# TDS Interest Calculation

Interest Calculation in TDS-Demystified

This article aims to simplify interest calculation when TDS CPC aims processes TDS returns with interest demands.

There are two sections that are constantly used in TDS interest calculation:

1. Section 201(1A)-Interest on failure to deduct tax and interest on failure to deposit deducted tax amount.

2. Section 220(2)-Interest on failure to pay the amount demanded u/s 156 issued by way of notice of demand.

Further, two more provisions are required to be known for calculation of interest:

1. Rule 119A-Rounding off the default (TDS) amount to the nearest 100- beneficial provision for the assesse.

2. Section 288B-Rounding off the tax payable to multiples of Rs.1 0 (similar to Elementary Maths Rounding).

Rate of Interest

 Section Interest Rate 201 (1 A)(i)-Failure to deduct TDS 1% from the due date of deduction till the date of deduction 201 (1 A)(ii)-Failure to deposit TDS 1 .5% from the date of deduction till the date of payment 220(2) 1% from the due date of payment of demand (due date for payment of demand shall be 30 days from the date of notice of demand)

Now, let us look at how the interest has to be calculated:

SAMPLE SCENARIOS

Calculation of Interest u/s 201 (1 A)

 Particulars Scenario-1 Scenario-2 Scenario-3 TDS Amount 21,808 16,085 37,885 Due Date for deduction 11/04/2017 04/06/2017 05/07/2017 Date of deduction 10/05/2017 04/06/2017 05/07/2017 No. of months of delay in deducting TDS 2(Month in which the amount was to be deducted till the month in which amount was deducted-both inclusive) Nil Nil Amount to be considered for calculating Interest u/s 201(1A)(i) 21 800(Rounded off to nearest 100) Nil Nil Rate of Interest 1% Nil Nil Amount of Interest(A) 872 – – Due Date of Payment of TDS 07/06/2017 07/07/2017 07/08/2017 Date of payment of TDS 10/11/2017 10/10/2018 25/12/2018 No. of months of delay in payment of TDS 7 Months(From May’ 17 to November ’17-both the months inclusive) 17 Months(From June’ 17 to October’ 18-both the months inclusive) 18 Months (From July’17 to December’ 18- both the months inclusive) Amount on which Interest needs to be calculated 21,800 16,000 37,800 Rate of Interest 1.5% 1.5% 1.5% Amount of Interest(B) 2,289 4,080 10,206 Total Interest to be paid (C=A+B) 3,161 4,080 10,206 Total Interest to be paid (Application of Sec.288B)(D) 3,160 4,080 10,210

Continuing with the above example, the following situations can arise when the demand notice has been issued and the deductor has only paid the basic TDS amount and has not discharged any interest amount, while correcting the original TDS return.

 Particulars Scenario-1 Scenario-2 Scenario-3 Date of Payment of TDS 10/11/2017 10/10/2018 25/12/2018 Amount paid(only basic amount was paid) 21,808 16,085 37,885 Date of Issue of Demand u/s 156 after processing of corrected TDS statement 13/11/2017 13/10/2018 31/12/2018 Time Limit allowed under the Act for payment of Demand 30 Days 30 Days 30 Days Due date of payment of Demand 12/12/2017 11/11/2018 29/01/2019 Amount Demanded (interest amount) 3,160 4,080 10,210 Date of payment of Demand 11/11/2019 11/11/2019 11/11/2019 Rate of Interest for calculation u/s 220(2) 1% 1% 1% No. of months of delay 24 13 11 Amount on which Interest has to be calculated (As per Rule 1 19A) 3,100 4,000 10,200 Amount of Interest u/s 220(2) 744 520 1,122 Total Interest payable [201(1 A)+220(2)] 3,905(3161+744) 4,600(4080+520) 11,328(1 0206+1122) Total Interest payable after application of Sec.288B 3,910 4,600 11,330

Word of caution:

Interest u/s 220(2) shall not be applicable in cases where interest u/s 201 (1A) is applied [Sec. 220(2B)]. In other words, Interest u/s 220(2) will not be applicable if the amount demanded is the basic TDS amount for which Interest u/s 201 (1 A) shall be applied. In all other cases, whether interest u/s 201 (1 A) or late fee u/s 234E is demanded, the interest u/s 220(2) shall be applied.

One stands to lose more if there is interest demand rather than TDS Demand and whenever TDS Demands exist it is safer to settle it with interest!.

Further, even though provisions are available for the defaulter to avoid payment of TDS amount by producing evidences that the deductee has paid taxes as per First proviso to Section 201, it does not provide immunity from interest portion on the amount defaulted. In such cases interest shall be calculated from the due date of deduction till the date of furnishing the return of income by the deductee.

It will always be advisable to regularly visit the TDS CPC website and check the default status tab, to avoid unnecessary cost to the organization in regularizing the defaults. Remember the cost of compliance is always cheaper than the cost of non-­compliance!!.

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1. SENTHIL says:

Whether late fees u/s. 234E is liable to pay Interest u/s. 220 (2)?

2. Ankit Mamgai says:

As per act, It is not stated to take calendar month for calculation. However Traces CPC count for number of month involves. In the given case the answer will be 6 months as 10/05/17 to 10/11/2017 it is 6 month 1 day = 7 month ( part of month to be considered as month). As per CPC calculation the months involved are May to Nov that is clear 7 months. So the answer will remain same. But If the date of deposit is 09/11/2017 or lesser date then as per act It should be 6 months 10/05/2017 to 09/11/2017), But as per CPC traces we have to consider months involved..i.e., may to nov = 7.

3. Thank you for pointing out the error. The corrected article will be published. The no. of months to be taken will be 7 only which is from the due date of deduction.

4. Shreya says:

Hello sir ,
Can u please clear my one ambiguity ?
As Sec 201(1A)(ii) says that , If person fails to deposit TDS then he would be liable to pay intrest @ 1.5% from date of deduction till date of payment . so in given above scenario 1 , Date of deduction is 10/5/17 and Date of payment is 10/11/17 so number of months should be 7 (i.e from may to nov )
Hence i am confused either to take 6 months or 7 months , Please help me in clearing my confusion .