TDS Interest on Late Payment, and TDS Late Payment Penalty

Introduction

The Income Tax Department imposes TDS Interest on Late Payment and TDS Late Payment Penalty when businesses delay depositing TDS. It charges interest for each day of delay and applies penalties for prolonged non-compliance, making timely payments essential for businesses.

What is TDS?

TDS (Tax Deducted at Source) means deducting tax from payments like rent, commission, salary, professional fees, and interest. Instead of collecting income tax at the end of the year, the government takes it in advance by deducting it directly from these payments. The payer deducts TDS and gives the remaining amount to the recipient.

What is the interest rate for late payment of TDS?

The interest rate for late payment of TDS is 1.5% per month or part of the month, starting from the day after the due date. This means the longer the delay, the more costly it becomes.

What is the interest rate for late deduction of TDS?

The interest rate for late deduction of TDS is 1% per month for the period of delay. This means that if you miss the TDS deduction deadline, you’ll incur a 1% charge on the outstanding amount for each month until it’s paid.

What is the penalty for late payment of TDS?

The penalty for late payment of TDS can be up to ₹200 per day, subject to a maximum of the total TDS due. Additionally, interest is charged at 1.5% per month on the delayed amount.
To avoid these extra charges, make sure to pay your TDS on time!

Who is needs to pay the late TDS?

The following entities need to pay late TDS if they miss the due date:

• Employers: If they fail to deposit TDS deducted from employee salaries on time.
• Businesses: For delayed payment of TDS on contractor fees, rent, or professional services.
• Banks/Financial Institutions: For late TDS payment on interest income.
• Other Deductors: Any individual or organization failing to deposit TDS on specified payments like commission, royalties, etc.

Documents required for payment of TDS

Consider the following documents for the payment of TDS (Tax Deduction at Source).

• TDS Challan (Form 281): The payment receipt of TDS deposited online or at designated banks.
• TAN (Tax Deduction and Collection Account Number): Required for identification of the deductor.
• Details of Deducted Amount: Information on the total TDS deducted and the corresponding deductee details.
• Proof of Payment: Bank receipt or challan confirmation for payment made.
• TDS Return Form: Necessary for reconciling the payment with the return filed.

Due Date for the payment of TDS (Tax Deducted at Source)

• For Tax Deducted in the Month of March: Payment should be made by April 30 of the next financial year.
• For Other Months: You must pay TDS by the 7th of the following month (e.g., if you deduct TDS in April, the payment is due by May 7).

If a holiday or weekend falls on the 7th or 30th, we extend the due date to the next working day.

Consequences faced for Late Filing of TDS

• Interest-Based Charges: Late filing attracts interest at 1.5% per month on the outstanding TDS amount.
• Penalties: Authorities may impose penalties of up to ₹200 per day, with a maximum penalty equal to the total TDS due.
• Reputational Damage: Non-compliance can affect your business’s credibility.
• Scrutiny: It increases the chances of a tax audit or further scrutiny from tax authorities.
• Legal Trouble: Continued delay may often lead to legal consequences, including prosecution.

TDS Vs Nil TDS Return

Conclusion

Every deductor must submit a quarterly statement that clearly shows the tax they have deducted. According to Section 201(1A), if there is a delay in paying TDS (Tax Deducted at Source), the deductor must pay the interest before filing the TDS Return. This ensures compliance with tax rules and avoids penalties.

Suggested Read :

TDS on life insurance

How to file TDS return for STT?

File TDS return for interest on PPF

TDS Deduction on Rent U/S 194-I

TDS Return for Advertising Payments