Interest on TDS – Rule VS Section

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 7^th of following month except for the month of March, the due is by 30^th 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:

• All sums deducted in accordance with the provisions of Chapter XVII by an office of the Government shall be paid to the Credit of the Central Government –

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.

• All sums deducted in accordance with the provisions of Chapter XVII-B by deductors other than an office of the Government shall be paid to the credit of the Central Government—

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—

• the deduction is made; or
• Income-tax is due under sub-section (1A) of section 192.

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,—

• 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
• 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 and such interest shall be paid before furnishing the statement in accordance with the provisions of sub-section (3) of section 200

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,—

• where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months and for this purpose any fraction of a month shall be ignored; and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;
• where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;

The difference of Calculation between Section 201(1A) of the Income Tax Act and Rule 119A of the Income Tax Rules are below:

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.