TDS Penalty and Interest for Late Payment under Income Tax Act, 1961.

In cases of non-filling, delayed filling, non-payment or imprecise deduction of TDS, the tax department charges penal interest from the taxpayer. The penalty shall be notified to the taxpayer, once a faulty return or incorrect tax payment is submitted to the department.

In this write-up, you will get to know the TDS penalties being charged by the department on various TDS issues and the coming deadlines for filling your upcoming TDS returns to keep yourself away from such penalties.

TDS Penalties 

Case #1: TDS Interest Penalty for Non-deduction or Late deduction of TDS 

In case, the deductor (being the payment giver) fails to deduct TDS on the appropriate date on which it has to be deducted while making payment to the other party, he shall be charged with the penal interest of 1% per month. The penal interest to be levied on the taxpayer will become applicable from the date of tax-deductable till the date of actual TDS deduction.

For instance, if TDS has been deducted on 24th May on Rs 5 lakh and was deducted on 15th June in such case interest will be charged for 2 months I.e. May and June which will amount to Rs 5 lakh x 2 x 1% = Rs. 10,000.

Case #2: TDS interest Penalty for Non-payment or delayed payment of TDS to department 

For delay or non-payment of TDS amount to the department, a penal interest of 1.5% on per month basis has been subjected under Section 201 (IA). For calculation of interest, even a few days of the month shall be considered as a default of the complete month and penal interest will be charged on a monthly basis and not on the number of days. For instance, payment after TDS deduction to the department was made on 24 July, while it has to be submitted in June. The TDS penal interest will be charged for 2 months being both June and July.

In short, the payment of penal interest has to be made from the specified date from the date it was deducted and the date it has to be actually submitted as notified by the department timely.

Note: TDS has to be submitted within the due date specified by the department; a delay of a single day can even bring a charge penal interest for 2 or more months. For instance, if the due date for making payment of TDS is 7th February for TDS deducted on 10th January, then for payment made after the due date (i.e. 7th February here) penal interest will be charged from 10th January and not from 7th February, which is date from actual deduction and date on which is actually paid.

 Case #3: TDS Penalty for Short Payment of TDS to department 

In case the taxpayer fails to pay the TDS deducted to government timely, then subject to the provisions of Chapter XVII-B, the deductor or the payer shall be punished with rigorous imprisonment for a minimum term of 3 months which might extend up to 7 years including additional penal fines.

 Case #4: TDS penalty for Non-furnishing/delayed furnishing of TDS return or TDS E-Statements 

For not filling of TDS statement as referred in Section 234E  of the IT Act, a penalty of Rs 200 per day shall be charged from the notified due date of the department till the actual date of furnishing TDS statement. The maximum amount to be charged as penalty in such a case shall not exceed the total amount of TDS to be paid in such a quarter.

Under Section 271H of the IT Act, the penalty for failure to furnish statements or furnishing incorrect information in the statement will result in the penalty of Rs. 10,000 to even Rs 1lakh. The penalty under this section in addition to the interest liable under section 234E.

The imposed TDS penalty shall have to be paid before filing such a delayed e-TDS statement.

For instance, if the due date for furnishing e-TDS statement is 26 July but was submitted on 25 August and the TDS amount is Rs 5,000 then the penalty shall become 30*200 = Rs 6000, but is higher than actual TDS amount, only Rs 5000 has to be paid as penalty. In total Rs, 10,000 is to be paid while filing the e-TDS statement.

Things to Know

– Penal interest has to be submitted to the department before furnishing TDS return or as per demand raised by TRACES.

– Penal interest paid on non-filling/delayed filling or other TDS penal issues shall not be allowed, to be claimed under any exemption or deduction or as expenditure under Income-Tax Act, 1961.

Also Read: How do I file a TDS returns online?

Payment of TDS Penalty 

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