TDS Interest Calculator
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How it is calculated
Late deduction of TDS attracts 1% per month; late deposit attracts 1.5% per month under Section 201(1A) from the date of deduction to deposit. Late filing of the TDS return attracts a fee of ₹200 per day under Section 234E, capped at the TDS amount. A penalty under Section 271H may also apply.
Two rates, and the higher one applies to money you already held
Section 201(1A) prescribes two different rates for two different failures, and the difference is deliberate. Interest of one per cent a month runs from the date tax should have been deducted until the date it actually was — a failure to deduct on time. Interest of one and a half per cent a month runs from the date of deduction until the date of deposit — a failure to pay over money you had already collected. The second rate is higher precisely because the funds were in your hands and belonged to the government. Anyone quoting a single figure for TDS interest is usually describing only the first. The distinction also determines where remediation should start: if the deduction was made but not deposited, the exposure is growing at the higher rate and depositing immediately is the most valuable thing you can do today.
Part of a month counts as a whole month
Interest here is computed on calendar months rather than on days, and any part of a month is counted in full. A deposit made one day after a month boundary attracts the same interest as one made thirty days late, which makes the practical advice unusually blunt: if you have realised a deposit is overdue, making it today rather than at the start of next month can save a full month's interest on the entire amount. The same convention applies across sections 234A, 234B, 234C and to interest under GST section 50, which is why estimates that pro-rate by days consistently understate what the department will actually compute. It also means there is no benefit in waiting a few days to consolidate several payments — each month boundary crossed adds a full month's charge to everything outstanding.
The real cost is disallowance, not the interest
Interest is the visible penalty, and it is usually the smaller one. Where tax has not been deducted or, having been deducted, has not been deposited by the prescribed time, a portion of the corresponding expense is disallowed when computing your business income — generally thirty per cent for payments to residents, and the whole amount for many payments to non-residents. That raises taxable profit by far more than the interest saved by not deducting. The disallowance reverses in the year the tax is eventually paid, so it is a timing cost rather than a permanent one, but the cash flow damage lands first and lands in the year under assessment. This is the reason TDS compliance deserves attention disproportionate to the amounts involved: a small failure to deduct on a large expense produces a disallowance measured against the expense, not against the tax.
Late return filing is a separate charge again
Depositing the tax does not discharge the obligation. The quarterly TDS return — 24Q for salary, 26Q for most other resident payments — carries a fee of ₹200 per day under section 234E if filed late, capped at the amount of tax deducted. That fee is not interest, is not discretionary, and is not waived for reasonable cause. Beyond the fee, there is a further consequence that affects someone else: until the return is filed with correct PANs, your payee cannot see the credit in their Form 26AS and therefore cannot claim it in their own return. That turns your compliance failure into their tax problem, and it is the most common reason a deductee finds TDS missing from 26AS. A separate penalty provision applies for prolonged failure or for furnishing incorrect information in the statement.
Get the deduction date right in the first place
Most interest exposure arises not from deliberate delay but from misreading when the obligation arose. For most payments the trigger is credit to the account of the payee or actual payment, whichever is earlier — which means an amount merely booked as a payable at year end can attract a deduction obligation even though no money has moved. Provision entries made at the close of the year are a frequent source of this. Salary under section 192 works differently, being deducted at the time of payment on an estimate of the annual liability spread across the year. Different sections carry different thresholds below which no deduction is required, and those are assessed against the aggregate for the year rather than a single payment. Establishing the correct trigger date and threshold before the payment is made is what avoids the charge entirely.
Correcting a return, and what a lower deduction certificate does
Two mechanisms are worth knowing. Where a TDS return has been filed with an error — a wrong PAN, a wrong amount, a challan mismatch — a correction statement can be filed, and until it is, the deductee cannot see or claim the credit. Since only the deductor can do this, a payee who finds TDS missing from their 26AS has to pursue the deductor rather than fixing anything themselves. Separately, a payee whose actual liability is lower than the prescribed rate of deduction can apply under section 197 for a certificate authorising deduction at a lower rate or none at all, and the deductor is then obliged to follow it. This is routinely useful for non-residents selling property, where deduction would otherwise be on the whole consideration rather than the gain, and for anyone whose income is below the taxable threshold.
Individuals become deductors more often than they expect
TDS is not confined to businesses. An individual buying immovable property above a prescribed value must deduct under section 194-IA and deposit it. An individual paying rent above a prescribed monthly amount must deduct under section 194-IB. Payments above a threshold to a contractor or professional can attract section 194M. None of these require a TAN, which is precisely why people do not realise the obligation exists. Where the seller or landlord is a non-resident the position is materially stricter, section 195 applies, the rates are higher, and in a property sale deduction is on the entire consideration unless a lower deduction certificate has been obtained. In all of these the liability for failure sits with the payer, along with interest and the possibility of penalty — so establish the position before the first payment rather than after.
Frequently asked questions
Why are there two different TDS interest rates?
Because they cover different failures. One per cent a month applies from when tax should have been deducted until it was, and one and a half per cent from deduction until deposit — higher, because you were holding money that belonged to the government. If tax was deducted but not deposited, the exposure grows at the higher rate.
What happens to my payee if I file the TDS return late?
Until the return is filed with correct PANs, they cannot see the credit in their Form 26AS and cannot claim it — so your delay becomes their problem. A fee of Rs 200 per day applies under section 234E, capped at the tax deducted, and it is not waived for reasonable cause.
What is the interest on late TDS payment?
1% per month for late deduction and 1.5% per month for late deposit under Section 201(1A), calculated for each month or part month of delay.
What is the 234E late fee?
A late-filing fee of ₹200 per day for filing the TDS return after the due date, capped at the total TDS amount.
Is this tax advice?
No. Confirm the exact interest and any penalty with a CA before paying.
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India Law Simplified is an AI-assisted tool, not a substitute for a licensed CA or advocate. Tax rules and limits change with each Finance Act — verify before relying on any figure.