CBDT to Display Foreign Assets & Overseas Income in AIS and Form 26AS
CBDT to Display Foreign Assets & Overseas Income in AIS and Form 26AS On 8 July 2026, the Central Board of Direct Taxes (CBDT) issued a landmark directive (Order F.No.…
Interest on Delayed TDS Payment: Section 201(1A) Explained
Timely deduction and payment of Tax Deducted at Source (TDS) is a statutory responsibility under the Income Tax Act, 1961. Any delay can trigger interest liability under Section 201(1A), and non-compliance may also attract further penalties. This blog provides a detailed overview of how interest under Section 201(1A) is calculated, with examples and practical insights for businesses and professionals.
What Is Section 201(1A) of the Income Tax Act?
Section 201(1A) lays down the interest liability in case of:
Delayed deduction of TDS, and/or
Delayed deposit of TDS with the government.
The intent is to ensure prompt compliance and timely remittance of tax that has been withheld at source.
Interest on Delayed Payment of TDS
When TDS is deducted but not deposited by the due date, interest is charged at the rate of 1.5% per month or part of a month, until the date of actual payment.
➤ Interest Computation Period:
From the date of deduction to the actual date of deposit.
➤ Note on Rounding:
Even a part of a calendar month is considered a full month for interest purposes.
Example 1:
| Particulars | Amount |
|---|---|
| Professional fees (April) | ₹10,00,000 |
| TDS deducted (10%) | ₹1,00,000 |
| Date of deduction | 30-April |
| Due date of payment | 7-May |
| Actual payment date | 10-June |
| Interest rate | 1.5% per month |
| Interest calculation | ₹1,00,000 × 1.5% × 3 months = ₹4,500 |
Even though the delay is 40 days, the interest is calculated for 3 full months (April, May, June).
Interest on Delayed Deduction of TDS
If the TDS itself is not deducted on time, the interest is levied at 1% per month or part thereof, from the date it ought to have been deducted till the actual date of deduction.
If both deduction and payment are delayed, both interest liabilities apply.
Example 2:
| Particulars | Amount |
|---|---|
| Professional fees (April) | ₹10,00,000 |
| TDS liability | ₹1,00,000 |
| Deduction delayed to May | — |
| Payment date | 10-June |
| Due date (if deducted on time) | 7-May |
| Interest on late deduction | ₹1,00,000 × 1% × 2 months = ₹2,000 |
| Interest on late payment | ₹1,00,000 × 1.5% × 2 months = ₹3,000 |
| Total Interest | ₹5,000 |
How Is the Interest Period Counted?
The month is interpreted as a calendar month, not based on the actual number of days.
Even a one-day delay after the due date counts as one full month.
Practical Scenarios:
| Date of Deduction | Due Date of Payment | Actual Payment | Interest Period |
|---|---|---|---|
| 15-Apr-2025 | 7-May-2025 | 5-May-2025 | 0 month |
| 15-Apr-2025 | 7-May-2025 | 7-May-2025 | 0 month |
| 15-Apr-2025 | 7-May-2025 | 8-May-2025 | 2 months |
| 15-Apr-2025 | 7-May-2025 | 31-May-2025 | 2 months |
| 15-Apr-2025 | 7-May-2025 | 7-Jun-2025 | 3 months |
| 15-Apr-2025 | 7-May-2025 | 30-Jun-2025 | 3 months |
✅ Important: Interest is calculated from the date of deduction, not from the due date of payment.
Can This Interest Be Claimed as Expense?
No. As per the Income Tax Act, interest paid under Section 201(1A) is not deductible as a business expense. It is treated as a penal charge for non-compliance and thus is disallowed in the computation of taxable income.
Is Deferred Tax Created on This Interest?
No. Since this interest is permanently disallowed under the Act, it leads to a permanent difference in tax computation. As a result, no deferred tax asset or liability is created on account of interest under Section 201(1A).
Key Takeaways
Interest applies @1% per month for late deduction and @1.5% per month for late payment of TDS.
Part of a month is treated as a full month for calculation.
The interest is computed on the TDS amount, not on the gross amount paid to the vendor or employee.
No deduction allowed for such interest under income tax.
No deferred tax impact as this interest results in a permanent disallowance.
Staying compliant with TDS deadlines is not just good practice—it also helps avoid interest costs that cannot be claimed back. Businesses must track TDS timelines carefully and ensure timely deduction and deposit to stay out of trouble with the tax authorities.
Related Post
ITR-1 vs ITR-2 vs ITR-4 for AY 2026-27: How to Choose the Right Income Tax Return Form
ITR-1 vs ITR-2 vs ITR-4 for AY 2026-27: How to Choose the Right Income Tax Return Form Filing your Income Tax Return (ITR) begins with one critical decision—selecting the correct…
Who Qualifies as a Relative Under the Income-tax Act, 1961?
Who Qualifies as a Relative Under the Income-tax Act, 1961? The term "relative" may appear straightforward, but under the Income-tax Act, 1961, it does not have a single universal definition.…
Book A One To One Consultation Now For FREE
How can we help? *