Tax Deducted at Source – TDS
Interest on TDS – Section 201(1A) of Income tax act, 1961 & Rule 119A of Income Tax Rules, 1962
The Compliance of TDS (Tax deduction at Source) is stringent in the Sector of Finance & Commerce. The act and rules in relation to TDS are to be taken enough care for timely Compliance. I would like to discuss some of the points in relation to TDS at the time of delay and the difference of calculations between the act & rules in brief.
As we all know in general words, the TDS to be paid on the 7th of following month except for the month of March, the due is by 30th April. The rule that deal with this provision are Rule 30 of Income Tax Rules, 1962, which states time and mode of Payment to Government account of Tax Deducted at Source or Tax paid under sub section (1A) of section 192 of Income tax act:
1. On the same day where the tax is paid without production of an income-tax challan
2. 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, where tax is paid accompanied by an income-tax challan.
1. on or before 30th day of April where the income or amount is credited or paid in the month of March; and
in any other case, on or before seven days from the end of the month in which—
Now the discussion arises when we fails to pay the interest before the aforesaid due date for payment of TDS. In general the interest on late deduction and late payment of tds to be calculated at interest rates 1% and 1.5% respectively for every month or the part of the month. The Section which deals with the same is Section 201(1A) which states:
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,—
But the calculation/procedure to be followed in calculatinf the interest is prescribed in Rule – 119A of Income tax Rules, 1962:
In calculating the interest payable by the assessee or the interest payable by the Central Government to the assessee under any provision of the Act,—
The difference of Calculation between Section 201(1A) of the Income Tax Act and Rule 119A of the Income Tax Rules are below:
|Details||Section 201(1A)||Rule 119A|
|Amount of Tax Deducted||100||100|
|Date of deduction||30th of April||30th of April|
|Due date of Payment||7th of May||7th of May|
|Date of Payment||8th of May||8th of May|
|No. of months for Calculating|
|Interest for Late Payment of TDS||2 Months||One Month|
|rate of Interest||1.5||1.5|
The Traces – Centralised Cell for Income Tax department which process the TDS regular assessed statements, generates the Justification report for the defaults in the TDS Statements. In the Justification report the Interest is calculated as per Section 201 (1A) of Income tax at the concept of every month or part of the month and not by the procedure said by rule 119A of Income tax rules, 1962 i.e., Whole month or months, Calendar month.
There are many interpretations in between the concept of month logic as per the act & in ordinary lunar/calendar month. The discussion makes fascinating in the following High court cases, that the month can be classified as the calendar month.
The point of this article is, the Income Tax Department cannot double charge the interest rate for 1 day delay in failure to pay. This is High Time to realize and will hope the department to look into this in quick.