How this instrument works
Tax Deducted at Source, or TDS, is tax a payer withholds at the moment of paying salary, rent, professional fees, or a contractor's invoice, then hands over to the government on the payee's behalf. India's Income Tax Act sets a fixed deposit deadline — typically the 7th of the following month — and Section 201(1A) charges interest the moment that deadline is missed, running on the TDS amount itself rather than on any fee layered on top.
The Act treats two different failures separately. Deducting the tax late — withholding it after the payment was already made — draws interest at 1% a month, counted from when the tax should have been deducted to when it actually was. Depositing already-deducted tax late draws a steeper 1.5% a month, counted from the date of deduction to the date of payment to the government; this instrument computes that second, more common case.
Both rates apply per calendar month or part of one, never pro-rated by days — a rule that catches first-time filers off guard, since a single day past the deadline is billed as a full month. The charge is compensatory rather than an ordinary business cost: many deductors exclude it when computing their own deductible expenses, and it sits alongside, not instead of, the separate late-filing fee under Section 234E if the TDS return itself is filed late.
- Enter the TDS amount, ₹ — the tax already deducted but not yet deposited with the government.
- Set Interest rate per month, % to 1.5 for late deposit of TDS already deducted, or 1 for late deduction in the first place.
- Enter Months (or part-months) delayed — count every calendar month the delay touches, since even one day over rounds up to a full month.
- Read Interest owed, ₹ — the amount due under Section 201(1A), separate from any late-filing fee on the TDS return.
Worked example — three months late on a ₹50,000 deduction
A deductor withheld ₹50,000 of TDS from a contractor's invoice but deposited it with the government three months after the due date. At the standard late-deposit rate of 1.5% a month, the arithmetic is straightforward: 50,000 × (1.5 ÷ 100) × 3 = ₹2,250 in interest, payable on top of the ₹50,000 itself before the TDS return can be filed.
The month count is the part that trips people up. If the deposit had landed even one day into that third month rather than exactly on the boundary, the Act still bills the full three months — there is no partial credit for near-misses. Had the same delay instead been a late deduction rather than a late deposit, the lower 1% rate would apply, cutting the charge to ₹1,500 on identical numbers.
Questions
Why is the rate 1.5% and not 1%?
The Act separates two different failures. Deducting tax late draws 1% a month, running from when it should have been deducted to when it was. Depositing already-deducted tax late draws 1.5% a month, running from deduction to actual payment. On ₹50,000 delayed three months, that split alone is the difference between ₹1,500 and ₹2,250 in interest — check which failure applies before picking a rate.
Does one day late really cost a full month's interest?
Yes. Interest is billed by calendar month or part of a month, never by days elapsed, so a deposit made a single day after the deadline is already charged for a full month. Depositing a day early avoids that entire extra month's charge, which is why the due date functions as a hard cutoff rather than a rough target.
Who actually owes and pays this interest?
The deductor — the business, employer, or individual who withheld the tax — not the person the income belonged to. A company running payroll, a tenant paying rent above the TDS threshold, or a buyer withholding tax on a property purchase each calculate and deposit this interest themselves, ahead of filing the TDS return.
Is this the only charge for a late TDS deposit?
No. This interest under Section 201(1A) is separate from the late-filing fee under Section 234E, which charges ₹200 for every day the TDS return itself arrives late, and from further penalties a tax officer can separately impose. The interest compensates for the delay; the filing fee punishes a late return regardless of whether the tax was ever paid.
Does the interest compound across months?
No — it is simple interest, recalculated on the original TDS amount for each month or part-month of delay, not on a growing balance. Doubling the TDS amount doubles the interest at an unchanged rate and delay: ₹100,000 delayed three months at 1.5% owes ₹4,500, exactly twice the ₹2,250 owed on ₹50,000, and extra months add the same way.
References
- Income Tax Department, India — Income-tax Act, 1961
- Income Tax Department, India — official e-Filing portal
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.