When Tax Deducted at Source (TDS) is not deducted by the due date, interest accrues at a rate of 1% per month or part thereof. This interest is calculated from the date the TDS was due until the actual date of deduction. For instance, if April’s TDS is deducted in June, interest applies for April, May, and June. The interest is levied on the TDS amount, not on the gross amount from which TDS was to be deducted. For calculation purposes, any part of a month is treated as a full calendar month, meaning the number of days within a month does not influence the month count for interest. For example, a deduction due on April 15th but made on May 1st would incur two months of interest. Importantly, this interest paid on late TDS deduction is disallowed as an expense under the Income Tax Act, meaning the assessee cannot claim it as a deduction. Consequently, it creates a permanent difference, and no deferred tax is generated on such interest.
1.Rate of interest:-
√ If TDs is not deducted on time then interest liability will arise @1% per month or part thereof.
2. Period for calculation:
√ From the date on which TDs was deductible till actual date of deduction.
√ Suppose, TDs of April month is deducted in the month of June, then interest will be levied from April to June.
3. Principal amount:-
√ Interest will be levied on TDs amount instead of the amount on which TDs was deducted.
4. Rounding up:-
√ For interest calculation, part of month shall be considered as full month.
5. Example:-
| 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 June month |
| 5 | Interest rate | 1% |
| 6 | Liability of interest | 3,000 ** |
** Interest calculation 1,00,000 * 1% * 3 month = 3,000
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. | Date of liability of deduction of TDs | Actual date of deduction | 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.
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 the interest on late deduction of TDs.
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Disclaimer: The views expressed in this article are solely those of the author and are intended for general informational purposes. This content does not constitute professional tax or legal advice. Readers are advised to consult with a qualified professional before taking any action. The author will not be liable for any loss or damages arising from reliance on the information provided.
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