1. Legal Provision
- Section 206C (7)mandates that sellers/collectors must pay interest if they:
- Fail to collect TCSas required under Section 206C(1).
- Collect TCS but fail to deposit it to the government on time.
2. Interest Calculation
| DEFAULT | INTEREST RATE | PERIOD |
| Failure to collect TCS | 1% per month | From the date TCS was collectible to the date it is actually collected. |
| Late deposit of TCS | 1.5% per month | From the date of collection to the date of deposit. |
3. Key Conditions
- Applies even if the buyer later pays their taxes(interest is on the collector’s default).
- No upper cap: Interest accrues until the TCS is fully paid.
4. Judicial Precedents
- CIT vs. Karnataka Forest Dept. (2019): Interest applies even if the seller is a government entity.
- Jindal Steel vs. ITO (2021): Interest is mandatory and cannot be waived for genuine errors.
5. How to Compute Interest?
Example:
- TCS Amount: ₹1,00,000 (due on July 7)
- Deposited on: September 7(2 months late)
- Interest: ₹1,00,000 × 1.5% × 2 = ₹3,000
6. Recent Updates (Budget 2025)
- No changesto interest rates under Section 206C (7).
- Easier rectification: Late deposits corrected before quarterly return filingmay avoid penalties (but interest still applies).
7. Compliance Tips
✔ Deposit TCS by the 7th of the next month to avoid interest.
✔ Use the TRACES portal to track pending TCS liabilities.
✔ Maintain challan records to dispute incorrect interest demands.
