Every person who is required to deduct tax at source as per the income tax act should deposit the tax so deducted to the central government within the stipulated time. The time of deduction may be either on accrual or on receipt basis as stipulated in the section applicable for deductions. The due date stipulated for depositing the tax is;
- For Deduction for the month of March: 30th day of April
- For deduction in all other months: 7th day of next month
Sometimes such persons may fail to deduct the tax in full or in part at the time of specified payments.
- Example for Non deduction; Mr. Biju is an Contractor of Ms. X & Co. During the year 2023-24, the total contract payment to Mr. Biju was Rs 350,000/-. As per sec 194C, every person making contractual payment should deduct tax @1%. But No tax has been deducted by Ms. X & Co from Mr. Biju.
- Example for partial deduction; In the above example the total tax deductible is Rs 3500/- but Ms.X & Co deducted Rs 2500/- from Mr. Biju
In some other cases such persons may fail to deposit the amount of deducted tax.
- Example for non payment of tax deducted; in the above case the Ms. X & Co deducted Rs 3500/- on 10th July 2023. But not deposited the tax so deducted by 7th August, 2023.
The income tax Act classified such persons as deductor in default.[Sec 201(1)] If any person has failed to deduct the tax in full or in part, then such persons are liable to pay simple interest for such default. [Sec201(1A)] The rate of interest is 1% for every month or part of a month
- In the above example Ms. X & Co paid the contract amount to Mr. Biju on 10th July, 2023 & failed to deduct tax at the time of payment. Then on 21st Nov, 2023 X & Co deducted Rs 3500 from Mr. Biju. here the interest will be calculated on Rs 3500/-
The interest is calculated on the amount of tax which the deductor has failed to deducted or partially deducted. The interest is calculated from the date on which such tax was actually deductible to the date on which such tax is deducted.
- In the above example the X & Co should pay interest @1%for a period of five months, July to Nov.
- So the total interest for delayed deduction is Rs 175/-, Rs 3500 x 1% x 5
If any person failed to deposit the tax so deducted, then such person is liable to pay simple interest. [Sec 201(1A)]
- X & Co deducted the tax in July 2023 itself. But failed to deposit the same by August 7th. Instead, the company deposited the tax in Nov 2023.
The rate of interest is 1.50% for every month and part of a month. The interest is calculated on the amount of such tax that the deductor failed to deposit within the stipulated time.
- In the above example the interest will be calculated on Rs 3500/-
The interest is calculated from the date on which such tax is actually deducted to the date on which such tax is actually paid.
- In the above example the X & Co should pay interest @1.50% for a period of four months, August to Nov.
- So the total interest for delayed deduction is Rs 210/-, Rs 3500 x 1.50% x 4
From the above discussion, it is clear that the assessee in default should pay interest for his default. Hence while deducting TDS from payments, make sure that you are deducting the exact amount and deposit the same within the stipulated time and thereby avoid interest.