Interest on Late Payment of TDS- Rates, Due Dates, Penalties & Best Examples 2025

Interest on Late Payment of TDS as per income-tax act 1961 is quickly get expensive by paying an interest if you late deduct at source (TDS). So, as per 1961 Income-tax act; levies interest under section 201(1A) for two kinds of delays: The first one is not deducting TDS on time and the second one is deducting but depositing it late.

Out of that there are late-filling fees and possible penalties for TDS returns. In this article we are going to discuss the current interest rates, how to calculate it, key due dates information as well as how to avoid penalties in current year 2025-26.

What is the Interest on Late Payment of TDS?

As per the Income-tax act; under section 201(1A)-

1% per month or part of a month: for delay in deduction of TDS, which is counted from the date tax was deductible to the date it is actually deducted.

1.5% per month or part of a month: for delay in deposit, which is counted from the date tax is deducted to the date it is actually paid to the Central Government.

So, these both are simple interest rates and these are computed for every month or part thereof. If you are delay even a 1-day in a month counts as a full month for calculation of interest.

TDS Deposit Due Dates you must know (FY 2025-26)

As per the current year for the non-government deductors, the standard due date of the deposit TDS is 7th of the following month, expect for march. Where the due date is 30th April, for the Government deductors who have separate same-day/book entry rules and 7th via challan.

Here are some common examples-

• TDS deducted in April 2025 then, deposit by 7th May, 2025.
• TDS deducted in March 2026, then deposit by 30th April, 2026.

Note: You have to keep your eyes on public holidays as per RBI, if the 7th May falls a public holiday then you have to use net banking to deposit or pay earlier then the holiday to avoid interest.

Late Filing Fee & Penalty on TDS returns (Interest on Late Payment of TDS)

Even if you paid TDS with interest, late or incorrect TDS returns then according to section 234E and 271H you have to pay late filling fee and penalty.

Late Filing Fee (Section 234E): Rs.200 per day of delay, which capped at the TDS/TCS amount payable before filing the delayed return.

Penalty (Section 271H): Rs.10,000 to Rs.1,00,000 for late filling or incorrect filling. You may get relief if tax, interest and fees are paid and the correct statement is filed within 1 year of the due date.

How to Calculate Interest on Late TDS: Step-by-step

There are three steps of the calculation of the Interest on late TDS.

Step 1 Identify the default type:

• In the 1st case, you should have deducted TDS earlier but didn’t – 1% p.m. from the date deductible to date actually deducted.
• In the 2nd case, you deducted TDS but paid late- 1.5% p.m. from the date deducted to date actually deposited.

If these both apply then, compute both of components separately and added them.

Step 2 Counts Months or Parts thereof:

In that, any part of particular month counts as a full month. For compliance systems, the department and TRACES generally interpret “Month” as a calendar Month only. So, even 1 day late in a month becomes a full month of interest.

Step 3 Apply rate on the TDS Amount:

In that, you can use simple interest;

TDS x Rate x No. of months.

Now we are going to take en example and understand the formula of it.

Example 1: Late Deduction and Late Deposit (Interest on Late Payment of TDS)

First of all you were required to deduct Rs.50,000 TDS on 10th May 2025, but you forget and actually deducted on 25th June 2025 and after that deposited on 5th July 2025.

• Delay in deduction (1%): 10th May to 25th June means 2 months; Rs.50,000 x 1% x 2= Rs.1,000.
• Delay in deposit (1.5%): 25th June to 5th July means 2 months; Rs.50,000 x 1.5% x 2= Rs.1,500.
• Total Interest Payable: Rs.2,500.

Example 2: Only Late Deposit (Interest on Late Payment of TDS)

• In the 2nd example; TDS of Rs.12,000 deducted on 31st Jan, 2026; which is deposited on 10th Feb, 2026 while the due date was 7th Feb, 2026.
• Delay in deposit runs 31st Jan to 10th Feb which means jan+feb= 2 months at 1.5%. the calculation is: Rs.12,000 x 1.5% x 2= Rs.360.

Tips to Stay compliant and Avoid Interest (Interest on Late Payment of TDS)

• Automate cut-offs: For the automate cut-offs, close vendor payrolls and contractor invoices 3-4 days before month end so deduction dates are clear.
• Pay online Early: In online payment you don’t need to wait for the 7th, you can pay by the 5th or before that to avoid banking delays.
• File returns on time: Q1 31st July, Q2 31st Oct, Q3 31st Jan, Q4 31st May to avoid 234E and 271H.
• Reconcile 26AS/AIS/TRACES monthly: If spot mismatches early; correct challans through OLTAS/TRACES.
• Maintain Proofs: Keep your challans (CIN), payment proofs and deduction workings ready for scrutinity.

Interest on Late Payment of TDS – Conclusion

Interest on Late Payment of TDS is timely deduction and deposit of TDS is not just a formality but it may directly impacts your cash flow, credibility, and peace of mind. As per the latest rules, any delay attracts interest at 1% or 1.5% per month, along with late filing fee under section 234E and even penalties under section 271H. Since even a single day counts as a full month, the cost of negligence can escalate quickly.

FAQs for Interest on Late Payment of TDS