 2 months.
9. Allowance or disallowance of interest:-
Interest is disallowed under Income Tax Act. Assessee cannot claim such interest as an expense.
10. Deferred tax on interest:-
It is a type of permanent difference. Hence, no deferred tax is created on the interest on late collection of TCs.
11. Bare Act:
(A) Without prejudice to the provisions of sub-section (6), if the person responsible for collecting tax does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest—
(a) at the rate of one per cent for every month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which such tax is collected; and
(b) at the rate of one and one-half per cent for every month or part thereof on the amount of such tax from the date on which such tax was collected to the date on which such tax is actually paid, and such interest shall be paid before furnishing the quarterly statement for each quarter in accordance with the provisions of sub-section (3):
Provided that in case any person responsible for collecting tax in accordance with the provisions of this section, fails to collect the whole or any part of the tax on the amount received from a buyer or licensee or lessee or on the amount debited to the account of the buyer or licensee or lessee but is not deemed to be an assessee in default under the first proviso of sub-section (6A), the interest shall be payable from the date on which such tax was collectible to the date of furnishing of return of income by such buyer or licensee or lessee:
Provided further that where an order is made by the Assessing Officer for the default under sub-section (6A), the interest shall be paid by the person in accordance with such order.
12. Refer to the article: Interest on late deduction of TDS
https://taxguru.in/income-tax/interest-late-deduction-tds-rules-calculation.html
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