Interest to be charged for failure to deduct and pay TDS – Section 201(1A)

As per the provisions of income tax act 1961, an assesse is required to deduct tax at source for certain specific payments under section 192 to 196C if conditions as laid down in those relevant sections are satisfied.

For example as per section 194C of Income Tax Act 1961, TDS has to be deducted from payments to contractor if such payment is more than Rs 75000 for a year or a single payment is more than Rs 30000. Similarly, we have section 194J, 194I to which TDS provision is applicable.

Now the question is what will happen when such TDS to be deducted at source has not been deducted or deducted but not paid.

As per section 201(1A) of income tax act 1961, if a person;

• required to deduct tax at source does not deduct the whole amount or any part of the tax, or
• after deducting, fails to deposit the tax as required

then the person responsible for deducing TDS shall be liable to pay simple interest at the rate of 1% per month or part of the month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid.

Such interest shall be paid on or before furnishing the TDS statement for each quarter.

Liability of interest under section 201(1A) of income tax act 1961 will continue to accrue till the tax as well as the interest till date is paid.

Quarterly return of TDS cannot be submitted before payment of interest for late deposit of tax deducted at source.