A person is liable to pay interest for various delays/defaults like interest under section 234A for delay in filing the return of income, interest under section 234B for default in payment of advance tax, interest under section 234C for deferment of payment of individual installment or installments of advance tax, interest under section 234D for excess refund granted to the taxpayer, interest under section 201(1A) for failure to deduct tax at source/delay in payment of tax deducted at source and interest under section 206C(7) is levied for failure to collect tax at source/delay in payment of tax collected at source.
Through this blog, we have explained the important provisions relating to:
- Interest for delay in payment and for non-payment of Tax Deducted at Source (TDS)
- Interest for delay in payment of tax as per demand notice under section 156
Basic provisions relating to due date of payment of TDS to the credit of Government
Before understanding the provisions relating to levy of interest for failure to deduct tax at source/delay in payment of TDS, it is important to first understand the provisions relating to the due date for payment of TDS to the credit of the Government account.
Section 192 to 195 gives various items of payments on which tax is to be deducted by the payer. The tax deducted by the payer (i.e., a non-Government payer) is to be paid to the credit of the Government as follows:
- Tax deducted during the month of April to February should be paid to the credit of the Government on or before 7 days from the end of the month in which the deduction is made.
- Tax deducted during the month of March should be paid to the credit of the Government on or before 30th day of April.
The following is the summary of monthly due dates for deposit of tax deducted at source (TDS):
Tax deducted under section 194-IA (i.e., on immovable property) should be paid to the credit of the Government on or before 30 days from the end of the month in which deduction is made.
Interest for failure to deduct tax at source/delay in payment of TDS
If any person who is liable to deduct tax at source does not deduct it or after so deducting fails to pay, the whole or any part of the tax to the credit of the Government, then, such person, shall be liable to pay simple interest as given below:
- For delay or non-deduction of tax at source: Interest shall be levied at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax was deducted
- For TDS deducted but not paid to the government: Interest shall be levied at 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax was actually remitted to the credit of the Government
In other words, interest will be levied at 1% for every month or part of a month for delay in deduction and at 1.5% for every month or part of a month for delay in remittance after deduction.
Calendar month is considered in calculating interest therefore if you delay payment by one day, you have to pay interest for two months. For example, if TDS is deducted in month of July and deposited on 8th of August then you have to pay interest for 2 months i.e. July and August. Total interest payable shall be 3%.
TDS was deducted on 25th June and the due date for TDS payment was 7th July. The assessee fails to deposit the TDS by 7th July. In such a case, the interest would be calculated from 25th June and not from 7th June.
Interest in case if the Deductee has paid the tax
A payer who fails to deduct whole or any part of the tax at source is treated as an assessee-in-default. However, by virtue of proviso (condition) in the Income tax law, the payer who fails to deduct the whole or any part of the tax on the payment made to a resident payee shall not be deemed to be an assessee-in-default in respect of tax not deducted by him, if the following conditions are satisfied:
- The resident recipient has furnished his return of income under section 139
- The resident recipient has taken into account the above income in its return of income
- The resident recipient has paid the taxes due on the income declared in such return of income
- The resident payee furnishes a certificate to this effect from an accountant in Form No. 26A
In other words, in case of non-deduction of tax at source or short deduction of tax, in case of a resident payee, if all the discussed conditions are satisfied, then the payer will not be treated as an assessee-in-default. However, in such a case, even if the payer is not treated as an assessee-in-default, he will be liable to pay interest as explained above. In this case, interest shall be payable from the date on which such tax was deductible to the date of furnishing of return of income by such resident payee. Interest in such a case will be levied at 1% for every month or part of the month.
Non-filing of TDS statement without payment of interest
In respect of tax deducted at source, quarterly TDS statements have to be submitted in the following forms:
|Tax Deduction from salary under section 192||24Q|
|Tax deduction when deductees are non-resident individuals, foreign company and persons who are resident but not ordinarily resident||27Q|
|Tax deduction under section 194-IA||26QB|
|Tax deduction in any other case||26Q|
Interest for delay in payment of TDS should be paid before filing the TDS return.
Due Dates for submission of Quarterly Returns
|For the Quarter ending||Due date of submission of quarterly return|
Interest for non-payment of tax as per demand notice
- When a demand notice under section 156 is issued to the taxpayer for payment of tax (other than notice for payment of advance tax), then such amount shall be paid within a period of 30 days of the service of the notice at the place and to the person mentioned in the notice. In certain cases, the above period of 30 days can be reduced by the tax authorities with the approval of designated authorities
- Section 220(2): Payment of interest in case of failure to pay tax within the time specified in the demand notice
If the taxpayer fails to pay the amount specified in any notice of demand issued under section 156 within the period as allowed in this regard, then he shall be liable to pay simple interest at 1% for every month or part of a month. Interest shall be levied for the period commencing from the day immediately following the end of the period mentioned in the notice and ending with the day on which the amount is paid.
- After processing of TDS/TCS statements an intimation is generated specifying the amount payable or refundable. Such intimation shall be deemed as notice of demand under Section 156. Failure to pay such tax specified in intimation shall attract interest under Section 220(2), as discussed above.
Appeal filed to challenge the demand notice
Where any notice of demand has been served upon any taxpayer and any appeal or other proceeding is filed or initiated in respect of the amount specified in the said notice of demand, then, such demand shall be deemed to be valid till the disposal of the appeal by the last appellate authority or disposal of the proceedings, as the case may be.