Section 201(1A) of the Income Tax Act, 1961, imposes interest on a deductor (employer, company, etc.) who either:
- Fails to deduct TDS(Tax Deducted at Source), or
- Deducts TDS but fails to deposit itwith the government on time.
🔹 Key Provisions of Section 201(1A)
- When Does Interest Apply?
| DEFAULT | INTEREST RATE | PERIOD OF CALCULATION |
| Failure to deduct TDS | 1% per month | From the date tax was deductible → till the date it is actually deducted. |
| Failure to deposit deducted TDS | 1.5% per month | From the date tax was deducted → till the date it is actually paid. |
- Due Dates for TDS Payment
-
- For most payments (salaries, rent, etc.):7th of the next month.
- For March deductions:30th April (extended due date).
- Example Calculation
Scenario:
- A company fails to deduct TDSof ₹50,000 on professional fees (due on 1st June 2025).
- TDS deducted on:15th August 2025 (2.5 months late).
- Interest:₹50,000 × 1% × 3 months (rounded) = ₹1,500.
If TDS was deducted but not deposited:
- Deducted on:1st June 2025 (due for payment by 7th July 2025).
- Deposited on:10th September 2025 (2 months late).
- Interest:₹50,000 × 1.5% × 2 = ₹1,500.
🔹 Penalties in Addition to Interest
✔ Section 271C Penalty: Up to 100% of the TDS amount (for non-deduction).
✔ Section 276B Prosecution: Rigorous imprisonment (3 months–7 years) + fine (for willful non-payment).
🔹 Exceptions & Waivers
- No Interest if:
-
- Deductor proves payee has filed ITR & paid taxes(Section 201(1) relief).
- Delay due to government notifications or technical issues.
- Waiver Possible:
-
- If the deductor voluntarily pays before notice(lower penalties).
